Form 10-12G Western Magnesium Corp.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

WESTERN MAGNESIUM CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		61-1934413
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

 

900 - 580 Hornby Street

Vancouver, BC, Canada, V6C 3B6

(Address of principal executive offices and zip code)

 

(604) 423-2709

(Registrant’s telephone number, including area code)

 

Securities to be registered pursuant to Section 12(b) of the Act:

None

 

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

(Title of class)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

TABLE OF CONTENTS

 

	Page
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY	1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS	1
RISK FACTOR SUMMARY	2
CAUTIONARY NOTE REGARDING MINERALIZED MATERIAL	3
ITEM 1. BUSINESS	3
ITEM 1A. RISK FACTORS	7
ITEM 2. FINANCIAL INFORMATION	17
ITEM 3. PROPERTIES	35
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	36
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS	37
ITEM 6. EXECUTIVE COMPENSATION	43
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE	53
ITEM 8. LEGAL PROCEEDINGS	55
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	57
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES	60
ITEM 11. DESCRIPTION OF THE REGISTRANT’S SECURITIES TO BE REGISTERED	64
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS	67
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	68
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE	68
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS	69
EXHIBIT INDEX	71

 

 

Implications of Being an Emerging Growth Company

 

As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act.” As an emerging growth company, we may take advantage of specified reduced disclosure and other exemptions from requirements that are otherwise applicable to public companies that are not emerging growth companies. These provisions include:

 

	●	Reduced disclosure about our executive compensation arrangements;
	●	Exemptions from non-binding shareholder advisory votes on executive compensation or golden parachute arrangements; and
	●	Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large-accelerated filer under the rules of the Securities and Exchange Commission (the “SEC”) or if we issue more than $1.0 billion of non-convertible debt over a three-year period. We have elected to take advantage of the extended transition period allowed for emerging growth companies for complying with new or revised accounting guidance as allowed by Section 107 of the JOBS Act and Section 7(a)(2)(B) of the Securities Act.

 

You should rely only on the information contained in this registration statement on Form 10 or to which we have referred you. We have not authorized anyone to provide you with information that is different. You should assume that the information contained herein is accurate as of the date of this registration statement on Form 10 only.

 

This registration statement will become effective automatically 60 days from the date of the original filing (the “Effective Date”), pursuant to Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of the Effective Date, we will become subject to the reporting requirements of Section 13(a) under the Exchange Act and will be required to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.

 

Use of Names

 

In this registration statement, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company” or “Western Magnesium” refer to Western Magnesium Corporation together with its wholly owned subsidiaries.

 

Currency

 

Unless otherwise indicated, all references to “$” or “US$” in this registration statement refer to United States dollars, and all references to “CAD$” refer to Canadian dollars.

 

Disclosure Regarding Forward-Looking Statements

 

This registration statement contains statements that we believe are, or may be considered to be, “forward-looking statements.” All statements other than statements of historical fact included in this registration statement regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plan,” “forecast,” “continue” or “could” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These include, but are not limited, to the risks described under the heading “Risk Factor Summary” and in Item 1A—“Risk Factors” in this registration statement. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this registration statement, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this registration statement.

 

 

Risk Factor Summary

 

Investing in our securities involves risks. You should carefully consider the risks described in Item 1A—“Risk Factors” beginning on page 7 before deciding to invest in our securities. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. In such case, the trading price of our securities would likely decline, and you may lose all or part of your investment. Set forth below is a summary of some of the principal risks we face:

 

	●	Our losses and inability to provide assurance as to when or if we will become profitable and generate cash in our operating activities.
	●	Our need for substantial additional financing to operate our business and difficulties we may face acquiring additional financing on terms acceptable to us or at all.
	●	Our significant indebtedness and significant restrictions on our operations.
	●	Our inability to implement our plans to construct and operate our planned a magnesium research and development pilot plant and obtain necessary permits and authorizations to construct and operate the facility.
	●	Risks related to health, safety and environmental laws, regulations and other requirements in Canada and the U.S. that may expose us to substantial claims, costs, and liabilities.
	●	The impact of global climate change on our ability to conduct future operations.
	●	Our lack of a diversified portfolio of assets.
	●	Risks related to our information technology systems, and potential cyber-attacks and security and privacy breaches.
	●	Risks related to our insurance coverage and uninsurable risks.
	●	Our dependence on key inputs, suppliers and skilled labor for the production of magnesium.
	●	Our inability to attract and retain key personnel.
	●	Growth-related risks, including capacity constraints and pressure on our internal systems and controls.
	●	The adverse consequences of litigation we are currently involved in and litigation we may face from time to time.
	●	Risk related to the protection of our intellectual and our exposure to infringement or misappropriation claims by third parties.
	●	Risks related to competition.
	●	Risks related to our lack of internal controls over financial reporting and their effectiveness.

 

 

	●	Risks related to elimination of monetary liability against our directors, officers, and employees under Delaware law and the existence of indemnification rights for our obligations to our directors, officers, and employees.
	●	Difficulty in enforcing judgments and effecting service of process on directors and officers that are not citizens of the United States.
	●	The lack of a guarantee on a return on our common stock.
	●	The dilutive effect of additional issuances of our common stock, or securities convertible into our common stock\.
	●	The adverse effect on the market price of our common stock related to sales of substantial amounts of our common stock or shares issuable upon conversion of our Convertible Debt.
	●	The volatility of the market price for our common stock.
	●	Our ability to raise further working capital as a result of a decline in the price of our common stock could affect and our ability to continue operations.
	●	Our stock price and trading volume could decline if securities or industry analysts do not publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable research about us, our business or our market.
	●	An investor may face liquidity risks with an investment in our common stock.
	●	Risks related to a lack of dividend payments by us on our common stock and, consequently, the ability of investors to achieve a return on their investment.
	●	Our increased costs as a result of being a public company in Canada and the United States.

 

Cautionary Note Regarding Mineralized Material

 

“Mineralized material” as used in this Registration Statement on Form 10, although permissible under the United States Securities and Exchange Commission’s (“SEC”) Industry Guide 7, does not indicate “reserves” by SEC standards. We cannot be certain that any mineralized materials will ever be converted into SEC Industry Guide 7-compliant “reserves.” Investors are cautioned not to assume that all or any part of the disclosed mineralized material estimates will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.

 

ITEM 1. BUSINESS

 

Background

 

We are a reporting issuer in Canada listed for trading on the TSX Venture Exchange (the “TSXV”) under the symbol “WMG.” Our common stock is also traded in the United States on the OTCQB tier of the OTC Markets (the “OTCQB”) under the symbol “MLYF.”

 

We have developed proprietary magnesium production technology with the aim of becoming a premier low-cost producer of green primary magnesium metal. We are in the final stages of construction and commencing test production of magnesium at a research and development pilot plant in metropolitan Vancouver, British Columbia, Canada. We expect to commence test production at this facility by the end of 2021. Our proprietary technology utilizes a continuous silicothermic process that is expected to produce high grade magnesium with low labor and energy costs while generating minimal waste and toxic by-products.

 

In addition, we own a 100% interest in 81 unpatented lode mining claims totaling approximately 1,673 acres (the “Tami Mosi Mining Claim”), four unpatented lode mining claims totaling approximately 10 acres located in the Moor Mining District in Elco County, Nevada and a 100% interest in three patented mining claims located in the Pinto mining district of Nevada totaling approximately 296 acres (the “Silverado Mining Claim”). We do not plan on commencing extraction of minerals at this time from any mining claims we hold. In addition, we do not consider our mining claims to be material to our business or financial condition. See Item 3—“Properties.”

 

 

Corporate History

 

We were incorporated under the Company Act (British Columbia) on March 24, 1966 as “Ft. Lauderdale Resources Inc.” We changed our name to Amcorp Industries Inc. on July 20, 1990, to Molycor Gold Corporation on May 17, 1996, to Nevada Clean Magnesium Inc. on April 16, 2012 and to Western Magnesium Corporation on May 14, 2019. On May 14, 2019, we discontinued from the jurisdiction of the Business Corporations Act (British Columbia) and domesticated under the General Corporation Law of the State of Delaware under the name “Western Magnesium Corporation (WMC).” In connection with the name change, we also changed our stock symbol to “WMG” on the TSX Venture Exchange. The Company has two wholly-owned subsidiaries: Western Magnesium Corp., incorporated in the State of Nevada in the United States which owns our mining claim in the Schell Creek Range located southeast of Ely, Nevada; and Western Magnesium Canada Corp., incorporated on May 3, 2019 in British Columbia, Canada which manages our Canadian operations.

 

The address of our Canadian office and principal place of business is Suite 900, 580 Hornby Street, Vancouver, British Columbia, Canada, V6C 3B6. Our U.S. office is located at Suite 249, 3733 Howard Hughes Parkway, Las Vegas, Nevada, United States, 89169. Our research and development pilot plant will be located at Unit 102, 5140 North Fraser Way, Burnaby, British Columbia, Canada, V5J 0J4.

 

General Development of Our Business

 

In 2006, we acquired the Silverado Mining Claim. During the year ended October 31, 2013, an impairment was recorded on this claim for $412,793 reducing its book value to $1.

 

In 2009, we acquired 27 mining claims totaling approximately 1,744 acres on property located southeast of Beaverdell, British Columbia (the “Beaverdell Mining Claim”). During the year ended October 31, 2013, an impairment was recorded on this claim for $335,133 reducing its book value to $1. During the year ended October 31, 2020, we sold our interest in the Beaverdell Mining Claim for $50,000 and recognized a gain on sale of $37,156.

 

On October 9, 2006, we acquired the Tami Mosi Mining Claims. On May 1, 2009, an Initial Resource Estimate was completed by Norm Tribe & Associates, Ltd. On June 11, 2010, a Phase 1 Process Development Study for Exploitation of the Tami Mosi Mining Claims was completed by Haze Research, Inc. On August 3, 2011, an updated resource estimate was completed by Tetra Tech, Inc. (“Tetra Tech”), on September 15, 2011 a Preliminary Economic Assessment and Technical Report of the Tami-Mosi Magnesium Project was completed by Tetra Tech and amended on July 4, 2014.

 

On April 4, 2017, we completed construction of a bench scale test furnace that employed our proprietary continuous silicothermic process and in October 2017, we successfully completed furnace preparations - a major milestone in the testing of our bench scale pilot furnace.

 

In November 2017, we completed “proof of concept” in the production of magnesium metal from our bench scale test furnace. The metal produced was a result from a partial test charge being conducted in order to identify any operational deficiencies in the furnace prior to a full charge test of dolime material.

 

In January 2018, we received a final assay report assessing the purity of the raw magnesium metal produced from our bench scale pilot furnace test program. In accordance with ASTM International standard ASTM E1479-16, the testing was analyzed via inductively coupled plasma (ICP). This unrefined magnesium metal was found to have a very good metal purity capable of producing ASTM B92 grade metal with minimal treatment. No impurities were found which would impact food grade applications.

 

In July 2018, we entered into an agreement with Industrial Surplus Ltd. (“ISL”) to build a silicothermic reduction furnace based on our bench scale test furnace.

 

 

In December 2018, our technical team produced a magnesium ingot from dolomite obtained from the Tami Mosi Mining Claims. This accomplishment completed the proof of concept stage allowing us to develop a pilot magnesium furnace based on the bench scale furnace.

 

Our Business

 

We have developed proprietary magnesium production technology with the aim of becoming a premier low-cost producer of green primary magnesium metal. We are in the final stages of construction and commencing test production at a research and development pilot plant in Metropolitan Vancouver, British Columbia, Canada. Our proprietary technology utilizes a continuous silicothermic process that is expected to produce high grade magnesium with low labor and energy costs while generating minimal toxic by-products.

 

Plan of Operations

 

In order to complete construction and commencing testing at our planned research and development pilot plant, the following are the key milestones that expect to achieve over the next 12 months following the date of this Form 10:

 

	●	Complete construction of the plant;
	●	Commission the plant and complete final training of operations staff;
	●	Commence metal production under various scenarios to ensure sufficient data is collected;
	●	Begin the request for proposal process for commercial engineering, procurement and construction management (“EPCM”) firm;
	●	Select EPCM firm;
	●	Review all pilot data with chosen EPCM firm and validate proposed required operational scenarios; and
	●	Begin geotechnical assessments of proposed full-scale magnesium production facility in Harrison County, Ohio.

 

We estimate that the costs to complete this work will be approximately $8,000,000. We expect to commence production in the pilot reactor by the end of 2021 with full pilot facility operations expected to commence in the first calendar quarter of 2022 after all safety testing is complete.

 

Following completion of our magnesium research and development pilot plant, we intend to construct a full-scale magnesium production facility with expected capacity to produce 100,000 metric tons per year that will be scalable for greater production levels located on 122 acre property located in Harrison County, Ohio. The proposed plant will be adjacent to the future home of a modern mixed fuels power plant which is expected to provide power to our planned magnesium production plant. The proposed Harrison County, Ohio location is close to a dolomite supply and has an infrastructure of rail and highway that is capable of transporting our magnesium finished product to industries across the United States. Our plans will require a significant amount of additional capital. See Item 2—“Financial Information – Liquidity and Capital Resources.” We have no current plans to extract minerals from any of our mining claims. See Item 3—“Properties.”

 

Magnesium and Its Production

 

Magnesium is the lightest of all commonly used structural metal, following steel and aluminum. It is the lightest and strongest of the structural metals, it is one fourth the weight of steel, two fifths the weight of titanium and two thirds the weight of aluminum. Magnesium has multiple industrial and consumer applications. Magnesium ingots are a prime raw material input for the production of titanium and aluminum alloys and magnesium alloys. Magnesium powder and granules are used to remove sulfur in the production of steel. Due to their unique light weight and high strength properties, magnesium alloys are used in a variety of aircraft and automobile parts, as well as in electronic equipment such as computers, cameras and cellular phones.

 

Most magnesium produced globally comes from natural minerals such as dolomite and magnesite in the form of magnesium carbonate. It can also be found in seawater and in salt lakes brines or underground mineral salt deposits. Magnesium can be produced through several different methods including the electrolytic process or thermal-reduction as practiced in the most commonly used Pidgeon process.

 

The electrolytic process involves the electrolysis of molten magnesium chloride which produces molten magnesium and chlorine. The metal is cast into ingots for further processing as needed and the chlorine by product may be sold for use in the production of polymers such as polyvinyl chloride pipe (PVC).

 

In the thermal-reduction method calcined magnesium containing ores (magnesite and dolomite) are broken down into fine powder and mixed with reducing agents and catalyst agent. The mixture is heated in a vacuum chamber producing magnesium vapors which later condense into crystals. The crystals are then melted, refined and poured into ingots for further processing.

 

The Pidgeon process, using ferrosilicon as s catalyst, is most commonly used for production of magnesium as its operation is relatively easy and has a low capital cost. The traditional process using horizontal retorts is high in energy consumption and has low productivity.

 

Dependence on Customers, Principal Products or Services

 

Since we have not commenced production of magnesium and have no revenues, we are currently not dependent on any customers. In addition, we do not anticipate producing any significant quantities of magnesium until we launch a full scale production facility following the launch and testing of our magnesium research and development pilot facility.

 

 

Competitive Conditions and Our Position

 

Magnesium production is highly competitive and is dominated by several large producers in China, the United States, Israel, Brazil, Russia, Kazakhstan and Turkey. Once we commence magnesium, we will compete with existing producers that may have greater resources, access to public equity markets, more experienced management or may be more mature as a business. Production costs associated with the energy needed to fuel the magnesium refinery and raw material costs are a significant challenge facing all producers. We believe that the more energy efficient proprietary silicothermic magnesium production technology we are developing will enable us to be competitive with other magnesium producers who use the less energy efficient electrolytic process or thermal-reduction as practiced in the most commonly used Pidgeon process that consumes significantly greater resources. Further, we believe we face competition from manufacturers of other products, such as aluminum alloys, steel, titanium, plastics, composites, ceramics, and glass, among others. Product quality, price and availability are important differentiating factors. See Item 1A—“Risk Factors.” We expect to face significant competition, which may have an adverse effect on expected revenues.”

 

Sources and Availability of Materials

 

As discussed above, we are currently in the final stages of developing a research and development pilot magnesium production facility and consequently have no current need to obtain dolomite and ferrosilicon, the primary raw materials used to produce pure magnesium. The production of magnesium products is dependent, however, on a number of key inputs and their related costs, including raw materials and supplies related to production, as well as electricity and other local utilities. Dolomite and ferrosilicon are in abundant supply in Canada where are research and development pilot plant is being constructed and the United States where we intend to construct our full-scale production facility. Once we commence commercial production of magnesium, any significant interruption or negative change in the availability or economics of the supply chain for key inputs, such as the raw material cost of dolomite and ferrosilicon, could, however, materially impact our business, financial condition, results of operations or prospects. We intend to purchase dolomite and ferrosilicon on a purchase order basis from local suppliers at market prices based on our production requirements. In addition, we believe there will be adequate availability of electricity needed to power our magnesium furnace and operate our production facility. Consequently, our management believes that we will have access to a sufficient supply of the key inputs for the foreseeable future.

 

Intellectual Property—Patents, Trademarks

 

We regularly seek to protect our intellectual property rights in connection with our production process and methods. We rely on non-disclosure/confidentiality agreements and segregate development and engineering duties among certain members of our development team to protect our intellectual property rights. To the extent we describe or disclose our proprietary production techniques, we redact or request redaction of such information prior to public disclosure. Despite these measures, we may be unable to detect the unauthorized use of, or take appropriate steps to enforce our intellectual property rights. Effective trade secret protection may not be available in every country in which we offer or intend to produce magnesium or offer our products for sale to the same extent as in the United States. Failure to adequately protect our intellectual property could impair our ability to compete effectively. Further, enforcing our intellectual property rights could result in the expenditure of significant financial and managerial resources and may not prove successful. Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. See Item 1A—“Risk Factors” with respect to intellectual property.

 

We own the website domain www.westernmagnesium.com and www.westmagcorp.com and social media accounts across certain major platforms.

 

We do not have any patents or trademarks nor have we filed any patent or trademark applications in the United States or Canada.

 

Regulation of Magnesium Production and Mining, Environmental Compliance

 

Our pilot magnesium production facility that we are currently developing in Metropolitan Vancouver, British Columbia, Canada, will require local governmental approval before pilot operations can commence. We have applied for a business license, building permit, and all sub trade permits, which all have been tentatively approved. We expect final approval of the facility in the third calendar quarter of 2021. Once operational, we will be subject to compliance with various types of government laws and regulations which often provide discretion to government authorities and could be interpreted, applied, or modified in ways to make our operations or compliance activities more costly. These laws and regulations include those relating to health and safety (WorkSafe BC, ASME, OSHA) (including those promulgated in response to the ongoing COVID-19 pandemic), competition, data privacy and security and environmental compliance. For a discussion of the risks associated with certain applicable laws and regulations, see Part I Item 1A of this Form 10.

 

 

Once we commence pilot magnesium production in Canada and mining in the U.S., we will be subject to extensive provincial environmental laws and regulations, including those relating to the release or discharge of materials into the air, water and soil, waste management, pollution prevention measures, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to hazardous materials, and greenhouse gas emissions. Since our planned pilot magnesium production facility is not currently operational, we have not incurred any material costs for compliance with environmental laws.

 

We believe our planned operations in Canada and the holding of mining claims in the U.S. comply with the current environmental protection requirements. We are not subject to any admonition, penalty, investigations or inquiries imposed by the environmental regulators in Canada and the U.S., nor are we subject to any claims or legal proceedings to which we are named as a defendant for violation of any environmental laws and regulations.

 

Employees

 

As of October 4, 2021, we had 19 employees. We consider our relations with our employees to be good.

 

Available Information

 

Our website address is www.westernmagnesium.com. Through this website, our filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, will be accessible (free of charge) as soon as reasonably practicable after materials are electronically filed with or furnished to the SEC. The information provided on our website is not part of this registration statement.

 

You also may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

ITEM 1A. RISK FACTORS

 

The following are certain factors relating to our business. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or currently deemed immaterial by us, may also impair our operations. If any such risks actually occur, our shareholders could lose all or part of their investment and its business, financial condition, liquidity, results of operations and prospects could be materially adversely affected and its ability to implement its growth plans could be adversely affected. Our shareholders should evaluate carefully the following risk factors associated with the shares of common stock.

 

Risks Related to our Business and Operations

 

Although our financial statements have been prepared on a going concern basis, we must raise additional capital to fund our operations in order to continue as a going concern.

 

Dale Matheson Carr-Hilton Labonte LLP, our independent registered public accounting firm for the fiscal year ended October 31, 2020, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended October 31, 2011, indicating that we have not generated revenues since inception, have incurred losses in developing our business, anticipate further losses and we require additional funds to meet our obligations and the costs of our operations. These factors raise substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business. In addition, trading in our common stock is subject to the “Penny Stock” rules adopted by the SEC which regulate broker-dealer practices in connection with Penny Stocks quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices. Consequently, these factors could make it difficult for investors to sell their shares and cause them to suffer the loss of all or a substantial portion of their investment.

 

We anticipate that our principal sources of liquidity will only be sufficient to fund our activities over the next twelve months. In order to have sufficient cash to fund our operations after this time period, we will need to raise additional equity or debt capital in order to continue as a going concern and we cannot provide any assurance that we will be successful in doing so.

 

We incurred net losses in the nine months ended July 31, 2021 and fiscal years 2020 and 2019 with net cash used in operating activities and cannot provide assurance as to when or if we will become profitable and generate cash in our operating activities.

 

We incurred net losses of $4,672,605 and $4,967,886 and net cash used in operating activities of $3,270,534 and $3,191,722 for the fiscal years ended October 31, 2020 and 2019, respectively. In addition, we incurred net losses of $6,338,823 and $3,473,371 and net cash used in operating activities of $4,016,689 and $2,676,394 for the nine months ended July 31, 2021 and 2020, respectively. As of July 31, 2021, we had an aggregate accumulated deficit of $34,918,832. Such losses have historically required us to seek additional funding through the issuance of debt or equity securities. In addition, we have historically experienced and may prospectively experience fluctuations in our quarterly earnings due to the nature of our business. Our long-term success is dependent upon among other things, completion of an operational magnesium production facility and generating revenue from sales of magnesium to reduce our cash needs, and there is no assurance that we will be able to achieve sales of magnesium.

 

 

We anticipate requiring substantial additional financing to operate our business and we may face difficulties acquiring additional financing on terms acceptable to us or at all.

 

We will need additional capital in the approximate amount of $8,000,000 to complete the buildout of our planned research and development pilot magnesium production plant and ultimately a full scale production facility as well as sustain our operations and will need to seek further financing. If we fail to raise additional capital, as needed, our ability to implement these plans will be compromised. To date, our operations and production plant development have been funded from the proceeds of debt and equity financings. We expect to require substantial additional capital in the future primarily to fund working capital requirements of our business, including operational expenses, planned capital expenditures for our research and development pilot plant and ultimately a full scale production facility and debt service.

 

Even if we obtain financing for our near-term operations and capital expenditures, we expect that we will require additional capital thereafter. Our capital needs will depend on numerous factors including: (i) the costs and timing of completion of construction of a full scall magnesium production facility; (ii) achieving magnesium sales; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures.

 

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing shareholders will be reduced and our shareholders may experience significant dilution. In addition, new securities may contain rights, preferences, or privileges that are senior to those of existing securities. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity securities, market fluctuations in the price of our securities could limit our ability to obtain equity financing.

 

No assurance can be given that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.

 

We have significant indebtedness under our debt obligations, which also include significant restrictions on our operations.

 

The significant level of indebtedness represented by the Convertible Debenture could have important consequences to our shareholders due to the following potential factors: (i) difficulty in satisfying obligations and covenants with respect to indebtedness; (ii) limitations on the ability to obtain additional financing to fund future working capital, capital expenditures or other general corporate requirements and increased cost of any additional borrowing; (iii) a requirement to pay the full principal amount plus accrued interest upon maturity on December 10, 2022, thereby reducing the amount of cash available for working capital, capital expenditures, acquisitions and other general corporate purposes; and (iv) placing us at a disadvantage compared to our less leveraged competitors.

 

Our ability to repay the principal and accrued interest upon maturity, or to refinance, our indebtedness will depend on our stock price and our ability to raise additional equity and/or indebtedness and future cash flow, which is subject to our completion of a full scale magnesium production facility, future sales of magnesium, prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors, many of which are beyond our control.

 

The Convertible Debenture contains numerous restrictive covenants that limit our discretion with respect to certain business matters, including our ability to incur additional indebtedness, to create liens or other encumbrances, to sell additional securities and to merge or consolidate with another entity or to make certain restricted payments, including declaring or paying dividends or other distributions. Our failure to comply with our obligations under the Convertible Debenture could result in a default, which, if not waived, could permit acceleration of the Convertible Debenture. If the Convertible Debenture under the Convertible Debenture were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness.

 

The Convertible Debenture will need to be repaid, renewed, refinanced or converted no later than December 10, 2022. Although we believe that we can negotiate an extension or renewal of the Convertible Debenture or obtain replacement financing, if necessary, prior to the maturity of the Convertible Debenture, there can be no assurance that the maturity date under the Convertible Debenture will be extended or renewed or that future borrowings will be available to us, or available on acceptable terms, in an amount sufficient to meet our financing requirements at that time. If such an extension or renewal or future borrowings were not available, or not available on acceptable terms, in each case, as necessary at the applicable time, it would have a material adverse impact on our business and financial condition.

 

 

We may be subject to risks associated with increased liabilities and the ability to meet our debt obligations.

 

We have incurred substantial liabilities, in addition to the Convertible Debenture, to invest in the businesses of our subsidiaries. These liabilities have increased the risk of an investment in our common stock because the liabilities increase our need for capital to pay them. Our ability to pay our accounts payable and other liabilities and comply with the terms and conditions of our Convertible Debenture will depend upon our future performance and will be subject to financial, business and other factors affecting our business and operations, including general economic conditions. There are no assurances that we will be able to pay all of our liabilities as they become due. If we fail to implement our development plans, our financial condition and results of operations could be materially and adversely affected.

 

A fundamental part of our strategy is to construct and operate a research and development pilot magnesium production facility using a continuous silicothermic reactor system technology we have developed. Although we expect to commence production for the purposes of testing and certification by the end of 2021 and have raised $6,650,207 in fiscal 2021 and through the date of this registration statement, we will need additional financing to implement our development strategy to construct a full scale magnesium production facility. We may not have access to the funding required for this plan on acceptable terms. Our development plans may also suffer significant delays as a result of a variety of factors, such as legal and regulatory requirements, either of which could prevent us from completing our plans as currently expected. In addition, even if we can implement our strategy, development in the magnesium market, increased sales to various industries, including the automobile industry may not materialize to the extent we expect, or at all, resulting in unutilized magnesium production capacity. Any failure to successfully implement our business strategy, including for any of the above reasons, could materially and adversely affect our financial condition and results of operations. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

 

We may not be able to obtain necessary permits and authorizations.

 

We may not be able to obtain the necessary licenses, permits, certificates, or authorizations to operate our planned research and development pilot magnesium production facility in Metropolitan Vancouver, British Columbia, Canada and commence mining activities on our Tami Mosi mining claim, or may only be able to do so at great cost. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to magnesium production and mineral mining. Failure to comply with or to obtain the necessary licenses, permits, certificates, or authorizations could result in a delay in our ability to operate our planned research and development pilot magnesium production facility, which could have a material adverse effect on our business, financial condition or results of operations.

 

We are subject to a broad range of health, safety and environmental laws, regulations and other requirements in Canada and the U.S. that may expose us to substantial claims, costs, and liabilities.

 

Magnesium production and mining is subject to numerous complex and stringent federal, state, and local laws, regulations, policies, and other requirements, including those related to health, safety, environmental, and waste management and disposal matters, which may expose us to substantial claims, costs, and liabilities. We may be subject to fines, penalties and other damages, such as natural resource damages and the costs associated with the investigation and cleanup of soil, surface water, groundwater, and other media under laws such as CERCLA (commonly known as Superfund) or similar U.S. and foreign regulations. These laws, regulations, policies, and other requirements could change or be applied or interpreted in ways that could (i) require us to enjoin, curtail, development of our planned research and development pilot magnesium production facility and mining operations in Nevada, including the implementation of corrective measures, the installation of additional equipment, or the undertaking of other remedial actions, or (ii) subject us to enforcement risk or impose on or require us to incur additional capital expenditures, compliance or other costs, fines, or penalties, any of which could adversely affect our results of operations, cash flows and financial condition, and the trading price of our common stock.

 

Once we commence magnesium production at our planned research and development pilot facility in Canada, the costs of complying with such laws, regulations, policies and other requirements, including participation in assessments, remediation activities, and cleanups of sites, as well as internal voluntary programs, are expected to be significant for the foreseeable future.

 

In addition, because environmental laws, regulations, policies and other requirements are constantly evolving, we expect to incur costs to maintain compliance and such costs could increase materially and prove to be more limiting and costly than we anticipate. Evolving standards and expectations can result in increased litigation and/or increased costs, all of which can have a material and adverse effect on our business operations, expected revenues and cash flows. Future compliance with environmental, health and safety legislation and other regulatory requirements or expectations may prove to be more limiting and costly than we anticipate and may disrupt our plans for development of a magnesium production facility.

 

 

Global climate change is an international concern and could impact our ability to conduct future operations.

 

Global climate change is an international issue and receives an enormous amount of publicity. We would expect that the imposition of international treaties or federal, state or local laws or regulations pertaining to mandatory reductions in energy consumption or emissions of greenhouse gases could affect the feasibility of our magnesium production and increase our operating costs.

 

Additionally, legislation and increased regulation regarding climate change could impose significant costs on us and/or our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and/or other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such regulations. Given the political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance or ability to compete.

 

We will not have a highly diversified portfolio of assets.

 

We have invested in and plan to operate solely within the magnesium industry. Thus, an investment in our company will provide limited diversity as to asset type. Additionally, the assets to be held by us will be geographically concentrated as we intend to operate a single magnesium production facility in the United States. This lack of diversification could increase the risk associated with the revenue stream we expect to receive from the production and sale of magnesium and, as a result, could have a material adverse effect on our business, financial condition or results of operations.

 

We face risks related to our information technology systems, and potential cyber-attacks and security and privacy breaches.

 

Our use of technology is critical in our continued operations. We are susceptible to operational, financial and information security risks resulting from cyber-attacks and/or technological malfunctions. Successful cyber-attacks and/or technological malfunctions affecting us, or our service providers can result in, among other things, financial losses, the inability to operate our planned magnesium production facility, the unauthorized release of customer information or confidential information and reputational risk. We have not experienced any material losses to date relating to cybersecurity attacks, other information breaches or technological malfunctions. However, there can be no assurance that we will not incur such losses in the future. As cybersecurity threats continue to evolve, we may be required to use additional resources to continue to modify or enhance protective measures or to investigate security vulnerabilities.

 

We may store and collect personal information about future customers and will be responsible for protecting that information from privacy breaches that may occur through procedural or process failure, information technology malfunction or deliberate unauthorized intrusions. Any such theft or privacy breach would have a material adverse effect on our business, prospects, revenue, results of operation and financial condition. We are subject to laws, rules and regulations in the United States and other jurisdictions relating to the collection, processing, storage, transfer and use of personal data. Our ability to execute transactions and to possess and use personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require us to notify regulators and customers, employees and other individuals of a data security breach. Evolving compliance and operational requirements under the privacy laws, rules and regulations of jurisdictions in which we operate impose significant costs that are likely to increase over time. In addition, non-compliance could result in proceedings against us by governmental entities and/or significant fines, could negatively impact our reputation and may otherwise adversely impact our business, financial condition and operating results.

 

We face risks related to our insurance coverage and uninsurable risks.

 

Our business is subject to a number of risks and hazards generally, including adverse environmental conditions, accidents, fires, labor disputes and changes in the regulatory environment. Such occurrences could result in damage to assets, personal injury or death, environmental damage, delays in operations, monetary losses and possible legal liability.

 

 

Although we intend to continue to maintain insurance to protect against certain risks in such amounts as we consider to be reasonable, our insurance will not cover all the potential risks associated with our operations. We may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards encountered in our operations is not generally available on acceptable terms. We might also become subject to liability for pollution or other hazards which we may not be insured against or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material adverse effect upon our financial performance and results of operations.

 

We are dependent on key inputs, suppliers and skilled labor for the production of magnesium.

 

The production of magnesium is dependent on a number of key inputs and their related costs, including raw materials and supplies related to smelting operations, as well as electricity and other local utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs, such as dolomite, could materially impact our business, financial condition, results of operations or prospects. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source supplier was to go out of business, we might be unable to find a replacement for such source in a timely manner, or at all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to us in the future. Any inability to secure required supplies and services, or to do so on appropriate terms, could have a materially adverse impact on our business, prospects, revenue, results of operation and financial condition. We plan to purchase key inputs on a purchase order basis from suppliers at market prices based on its production requirements and anticipated demand. We believe that we will have access to a sufficient supply of the key inputs for the foreseeable future.

 

Our planned magnesium production operations are expected to consume considerable energy, which makes us vulnerable to rising energy costs. Accordingly, rising or volatile energy costs may adversely affect our business and our ability to operate profitably.

 

The ability to compete and grow will be dependent on us having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that we will be successful in maintaining our required supply of skilled labor, equipment, parts and components. This could have a material effect on our financial results.

 

Our inability to attract and retain key personnel could materially adversely affect our business.

 

Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management and key personnel. We compete with other companies both within and outside the magnesium industry to recruit and retain competent employees. If we cannot maintain qualified employees to meet the needs of our anticipated growth, our business and financial condition could be materially adversely affected.

 

We may be subject to growth-related risks.

 

We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to implement and improve our operational and financial systems and to expand, train and manage our employee base. Our inability to deal with this growth may have a material adverse effect on our business, prospects, revenue, results of operation and financial condition.

 

We are currently involved in litigation, and there may be additional litigation in which we will be involved in the future.

 

We are currently involved in litigation. An adverse decision in the litigation could have a material adverse effect on our business, financial condition or results of operations. Furthermore, even if we are successful in the litigation, we will likely incur substantial legal fees in asserting our claims against the respondents and in defending against the counterclaims and, thus, these legal fees could have a material adverse effect on our anticipated business, financial condition or results of operations.

 

We may become party to litigation from time to time in the ordinary course of business which could adversely affect our business. Should any litigation in which we become involved be determined against us such a decision could materially adversely affect our ability to continue operating and the market price for our common stock and could use significant resources.

 

 

Our intellectual property may be difficult to protect.

 

We rely upon certain proprietary intellectual property, including but not limited to proprietary processes as it relates to magnesium production. Our success will depend, in part, on our ability to maintain and enhance protection over our intellectual property, know-how and other proprietary information. We enter into confidentiality or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third-parties’ confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving party’s relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights. These confidentiality, inventions, and assignment agreements may be breached and may not effectively assign rights to proprietary information to us. In addition, our proprietary information could be independently discovered by competitors, in which case we may not be able to prevent the use of such proprietary information by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our proprietary information could be difficult, expensive, and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect such proprietary information. The failure to obtain or maintain meaningful intellectual property protection could adversely affect our ability to compete with other magnesium producers.

 

Our failure to adequately maintain and enhance protection over our proprietary information could have a material adverse effect on our business, financial condition or results of operations.

 

We may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to us, could subject us to significant liabilities and other costs.

 

Our success depends on our ability to use and develop new production technologies without infringing the intellectual property rights of third parties. We cannot assure that third parties will not assert intellectual property claims against us. If third parties assert copyright or patent infringement or violation of other intellectual property rights against us, we will be required to defend our self in litigation or administrative proceedings, which can be both costly and time consuming and may significantly divert the efforts and resources of management personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, require us to pay ongoing royalties or subject us to injunctions that may prohibit the development and operation of our planned magnesium production facility.

 

We expect to face significant competition, which may have an adverse effect on expected revenues.

 

We expect to compete with a variety of both U.S. and non-U.S. magnesium producers as well as with producers of other materials, such as aluminum alloy, steel, titanium, plastics, composites, ceramics, and glass, among others. Use of such materials could reduce the demand for magnesium products, which may reduce our expected revenues once we complete construction of our planned full scale magnesium production facility. Factors affecting our ability to compete include increased competition from overseas producers, our competitors’ pricing strategies, the introduction or advancement of new technologies and equipment by our competitors or our customers, changes in our customers’ strategy or material requirements, and our ability to achieve cost-efficiency of our planned facility. See Business—Competition.

 

We are subject to taxation both in Canada and the United States.

 

We are treated as a Canadian resident company (as defined in the Income Tax Act (Canada) (the “Tax Act”)) subject to Canadian income taxes. We are also treated as a U.S. corporation subject to U.S. federal income tax pursuant to Section 7874 of the Code and are subject to U.S. federal income tax on our worldwide income. As a result, we are subject to taxation both in Canada and the United States, which could have a material adverse effect on our financial condition and results of operations.

 

It is unlikely that we will pay any dividends on our common stock in the foreseeable future. However, dividends received by shareholders who are residents of Canada for purposes of the Tax Act will be subject to U.S. withholding tax. Any such dividends may not qualify for a reduced rate of withholding tax under the Canada-United States tax treaty. In addition, a foreign tax credit or a deduction in respect of foreign taxes may not be available.

 

 

Dividends received by U.S. shareholders will not be subject to U.S. withholding tax but will be subject to Canadian withholding tax. Dividends paid by us will be characterized as U.S. source income for purposes of the foreign tax credit rules under the Code. Accordingly, U.S. shareholders generally will not be able to claim a credit for any Canadian tax withheld unless, depending on the circumstances, they have an excess foreign tax credit limitation due to other foreign source income that is subject to a low or zero rate of foreign tax.

 

Dividends received by shareholders that are neither Canadian nor U.S. shareholders will be subject to U.S. withholding tax and will also be subject to Canadian withholding tax. These dividends may not qualify for a reduced rate of U.S. withholding tax under any income tax treaty otherwise applicable to our shareholders, subject to examination of the relevant treaty.

 

Because our common stock is treated as shares of a U.S. domestic corporation, the U.S. gift, estate and generation-skipping transfer tax rules generally apply to a non-U.S. shareholder of our common stock.

 

Each shareholder should seek tax advice, based on such shareholder’s particular circumstances, from an independent tax advisor.

 

Our internal controls over financial reporting may not be effective, and our independent auditors may not be able to certify as to their effectiveness, which could have a material and adverse effect on our business.

 

We are subject to various Canadian and U.S. reporting and other regulatory requirements. We have incurred and will continue to incur expenses and, to a lesser extent, diversion of our management’s time in our efforts to comply with Section 404 of the Sarbanes-Oxley Act and applicable Canadian securities laws regarding internal controls over financial reporting. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act and applicable Canadian securities laws, or the subsequent testing by our independent registered public accounting firm when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retrospective changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

 

The elimination of monetary liability against our directors, officers, and employees under Delaware law and the existence of indemnification rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees.

 

Our bylaws, as amended, contain a provision permitting us to eliminate the personal liability of our directors to us and our shareholders for damages incurred as a director or officer to the extent provided by Delaware law. We may also have contractual indemnification obligations under any future employment agreements with our officers or agreements entered into with our directors. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our shareholders.

 

There may be difficulty in enforcing judgments and effecting service of process on directors and officers that are not citizens of the United States.

 

Certain of our directors and officers reside outside of the United States and some or all of the assets of such persons are located outside of the United States. Therefore, it may not be possible for shareholders to collect or to enforce judgments or liabilities against them under U.S. securities laws. Moreover, it may not be possible for shareholders to effect service of process within the United States upon such persons.

 

 

Generally, original actions to enforce liabilities under U.S. federal securities laws may not be brought in a Canadian court. Such actions must be brought in a court in the United States with applicable jurisdiction. Persons obtaining judgments against us in United States courts, including judgments obtained under U.S. federal securities laws, will then be required to bring an application in a Canadian court to enforce such judgments in Canada.

 

Risks Related to our Securities

 

A return on our common stock is not guaranteed.

 

There is no guarantee that our common stock will earn any positive return in the short term or long term. A holding of our common stock is speculative and involves a high degree of risk and should be undertaken only by holders whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. A holding of our common stock is appropriate only for holders who have the capacity to absorb a loss of some or all of their holdings.

 

Additional issuances of our common stock, or securities convertible into our common stock, may result in dilution.

 

We may issue additional equity or convertible debt securities in the future, which may dilute our existing shareholder’s holdings. Our certificate of incorporation permits the issuance of 1,000,000,000 shares of common stock and our proposed Amended and Restated Certificate of Incorporation permits the issuance of 100,000,000 shares of undesignated preferred stock, and existing shareholders will have no pre-emptive rights in connection with such further issuances. Our board of directors has discretion to determine the price and the terms of further issuances, and such terms could include rights, preferences and privileges superior to those existing holders of our common stock. Moreover, additional shares of our common stock will be issued by us on the conversion of the Convertible Debenture in accordance with its terms. To the extent holders of our options or other convertible securities convert or exercise their securities and sell our common stock they receive, the trading price of our common stock may decrease due to the additional amount of common stock available in the market. Further, we may issue additional shares of our common stock in connection with strategic acquisitions. We cannot predict the size or nature of future issuances or the effect that future issuances and sales of our common stock (or securities convertible into our common stock) will have on the market price of our common stock. Issuances of a substantial number of additional shares of our common stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for our common stock. With any additional issuance of our common stock or preferred stock, investors will suffer dilution to their voting power and economic interest in our company.

 

Sales of substantial amounts of our common stock may have an adverse effect on their market price.

 

Sales of a substantial number of shares of our common stock in the public market could occur at any time either by existing holders of our common stock, by the holder of the Convertible Debenture that is convertible into our common stock and the holders of warrants that may be exercised to acquire our common stock. These sales, or the market perception that the holders of a large number of shares of our common stock, Convertible Debenture or warrants intend to sell shares of our common stock, could reduce the market price of our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of our securities.

 

The market price for our common stock may be volatile.

 

The market price for securities of early stage magnesium companies generally are likely to be volatile. In addition, the market price for our common stock has been and may be subject to wide fluctuations in response to numerous factors beyond our control, including, but not limited to:

 

	●	actual or anticipated fluctuations in our quarterly results of operations;
	●	recommendations by securities research analysts;
	●	changes in the economic performance or market valuations of companies in the industry in which we operate;
	●	addition or departure of our executive officers and other key personnel;

 

 

	●	registration of shares of our common stock issuable upon conversion of the Convertible Debenture or exercise of the Warrants;
	●	sales or perceived sales of additional shares of our common stock;
	●	operating and financial performance that varies from the expectations of management, securities analysts and investors;
	●	regulatory changes affecting our industry generally and our business and operations both domestically and abroad;
	●	announcements of developments and other material events by us or our competitors;
	●	fluctuations in the costs of vital production materials and energy;
	●	changes in global financial markets, global economies and general market conditions, such as interest rates and price volatility of competitive products;
	●	significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
	●	operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies; and
	●	news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.

 

Financial markets have at times historically experienced significant price and volume fluctuations that: (i) have particularly affected the market prices of equity securities of companies and (ii) have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of our common stock from time to time may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that may result in impairment losses to us. There can be no assurance that further fluctuations in price and volume of equity securities will not occur. If increased levels of volatility and market turmoil continue, our operations could be adversely impacted, and the trading price of our common stock may be materially adversely affected.

 

Our common stock is or may become subject to the “penny stock” rules of the sec and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. If our common stock is or becomes subject to the “penny stock” rules, it may be more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because all of our operations have been and will be financed through the sale of convertible debt and equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a material adverse effect on our business plan and operations, including our ability to commence production of magnesium at our research and development pilot plant and ultimately at a full scale production plant. If the price of our common stock declines, there can be no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our plans to develop a full scale magnesium production plant.

 

If securities or industry analysts do not publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable research about us, our business or our market, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If no or few securities or industry analysts cover us, the trading price and volume of our common stock would likely be negatively impacted. If one or more of the analysts who covers us downgrades our shares or publishes inaccurate or unfavorable research about our business, or provides more favorable relative recommendations about our competitors, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price or trading volume to decline.

 

 

An investor may face liquidity risks with an investment in our common stock.

 

Our common stock currently trades on the TSXV in Canada and is quoted on the OTCQB in the United States. We cannot predict at what prices our common stock will continue to trade, and there is no assurance that an active trading market will be sustained. Our common stock does not currently trade on any U.S. national securities exchange. In the event our common stock begins trading on any U.S. national securities exchange, we cannot predict at what prices it will trade and there is no assurance that an active trading market will develop or be sustained. There is a material liquidity risk associated with an investment in our common stock.

 

Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a U.S. national securities exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a U.S. national securities exchange like the Nasdaq or the NYSE. These factors may result in investors having difficulty reselling our common stock on the OTC Markets.

 

We do not intend to pay dividends on our common stock and, consequently, the ability of investors to achieve a return on their investment will depend on appreciation in the price of our common stock.

 

We have never declared or paid any cash dividend on our common stock and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings, if materialized, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which it was purchased.

 

General Risks

 

We may be negatively impacted by challenging global economic conditions.

 

Our business, financial condition, results of operations and cash flow may be negatively impacted by challenging global economic conditions.

 

A global economic slowdown would cause disruptions and extreme volatility in global financial markets, increased rates of default and bankruptcy and declining consumer and business confidence, including as a result of COVID-19, which can lead to decreased levels of consumer spending. These macroeconomic developments could negatively impact our business, which depends on the general economic environment and levels of consumer spending. As a result, we may not be able to attract customers once we begin magnesium production, or we may be forced to reduce the price of our products. We are unable to predict the likelihood of the occurrence, duration or severity of such disruptions in the credit and financial markets or adverse global economic conditions. Any general or market-specific economic downturn could have a material adverse effect on our business, financial condition, results of operations and cash flow.

 

We are subject to increased costs as a result of being a public company in Canada and the United States.

 

As a public company in Canada and the United States, we are subject to the reporting requirements, rules and regulations under the applicable Canadian and American securities laws and rules of stock exchanges on which our securities may be listed. There are increased costs associated with legal, accounting and other expenses related to such regulatory compliance. Securities legislation and the rules and policies of the TSXV require listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company’s legal and financial compliance costs. We may also elect to devote greater resources than we otherwise would have on communication and other activities typically considered important by publicly traded companies.

 

 

We are eligible to be treated as an “emerging growth company” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

 

We are an “emerging growth company.” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, (2) reduced disclosure obligations regarding executive compensation in this registration statement and periodic reports and proxy statements, and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of July 31, 2022, or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which case we would no longer be an emerging growth company as of the following October 31. Additionally, if we issue more than $1.0 billion in non-convertible debt during any three-year period before July 31, 2022, we would cease to be an emerging growth company immediately. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the stock price may be more volatile.

 

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected take advantage of the extended transition period allowed for emerging growth companies for complying with new or revised accounting guidance as allowed by Section 107 of the JOBS Act and Section 7(a)(2)(B) of the Securities Act.

 

ITEM 2. FINANCIAL INFORMATION

 

Selected Financial Data

 

The following table sets forth our selected consolidated and combined financial data for the periods, and as of the dates, indicated. The (i) consolidated statements of operations data for the years ended October 31, 2020 and 2019 and (ii) consolidated balance sheet data as of October 31, 2020 and 2019 have been derived from the audited consolidated financial statements of Western Magnesium and our subsidiaries, which are included elsewhere in this registration statement. The selected consolidated financial data for the nine months ended July 31, 2021 and 2020 has been derived from the interim unaudited condensed consolidated financial statements of Western Magnesium and our subsidiaries, which are included elsewhere in this registration statement.

 

The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the accompanying notes presented in Item 13 of this registration statement, and is presented as of July 31, 2021, unless otherwise indicated. Our Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and on a going-concern basis that contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business.

 

		Nine Months Ended								Years Ended
		July 31,								October 31,
		2021				2020				2020				2019
		$				$				$				$
Total Expenses			(5,407,717	)			(3,510,527	)			(4,714,740	)			(4,964,297	)
Other Income (Expense)			(931,106	)			37,156				42,138				(3,589	)
Net Loss			(6,338,823	)			(3,473,371	)			(4,672,605	)			(4,967,886	)
Loss Per Share			(0.02	)			(0.01	)			(0.01	)			(0.02	)
Total Assets			3,609,489				541,764				708,763				312,784
Current Liabilities			5,854,726				1,830,887				2,551,447				1,581,814
Long-Term Liabilities			189,763				–				237,218				–

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the accompanying notes presented in Item 13 of this registration statement. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Disclosure Regarding Forward-Looking Statements.” Item 1A—“Risk Factors” and elsewhere in this registration statement.

 

MD&A of Western Magnesium Corporation

 

This management discussion and analysis (“MD&A”) of the financial condition and results of operations of Western Magnesium Corporation (the “Company,” “Western Magnesium,” “our” or “we”) is for the nine months ended July 31, 2021 and 2020 and for the years ended October 31, 2020 and 2019. It is supplemental to, and should be read in conjunction with, our interim condensed consolidated financial statements for the nine months ended July 31, 2021 and 2020 and our consolidated financial statements for years ended October 31, 2020 and 2019 and the accompanying notes for each respective period. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Financial information presented in this MD&A is presented in United States dollars (“$” or “US$”), unless otherwise indicated.

 

The information about us provided in this MD&A, including information incorporated by reference, may contain “forward-looking statements” and certain “forward-looking information” as defined under applicable United States securities laws and Canadian securities laws. All statements, other than statements of historical fact, made by us that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words and includes, among others, information regarding: our ability to become profitable and generate cash in our operating activities; our need for substantial additional financing to operate our business and difficulties we may face acquiring additional financing on terms acceptable to us or at all; our significant indebtedness and significant restrictions on our operations; our ability to construct and operate our planned a magnesium research and development pilot plant and obtain necessary permits and authorizations to construct and operate the facility; the impact of global climate change on our ability to conduct future operations.; our lack of a diversified portfolio of assets; our dependence on key inputs, suppliers and skilled labor for the production of magnesium.; our ability to attract and retain key personnel; growth-related risks, including capacity constraints and pressure on our internal systems and controls; the adverse consequences of litigation we are currently involved in and litigation we may face from time to time; risk related to the protection of our intellectual and our exposure to infringement or misappropriation claims by third parties; risks related to competition; risks related to our lack of internal controls over financial reporting and their effectiveness; increased costs we are subject to as a result of being a public company in Canada and the United States; and other events or conditions that may occur in the future.

 

Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as at the date they are made and are based on information currently available and on the then current expectations of the party making the statement and assumptions concerning future events, which are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from that which was expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties described in Item 1A—“Risk Factors.”

 

Although we believe that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements, because no assurance can be given that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks described in Item 1A—“Risk Factors.”

 

Consequently, all forward-looking statements made in this MD&A and other documents, as applicable, are qualified by such cautionary statements, and there can be no assurance that the anticipated results or developments will actually be realized or, even if realized, that they will have the expected consequences to or effects on us. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we and/or persons acting on its behalf may issue. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under securities legislation.

 

 

Overview of the Business

 

We have developed proprietary magnesium production technology with the aim of becoming a premier low-cost producer of green primary magnesium metal. We are in the final stages of construction and commencing test production of magnesium at a research and development pilot plant in metropolitan Vancouver, British Columbia, Canada. We expect to commence test production at this facility by the end of 2021. Our proprietary technology utilizes a continuous silicothermic process that is expected to produce high grade magnesium with low labor and energy costs while generating minimal waste and toxic by-products.

 

In addition, we own a 100% interest in 81 unpatented lode mining claims totaling approximately 1,673 acres (the “Tami Mosi Mining Claim”), four unpatented lode mining claims totaling approximately 10 acres located in the Moor Mining District in Elco County, Nevada and a 100% interest in three patented mining claims located in the Pinto mining district of Nevada totaling approximately 296 acres (the “Silverado Mining Claim”). We do not plan on commencing extraction of minerals at this time from any mining claims we hold. In addition, we do not consider our mining claims to be material to our business or financial condition. See Item 3—“Properties.”

 

Selected Financial Information

 

The following is selected financial data derived from our consolidated financial statements for the nine months ended July 31, 2021 and 2020 and for the years ended October 31, 2020 and 2019.

 

The selected consolidated financial information set out below may not be indicative of our future performance:

 

		Nine Months Ended								Years Ended
		July 31,								October 31,
		2021				2020				2020				2019
		$				$				$				$
Total Expenses			(5,407,717	)			(3,510,527	)			(4,714,740	)			(4,964,297	)
Other Income (Expense)			(931,106	)			37,156				42,135				(3,589	)
Net Loss			(6,338,823	)			(3,473,371	)			(4,672,605	)			(4,967,886	)
Loss Per Share			(0.02	)			(0.01	)			(0.01	)			(0.02	)
Total Assets			3,609,489				541,764				708,763				312,784
Current Liabilities			5,854,726				1,830,887				2,551,447				1,581,814
Long-Term Liabilities			189,763				–				237,218				–

 

Nine months ended July 31, 2021 Compared to Nine months ended July 31, 2020

 

Overview

 

The Company reported a net loss of $6,338,823 for the nine months ended July 31, 2021 (“YTD 2021”), compared to $3,473,371 for the same period in the preceding year (“YTD 2020”). Comprehensive loss was $6,513,797 ($0.02 per common share) for YTD 2021, compared to $3,510,093 ($0.01 per common share) for YTD 2020. The significant increase of net loss and comprehensive loss of $2,865,452 and $3,003,704, respectively, was due primarily to a significant increase of $883,400 in salaries and benefits and of $427,105 in legal and professional fees compared to the same period in the preceding year. Other non-cash items contributing to these notable variances include (i) recognition of stock-based compensation of $1,057,013 with respect to the stock option grant in December 2020 rectified in June 2021, (ii) negative change in fair value of derivative liability of $790,197, and (iii) loss on recognition of debt host liability with respect to the June 2021 Convertible Debenture of $140,909.

 

Total Expenses

 

Total expenses were $5,407,717 for YTD 2021, as compared to $3,510,527 for YTD 2020. The increase of $1,897,190 in operating expenditures was due primarily to increased salaries and benefits and legal and professional expenses, as well as stock-based compensation. The variance was primarily comprised of:

 

Salaries and benefits (2021 – $2,176,185; 2020 – $1,292,785; Variance – $883,400)

 

The Company incurred salaries and benefits of $2,176,185 during YTD 2021, as compared to $1,292,785 during YTD 2020, representing a significant increase of $883,400 in expenses. This was due mainly to increased personnel headcount as the Company continued to ramp up its operations as it moves towards the buildout of its research and development pilot plant facility. As at July 31, 2021, the Company had 22 full-time employees including ten executives. While at July 31, 2020, the Company had 11 full-time employees including seven executives. Certain senior management members’ salaries were also adjusted during YTD 2021 to be in line with industry standards. Additionally in YTD 2021, the Company accrued a total of $303,550 and $105,037 in vacation payable and benefits payable, respectively, earned but not recorded from prior periods.

 

 

Stock-based compensation [2021 – $1,057,013; 2020 – $591,492; Variance – $465,521]

 

On December 30, 2020, the Company approved the grant of an aggregate 15,650,000 stock options to directors, officers, employees and consultants at a price of CA$0.13 per share, of which 9,500,000 were exercisable for a period of five years and 6,150,000 were exercisable for a period of two years. However, these options exceeded the maximum allowed under the Company’s stock option plan. On June 11, 2021, the Company received shareholders’ approval on the amendment to the Company’s stock option plan to increase the number of common shares reserved for issuance under such plan and rectified the grant of these options. Accordingly, the Company recognized stock-based compensation of $1,057,013 in Q3 2021. While for YTD 2020, the Company recognized $591,492 stock-based compensation for the 6,100,000 stock options granted. This resulted in a variance of $465,521 between the two reporting periods.

 

Legal and professional fees (2021 – $545,234; 2020 – $118,129; Variance – $427,105]

 

The Company recorded legal and professional fees of $545,234 during YTD 2021, as compared to $118,129 during YTD 2020. The significant increase of $427,105 in legal and professional fees was, similar to Q3 2021, attributable to litigations and disputes the Company entered into with Mr. James Sever, Mr. Frank Halliday, GEM Yield Bahamas Limited and GEM Global Yield LLC SC, respectively (see Contingent Liabilities below). In Q3 2021, the Company expensed $86,306 of legal and professional fees in relation to its June 2021 Convertible Debenture. In addition to the preparation for the Company’s registration with the US SEC as well as for future site plant selection purposes, legal and professional fees were also spent on other general and corporate objectives during YTD 2021.

 

Travel expenses (2021 – $218,222; 2020 – $86,570; Variance – $131,652)

 

Travel expenses were $218,222 for YTD 2021 and $86,570 for YTD 2020, representing an increase of $131,652 in travel related expenditures compared to the same period in the preceding year. As economies began to reopen and recover from the COVID-19 pandemic, the Company continued to ramp up its operations and travelling activities for financing and site plant selection purposes.

 

Facilities and rent (2021 – $153,910; 2020 – $36,329; Variance – $117,581)

 

The Company recorded facilities and rent of $153,910 during YTD 2021, as compared to $36,329 in YTD 2020, this represents an increase of $117,581 in expenses. The Company entered into a new operating lease with respect to its pilot plant located in Burnaby, British Columbia effective October 2020, and started to incur facilities related expenses and operating costs since then, hence, a much lower spending during the first nine months ended July 31, 2020.

 

Depreciation (2021 – $159,774; 2020 – $57,544; Variance – $102,230)

 

In YTD 2021, the Company recorded $159,773 in depreciation expenses, of which $137,419 were in relation to its right-of-use assets and $22,355 were in relation to property, plant and equipment purchased. While in YTD 2020, the Company recorded $57,544 in depreciation expenses, of which $41,744 were right-of-use assets related and $15,800 were property, plant and equipment related. The increase of $102,230 in depreciation expenses was due primarily to the new right-of-use assets recognized in association with its new pilot plant leased in October 2020.

 

Other Items

 

Total other items for the nine months ended July 31, 2021 and 2020 were $(931,106) and $37,156, respectively. The increase of $968,262 in other items was due primarily to a debt host liability and an embedded derivative liability related to its convertible debentures. The variance was primarily comprised of:

 

Change in fair value of derivative liability [2021 – ($790,197); 2020 – $Nil; Variance – ($790,197)]

 

As mentioned above, the Company’s convertible debentures were determined to be hybrid financial instruments comprised of a debt host liability and an embedded derivative liability. The debt host liability of the convertible note will be amortized at cost, with the embedded derivative liability measured at fair value through profit and loss at the end of each reporting period. For YTD 2021, the Company recognized a non-cash gain of $16,054, and a non-cash loss of $101,172 and $705,079 on re-measurement of its July 2020 Convertible Debenture, April 2021 Convertible Debenture and June 2021 Convertible Debenture, respectively. This resulted in an aggregate non-cash loss of $790,197 for YTD 2021, compared to $Nil in YTD 2020.

 

Loss on recognition of debt host liability [2021 – ($140,909); 2020 – $Nil; Variance – ($140,909)]

 

On issuance date of the June 2021 Convertible Debenture, its embedded derivative liability was valued at $1,646,600 which exceeded the face value of the note itself of $1,500,000, the fair value of the debt host liability was then determined to be $1, with an immediate loss of $146,601 on recognition of the debt host liability in YTD 2021, partly offset by foreign exchange effect of $5,692.

 

Net Loss

 

As a result of the foregoing, net loss for the nine months ended July 31, 2021 and 2020 was $6,338,823 and $3,473,371, respectively.

 

 

Year Ended October 31, 2020 Compared to Year Ended October 31, 2019

 

Total Expenses

 

Total expenses were $4,714,740 for the twelve months ended October 31, 2020 (“Fiscal 2020”), as compared to $4,964,297 for the preceding year ended October 31, 2019 (“Fiscal 2019”). The decrease of $249,557 in operating expenditures was due primarily to decreased stock-based compensation, legal and professional fees, and shareholder communications expenses. These were partly offset by increased expenses in salaries and benefits, due diligence, and investor relations. The variance was primarily comprised of:

 

Stock-based compensation (2020 – $666,259; 2019 – $1,155,454; Variance – ($489,195))

 

During Fiscal 2020, the Company recorded stock-based compensation of $666,259 upon the grant of 6,700,000 stock options to directors, officers, employees and consultants. During Fiscal 2019, the Company recorded higher share-based compensation as it granted 19,650,000 stock options to its directors, officers, employees and consultants. The resulting variance was $489,195.

 

Legal and professional (2020 – $138,916; 2019 – $544,605; Variance – ($405,689))

 

The Company incurred legal and professional fees of $138,916 in Fiscal 2020, as compared to $544,605 in Fiscal 2019, resulting in savings of $405,689. The higher expenses in Fiscal 2019 was a result of the re-domestication of the parent company in Delaware, United States.

 

Shareholder communications (2020 – $54,554; 2019 – $390,198; Variance – ($335,644))

 

The Company incurred shareholder communications expenses of $54,554 in Fiscal 2020, as compared to $390,198 in Fiscal 2019, with savings of $335,644. The higher expenses in Fiscal 2019 was due primarily to the implementation of a shareholder outreach program preceded the re-domestication of the parent company in Delaware, United States.

 

Salaries and benefits (2020 – $1,797,783; 2019 – $1,348,937; Variance – $448,846)

 

The Company incurred salaries and benefits of $1,797,78 in Fiscal 2020, as compared to $1,348,937 in Fiscal 2019, with an increase of $448,846 in expenses. During Fiscal 2020, the Company had seven executives under five-year contracts, of which 2 contracts were terminated during the year, and seven employees. Notably, the Company added a Vice President of Operations, who has a depth of knowledge and expertise beneficial to the Company as it moved forward to the next phase of the pilot plant buildout. The Company also added two metallurgical specialists and a corporate secretary positions during the period.

 

Due diligence expenses (2020 – $594,921; 2019 – $388,065; Variance – $206,316)

 

Since Fiscal 2019, the Company had been exploring the opportunity of acquiring a potential smelter site to become a center for magnesium metal production. In Fiscal 2020, the Company continued its due diligence activities in furtherance of a possible acquisition. Other due diligence costs pertained to the Company’s planned pilot plant and planned testing for commercialization of its technology.

 

Investor relations (2020 – $237,874; 2019 – $130,290; Variance – $107,584)

 

In Fiscal 2020, the Company implemented a shareholders’ awareness program and hired an investor relations team to increase the Company’s name recognition and to grow shareholders’ value. During Fiscal 2020, the investor relations team spent considerable time with existing investors to facilitate the exercise of 40,336,661 common share purchase warrants for gross proceeds of $2,313,284. In addition, the team worked with existing and new shareholders in the completion of a non-brokered private placement of 3,643,791 units that raised gross proceeds of $416,719.

 

Consultant and management (2020 – $598,574; 2019 – $509,461; Variance – $89,113)

 

Consulting and management fees were $598,574 in Fiscal 2020, as compared to $509,461 in Fiscal 2019. The increase of $89,113 was a result of the Company ramping up its operations, including the lead up to the buildout of its magnesium pilot plant. During Fiscal 2020, the Company announced that it had contracted an international engineering firm to assist in the design and procurement of the magnesium pilot plant. Key activities, such as process design, flowsheet development, process modeling, and mechanical design were well under way with the goal of producing magnesium metal as soon as practicable.

 

 

Depreciation (2020 – $86,706; 2019 – $7,727; Variance – $78,979)

 

In Fiscal 2020, the Company recorded $86,706 in depreciation expenses, of which $65,835 were in relation to its right-of-use assets and $20,871 were in relation to property, plant and equipment purchased. While in Fiscal 2019, the Company recorded $7,727 in depreciation expenses in relation to its property, plant and equipment. The increase of $78,979 in depreciation expenses was due primarily to the new right-of-use assets recognized in association with its leased office spaces as well as increased capital expenditures as the Company ramped up its operations in Fiscal 2020.

 

Other Items

 

Total other gain was $42,135 for the twelve months ended October 31, 2020, and total other loss was $3,589 for the twelve months ended October 31, 2019. In Fiscal 2020, the Company recognized a gain on the change in fair value of its derivative liability of $4,979 and a gain on the sale of its exploration and evaluation assets previously written off of $37,156. In Fiscal 2019, the Company wrote off equipment of $3,589. These resulted in a variance of $45,724 between the two fiscal periods.

 

Net Loss

 

As a result of the foregoing, net loss for the twelve months ended October 31, 2020 and 2019 was $4,672,605 and $4,967,886, respectively.

 

Drivers of Results of Operations

 

Total Expenses

 

Total expenses consist of general and administrative, engineering expenses, due diligence expenses, stock-based compensation and depreciation.

 

General and administrative expenses include salaries and benefits, consulting, management, legal and professional fees, investor relations, shareholder communications, travel, facilities and rent, computer system and software, and office and other general and administrative expenses. Engineering expenses are in relation to the design and procurement of the magnesium pilot plant facility and the magnesium furnace reactor, as well as the commercialization of the our technology. Due diligence expenses pertain to those incurred in the potential acquisition of a smelter site for magnesium metal production.

 

Stock-based compensation on stock options issued to directors, officers and employees is measured at the fair value on the date of grant and expensed over the vesting period. For stock options issued to consultants, the fair value is periodically re-measured until the counterparty performance is complete.

 

Depreciation includes recognition of depreciation of property, plant and equipment and right-of-use assets over their depreciable lives.

 

Working Capital

 

The calculation of Working Capital provides additional information and is not defined under GAAP. We define Working Capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP. This information is intended to provide investors with information about our liquidity.

 

Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

 

Liquidity and Capital Resources

 

As of July 31, 2021, October 31, 2020 and October 31, 2019, we had total current liabilities of $5,854,726, $2,551,448 and $1,581,814, respectively, and current assets of $1,301,352, $159,259 and $133,520, respectively, to meet our current obligations. As of July 31, 2021, we had working capital deficiency of $4,553,374, a decrease of working capital of $2,161,185 as compared to October 31, 2020, driven primarily by a significant increase in derivative liabilities and accounts payable. As of October 31, 2020 and October 31, 2019, we had working capital deficiency of $2,392,189 and $1,448,294, respectively, a decrease of working capital of $943,895 also driven mainly by a significant increase in accounts payable and accrued liabilities and due to related parties amounts

 

 

We have a history of operating losses. We have not yet achieved profitable operations and expect to incur further losses. We have funded our operations primarily from equity and debt financing. As of July 31, 2021, cash generated from financing activities was not sufficient to fund operations and, in particular, to fund our growth strategy in the short-term or long-term. As a result, we raised additional funds from equity and debt financing transactions in 2020 and 2021 as discussed below under “Recent Financing Transactions.” The primary need for liquidity is to fund working capital requirements of the business, including operational expenses, develop and construct our planned research and development pilot magnesium production facility and the capital expenditures associated with that project. The primary source of liquidity has primarily been private financing transactions. The ability to fund operations, to make planned capital expenditures, to execute on the development and operation of our planned research and development pilot facility, to develop a full-scale commercial magnesium production facility and to make scheduled debt and rent payments and to repay or refinance indebtedness depends on our ability to raise funds from debt and/or equity financing which is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms.

 

As of July 31, 2021, there have not had any meaningful impact or disruptions to our operations as a result of the COVID-19 pandemic. We continue to assess the impact of COVID-19 on an ongoing basis.

 

Recent Financing Transactions

 

During the year ended October 31, 2019, we received an unsecured loan of CAD$150,000 (USD equivalent $112,898) from a director and officer. The loan bears interest at 18% and is due on demand. During the year ended October 31, 2020, the loan was increased by an additional CAD$60,000 (USD equivalent $44,588) to CAD$210,000 (USD equivalent $157,483) and is due on September 24, 2021. As of July 31, 2021, we repaid the entire balance including interest accrued in the amount of CAD$26,724 (USD equivalent $19,944).

 

On December 20, 2019, we exercised our right and called all outstanding common share purchase warrants set to expire between May 7, 2020 and May 13, 2021 to expiry on January 19, 2020, and then extended the expiration date to February 19, 2020. Any unexercised warrants were voided and of no value after February 19, 2020. In all, a total of 40,336,661 warrants were exercised for gross proceeds of CAD$3,050,668 (USD equivalent $2,313,284).

 

On January 17, 2020, we completed a non-brokered private placement consisting of 3,643,791 units at a price of CAD$0.15 per unit for gross proceeds of CAD$546,569 (USD equivalent $416,719). Each unit consists of one share of our common stock and one common share purchase warrant exercisable at a price of CAD$0.21 per share for a period of one year from the date of issuance. Subsequent to October 31, 2020, we extended the expiration date of the warrants to August 31, 2021. The common share purchase warrants were subject to an expiry acceleration provision, upon thirty days’ written notice, should the price of our common stock exceed CAD$0.30 for at least ten consecutive trading days. Finder’s fees of $41,275 were paid in connection with this offering.

 

On July 27, 2020, we closed a non-brokered private placement of an unsecured convertible note in the principal amount of CAD$150,000 (USD equivalent $112,124, the “July 2020 Convertible Note”). The note bears interest at 12% per annum, and any accrued but unpaid interest, matures on the date that is one year following the closing date. Each July 2020 Convertible Note may be convertible into our common stock at the prevailing market price and any accrued but unpaid interest thereon will be convertible into our common stock at a price which is the greater of (i) CAD$0.15 or (ii) the Market Price (as defined in the policies of the TSX-V) on the date of a conversion notice. No finder’s fees were paid in connection with this offering.

 

On September 10, 2020, we announced a non-brokered private placement of up to 53,846,154 units priced at CAD$0.13 (USD$ 0.0988) per unit (the “Unit”) for an aggregate offering of up to CAD$7,000,000 (USD$ 5,318,600) (the “September 2020 Private Placement”). Each Unit is comprised of one share of our common stock and one common share purchase warrant exercisable at CAD$0.19 (USD$0.144) per share for a period of one year from the date of issuance. On November 20, 2020, we closed the first tranche of the September 2020 Private Placement of 5,599,171 Units for gross proceeds of CAD$727,892 (USD equivalent $556,876). On January 15, 2021, we closed the second tranche of the September 2020 Private Placement consisting of 7,400,214 Units for gross proceeds of CAD$962,029 (USD equivalent $755,798). On January 29, 2021, we closed the third tranche of the September 2020 Private Placement consisting of 5,382,303 Units for gross proceeds of CAD$699,699 (USD equivalent $547,496). On March 24, 2021, we closed the fourth tranche of this offering and issued 6,554,172 Units for gross proceeds of CAD$852,042 (USD equivalent $678,270). On April 27, 2021, we closed the fifth and final tranche of this offering and issued 851,395 Units for gross proceeds of CAD$110,681 (USD equivalent $89,237). We closed an aggregate 25,787,255 Units for aggregate gross proceeds of CAD$3,352,343 (USD equivalent $2,627,677) and incurred aggregate share issue costs of $194,044 in connection to this offering.

 

 

On March 12, 2021, we issued a total of 100,000 common shares on the exercise of stock options at a price of CAD$0.05 per share for gross proceeds of CAD$5,000 (USD equivalent $4,002).

 

On April 22, 2021, we received advance subscription on a non-brokered private placement of an unsecured convertible note in the principal amount of CAD$100,000 (USD equivalent $80,000, the “April 2021 Convertible Debenture”). The note bears interest at 12% per annum and is due on the date that is one year following the closing date. The note is convertible into common shares of the Company at the price of CAD$0.12 per share and will have warrants exercisable for a price of CAD$0.20 for a period of two years. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares. No finder’s fees were paid in connection with this offering. The Company received final approval of the TSX-V on July 15, 2021.

 

On April 26, 2021, we issued a total of 400,000 common shares on the exercise of common share purchase warrants at a price of CAD$0.05 per share for gross proceeds of CAD$20,000 (USD equivalent $16,113).

 

On May 5, 2021, we announced a non-brokered private placement priced at CAD$0.13 per unit (the “Unit”) to raise gross proceeds of up to CAD$3,000,000 (the “May 2021 Private Placement”). Each Unit in this offering consists of one share of our common stock and one common share purchase warrant exercisable at a price of CAD$0.19 per share for a period of one year from the date of issuance. On May 28, 2021, we closed the first tranche of the May 2021 Private Placement issuing 5,223,420 Units for gross proceeds of CAD$679,044 (USD equivalent $561,843). On June 17, 2021, we closed the second and final tranche of this offering consisting of 17,853,506 Units for gross proceeds of CAD$2,320,956 (USD equivalent $1,880,687). We closed at the maximum offering and issued an aggregate 23,076,926 Units for aggregate gross proceeds of CAD$3,000,000 (USD equivalent $2,442,530). We incurred aggregate share issue costs of $154,977 in connection with this offering. Proceeds from this offering are for general working capital use and for completion of our planned research and development pilot plant.

 

On May 18, 2021, we issued 1,360,959 common shares on the conversion of the July 2020 Convertible Debenture including accrued interest. The Company incurred $26,286 in transaction costs.

 

On June 7, 2021, we received final approval from the TSX-V for an agreement with Industrial Surplus Supplies Ltd. (“ISL”), pursuant to which ISL will build a prototype internally heated testing lab furnace for the testing of a magnesium production process. In consideration of the services provided, we issued 1,538,461 common shares at a price of CAD$0.13 per share with a total fair value of CAD$200,000 (USD equivalent $165,658).

 

On June 10, 2021, we issued a total of 200,000 common shares on the exercise of stock options at a price of CAD$0.05 per share for gross proceeds of CAD$10,000 (USD equivalent $8,269).

 

On June 15, 2021, we closed a non-brokered private placement of an unsecured convertible note in the principal amount of $1,500,000 (the “June 2021 Convertible Debenture”). The June 2021 Convertible Debenture bears interest at 12% per annum and matures on December 10, 2022. The June 2021 Convertible Debenture is convertible into 15,000,000 units, where each unit consists of (i) one share of our common stock, (ii) one-half of one Class A common stock purchase warrant, with each whole warrant being exercisable at a price of $0.13 until June 10, 2026, and (iii) one-half of one Class B common stock purchase warrant, with each whole warrant being exercisable at a price of $0.19 until June 10, 2026 (collectively, the “Class A and B Warrants”). In addition, the conversion price for accrued interest is the greater of (i) $0.10 and (ii) the minimum conversion price permitted by the TSX Venture Exchange at the time of conversion (should our common stock then be listed on such exchange).

 

Under the terms of the June 10, 2021 Securities Purchase Agreement we entered into as part of the offering of the June 2021 Convertible Debenture (the “Securities Purchase Agreement”), we agreed to use commercially reasonable efforts to file a registration statement with the Securities and Exchange Commission by August 14, 2021, covering the public resale of the shares of common stock underlying such debenture and, upon its conversion, the Class A and Class B Warrants issuable upon such conversion (the “Underlying Shares”), and to use our best efforts to cause the registration statement to be declared effective on October 13, 2021. In addition, we agreed to provide the holder to the June 2021 Convertible Debenture certain piggy-back registration rights if we do not have an effective registration statement covering the Underlying Shares and we propose to file any registration statement under the Securities Act with respect to our common stock. We will pay all costs associated with the registration statements, other than underwriting commissions and discounts.

 

 

In addition to certain covenants contained in the Securities Purchase Agreement, the terms of the Convertible Debenture contain certain negative covenants by us, including:

 

	●	other than certain permitted indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of our property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
	●	other than certain permitted liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of our property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
	●	amend our charter documents, including, without limitation, our certificate of incorporation and bylaws, in any manner that materially adversely affects any rights of the Convertible Debenture Holder (notwithstanding the foregoing, we are entitled to proceed with the amendments to the charter documents as set out in our proxy materials for our shareholder meeting to be held in 2021);
	●	repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of our common stock or common stock equivalents other than as to the Underlying Shares;
	●	redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any of our indebtedness (other than the Convertible Debentures if on a pro-rata basis), whether by way of payment in respect of principal of (or premium, if any) or interest on, such indebtedness, in any case unless such indebtedness or interest is due and payable in accordance with the initial terms of such debt prior to any default thereunder;
	●	declare or make any dividend or other distribution of our assets or rights to acquire our assets to holders of shares of our common stock, preferred stock, or any other equity security by way of return of capital or otherwise including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction;
	●	sell or offer to sell any securities with non-fixed or floating price features, issue any common stock or common stock equivalents at a price lower than the conversion price herein then in effect, or issue any equity or debt instruments with anti-dilution provisions; or
	●	enter into any agreement with respect to any of the foregoing.

 

In the event we issue or sell any common stock or common stock equivalents with terms that the purchaser then holding outstanding June 2021 Convertible Debenture (the “Convertible Debenture Holder”) or the Class A and B Warrants reasonably believes are more favorable to such holder than are the terms of the June 2021 Convertible Debenture or the Class A and B Warrants (the “MFN Securities”), then upon notice to us by such holder within five trading days after notice to such holder by us, we will use commercially reasonable efforts to obtain the approval of the TSX Venture Exchange and any additional required regulatory approval to amend the terms of the June 2021 Convertible Debenture or the Class A and B Warrants as required, as the case may be, so as to give such holder the benefit of such more favorable terms or conditions. If we fail to obtain such regulatory approvals and the approval of the TSX Venture Exchange, then absent such approval we are forbidden to issue the MFN Securities.

 

The conversion price of the June 2021 Convertible Debenture is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.

 

 

In addition, if, at any time while the June 2021 Convertible Debenture is outstanding, we, directly or indirectly, effect any merger or consolidation of our company with or into another person or engage in a “Fundamental Transaction” as defined in the June 2021 Convertible Debenture, the Convertible Debenture Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of our Common Stock of the successor or acquiring corporation or us, if we are the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of our Common Stock for which the June 2021 Convertible Debenture is convertible immediately prior to such Fundamental Transaction. In addition, the Conversion Price will be subject to certain adjustments so that the economic value of such shares and such conversion price are protected and which is reasonably satisfactory in form and substance to the Convertible Debenture Holder. Alternatively, the Convertible Debenture Holder may demand that we redeem the June 2021 Convertible Debenture at a rate equal to 125% of the principal and interest due thereon, to be paid in full contemporaneously with consummation of the Fundamental Transaction.

 

We granted the investors certain rights of first refusal on our future offerings for so long as the June 2021 Convertible Debenture or the Class A and B Warrants are outstanding.

 

We may prepay and satisfy the June 2021 Convertible Debenture so long as an event of default has not occurred, upon 20 days’ prior written notice received by us to the holder, by paying 125% of the amounts owed on the June 2021 Convertible Debenture, including all principal, interest and other fees. The holder of this debenture may, however, convert all or a portion of the debenture during the 20 day notice period.

 

The June 2021 Convertible Debenture is not exercisable if the number of shares to be issued to the holder upon such exercise, together with all other shares then owned by the holder and our affiliates, would result in the holder beneficially owning more than 9.99% of our outstanding common stock. The holder may increase or decrease this ownership limitation to any percentage not exceeding 9.99% upon 61 days prior written notice to us.

 

Class A and Class B Warrants

 

Upon conversion of the June 2021 Convertible Debenture, we will issue the Class A and B Warrants. The holders may exercise the Class A and B Warrants on a cashless basis at any time that there is not an effective registration statement covering the underlying shares of common stock and the volume weighted average price of our common stock is greater than the exercise price at the time of exercise. The Class A and Class B Warrants are not exercisable, however, if the number of shares to be issued to the holder upon such exercise, together with all other shares then owned by the holder and our affiliates, would result in the holder beneficially owning more than 9.99% of our outstanding common stock. The holder may increase or decrease this ownership limitation to any percentage not exceeding 9.99% upon 61 days prior written notice to us.

 

The exercise price of the Class A and Class B Warrants is subject to proportional adjustment in the event of stock splits, recapitalizations and similar corporate events. In addition, the exercise price are each subject to adjustment if we issue or sell shares of our common stock for a consideration per share less than the exercise price then in effect, or issue options, warrants or other securities convertible or exchange for shares of our common stock at an exercise price less than the exercise price then in effect. If any of these events should occur, the exercise price each will be reduced to the lowest price at which these securities were issued or are exercisable.

 

In addition, if, at any time while the Class A and Class B Warrants are outstanding, we engage in a Fundamental Transaction, the exercise price thereof is subject to adjustment similar to the adjustment as provided for in the June 2021 Convertible Debenture. In addition, we may not enter into a Fundamental Transaction unless the holders of our common stock receive securities of an entity that is listed on a stock exchange in Canada or the United States, or cash, equal to the Black Scholes value of the remaining unexercised portion of the Class A and Class B Warrants on the date of the consummation of such Fundamental Transaction.

 

Debt Host Liability and Embedded Derivative Liability

 

The July 2020 Convertible Debenture, the April 2021 Convertible Debenture and the June 2021 Convertible Debenture were determined to be hybrid financial instruments comprised of a debt host liability and an embedded derivative liability, as under the conversion feature the number of shares that will or may be issued to settle the notes may vary. The Company uses the Black-Scholes Option Pricing Model and based on different default risks and assumptions. The debt host liability of the convertible note will be measured at amortized cost, with the embedded derivative liability measured at fair value through profit and loss.

 

On issuance date of the July 2020 Convertible Debenture, the fair value of its debt host liability was determined to be $87,083 and the respective embedded derivative liability was valued at $25,041.

 

On issuance date of the April 2021 Convertible Debenture, the fair value of its debt host liability was determined to be $52,640, and the respective embedded derivative liability was valued at $27,360.

 

On issuance date of the June 2021 Convertible Debenture, the embedded derivative liability was valued at $1,646,600 which exceeded the face value of the note itself of $1,500,000, the fair value of the debt host liability was then determined to be $1, with an immediate loss on recognition of the debt host liability.

 

On June 30, 2021, we issued 54,901 common shares on the exercise of common share purchase warrants at a price of CAD$0.05 per share for gross proceeds of CAD$2,745 (USD equivalent $2,215) and 20,000 common shares on the exercise of common share purchase warrants at a price of CAD$0.19 per share for gross proceeds of CAD$3,800 (USD equivalent $3,066).

 

On July 16, 2021, we closed a non-brokered private placement and issued 4,350,000 units at a price of CAD$0.20 per unit (the “Unit”) for gross proceeds of CAD$870,000 (USD equivalent $690,860, the “July 2021 Private Placement”). Each Unit in this offering consists of one share of our common stock and one common share purchase warrant exercisable at a price of CAD$0.30 per share for a period of one year from the date of issuance. We incurred aggregate share issue costs of $50,625 in connection with this offering. Proceeds from the share issuance are for general working capital use and for the Company’s research and development pilot plant use.

 

 

On July 19, 2021, we issued a total of 50,000 common shares on the exercise of common share purchase warrants at a price of CAD$0.19 per share for gross proceeds of CAD$9,500 (USD equivalent $7,446).

 

Subsequent to July 31, 2021, we issued 5,471,153 common shares on the exercise of common share purchase warrants at a price ranging from CAD$0.05 to CAD$0.21 per share for gross proceeds of CAD$890,491.

 

Subsequent to July 31, 2021, we issued a total of 1,790,000 common shares on the exercise of stock options at a price ranging from CAD$0.05 to CAD$0.16 per share for gross proceeds of CAD$112,800.

 

On August 11, 2021, we closed a non-brokered private placement and issued 3,827,601 units at a price of $0.44 per unit (the “Unit”) for gross proceeds of $1,684,144 (the “August 2021 Private Placement”). Each Unit in this offering consists of one share of our common stock and one common share purchase warrant exercisable at a price of $0.52 per share for a period of eighteen months from the date of issuance. Proceeds from the share issuance are for general working capital use and for the Company’s research and development pilot plant use.

 

Cash Flows

 

Cash Used in Operating Activities

 

Net cash used in operating activities for the nine months ended July 31, 2021 and July 31, 2020, and for the years ended October 31, 2020 and 2019, were as follows:

 

		Nine Months Ended								Years Ended
		July 31,								October 31,
		2021				2020				2020				2019
		$				$				$				$
Net Cash Used in Operating Activities			(4,016,689	)			(2,676,394	)			(3,270,534	)			(3,191,722	)

 

Cash Flow from Investing Activities

 

Net cash used in investing activities for the nine months ended July 31, 2021 and July 31, 2020, and for the years ended October 31, 2020 and 2019, were as follows:

 

		Nine Months Ended								Years Ended
		July 31,								October 31,
		2021				2020				2020				2019
		$				$				$				$
Net Cash Provided by (Used in) Investing Activities			(1,779,316	)			(12,807	)			18,985				(89,848	)

 

Cash Flow from Financing Activities

 

Net cash used in financing activities for the nine months ended July 31, 2021 and July 31, 2020, and for the years ended October 31, 2020 and 2019, were as follows:

 

		Nine Months Ended								Years Ended
		July 31,								October 31,
		2021				2020				2020				2019
		$				$				$				$
Net Cash Provided by Financing Activities			6,133,785				2,909,873				3,257,823				3,129,146

 

Off-Balance Sheet Arrangements

 

As of the date of this registration statement on Form 10, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

 

 

Contractual Obligations

 

As of July 31, 2021, we have the following obligations to make future payments, representing contracts and other commitments that are known and committed.

 

		Payments Due by Period
		Total				Less than 1 Year				1 – 3 Years				3 – 5 Years				More than 5 Years
		$				$				$				$				$
Lease obligations – premises			935,571				78,608				701,699				155,264				–
Lease obligations – machines			45,335				4,782				30,750				9,803				–
Debt and interest obligations			1,769,873				–				1,769,873				–				–
Total			2,750,779				83,390				2,502,322				165,067				–

 

Real Estate Option Agreement

 

Effective as of August 4, 2021, we entered into a Real Estate Option Agreement (the “Option”) with Harrison County Community Improvement Corporation, an unrelated party (the “Seller”), to purchase a parcel of land comprising approximately 122 acres in the Village of Cadiz, Harrison County, Ohio (the “Property”). We are entitled to exercise the Option at any time up until its expiration on August 3, 2023. The Option contains covenants, representations and warranties that are customary of real estate purchase and sale agreements including, but not limited to, completion of title work and a survey of the Property, an environmental audit, an engineering feasibility study of the Property, availability of certain utilities, obtaining permits, approval of the Option by our Board of Directors, our exercise of the Option and obtaining certain state and local economic incentives and tax abatements.

 

Transactions with Related Parties

 

Deposits held by related parties

 

Included in our current assets are the following amounts due from related parties:

 

As of July 31, 2021

As of October 31, 2020

As of October 31, 2019

$

$

$

Deposits held by a director and officer

500,678

–

–

Deposits held by an officer

147,031

–

–

Deposits held by related parties

647,709

–

–

 

Due to related parties

 

Included in our current liabilities are the following amounts due to related parties:

 

		As of July 31, 2021				As of October 31, 2020				As of October 31, 2019
		$				$				$
Wages payable to directors and officers			357,500				162,500				–
Benefits payable to directors and officers			365,718				–				–
Fees and expenses payable to related parties			92,294				681,490				639,492
Promissory Note due to a director and officer			–				60,567				102,014
Total due to related parties			815,512				904,557				741,506

 

Leases

 

We have entered into a sublease agreement with a company controlled by a director and officer for our Canadian office at Suite 900, 580 Hornby Street, Vancouver, British Columbia, Canada, V6C 3B6. The lease had a two-year term from April 1, 2021 to March 31, 2023 and required a monthly payment of CAD$9,794 for a total of CAD$235,056.

 

 

Changes in or Adoption of Accounting Practices

 

The following GAAP standards have been recently issued by the accounting standards board. We are assessing the impact of these new standards on future consolidated financial statements. We have elected to take advantage of the extended transition period allowed for emerging growth companies for complying with new or revised accounting guidance as allowed by Section 107 of the JOBS Act and Section 7(a)(2)(B) of the Securities Act. Pronouncements that are not applicable or where it has been determined do not have a significant impact on us have been excluded herein.

 

(i)

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which amended the FASB Accounting Standards Codification (“ASC”) by creating ASC 842 to replace ASC 840. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”) to provide entities with relief from the costs of implementing certain aspects of the new leasing standard. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements (“ASU 2019-01”), which clarifies certain items regarding lessor accounting. It also clarifies the interim disclosure requirements during transition. These updates are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.   Effective November 1, 2019, the Company adopted ASC 842 retrospectively using the modified retrospective approach with no restatement of prior year amounts. Reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on November 1, 2019. In the context of initial application, we used the following assumptions to evaluate the lease population:

 

	●	exercised the option not to apply the new recognition requirements to short-term leases and to leases of low-value assets; and
	●	made the election to not separate non-lease components from lease components and instead account for each lease component and any associated non-lease components as a single lease component.

 

ASC 842 applies to leases for the year ended October 31, 2020. Upon adoption, we recognized right-of-use assets and lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of ASC 840. These assets and liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of November 1, 2019. The weighted-average incremental borrowing rate for lease liabilities initially recognized as of November 1, 2019 was 7%.   There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. In applying ASC 842 for the first time, we applied the following practical expedients permitted by the standard:

 

	●	use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
	●	reliance on previous assessments of whether leases are onerous immediately before the date of initial application;
	●	application of the short-term leases exemption to leases with a remaining lease term of less than 12 months as at the date of initial application; and
	●	exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application.

 

The Company elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the previous determinations pursuant to ASC 840 of whether a contract is a lease have been maintained. Additionally, we elected to not apply hindsight in determining a lease term of the ROU assets at the adoption date.

 

 

Based on the foregoing, the impact of the change in accounting policy on November 1, 2019 is summarized below:

 

●

we recognized right-of-use assets of $83,549, and a lease liability of $83,549.

 

(ii)	In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of current expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”), which provides transition relief to entities adopting ASU 2016-13. As smaller reporting companies as defined by the SEC, these updates are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect of adoption of these updates on its financial statements.
(iii)	In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which simplifies the accounting for goodwill impairment. ASU 2017-04 requires entities to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 under the current impairment test). The standard eliminates Step 2 from the current goodwill impairment test, which included determining the implied fair value of goodwill and comparing it with the carrying amount of that goodwill. As smaller reporting companies as defined by the SEC, ASU 2017-04 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on its financial statements.
(iv)	In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07), which aligns the measurement and classification guidance for share-based payments to nonemployees with that for employees, with certain exceptions. ASU 2018-07 expands the scope of Topic 718 to include share-based payments granted to non-employees in exchange for goods or services used or consumed in the entity’s own operations and supersedes the guidance in Subtopic 505-50, Equity – Equity-Based Payments to Nonemployees. ASU 2018-07 retains the existing cost attribution guidance, which requires entities to recognize compensation cost for nonemployee awards in the same period and in the same manner (i.e. capitalize or expense) they would if they paid cash for the goods or services, but it moves the guidance to Topic 718. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Effective November 1, 2019, the Company adopted the new standard. There were no material impact or adjustment to its financial statements.
(v)	In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. Effective November 1, 2020, the Company adopted the new standard. There were no material impact or adjustment to its financial statements.
(vi)	In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on its financial statements.
(vii)	In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interactions of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on its financial statements.

 

 

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of our consolidated financial statements requires management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

 

Significant judgments, estimates and assumptions that have the most significant effect on the amounts recognized in the financial statements are described below.

 

Estimated Useful Lives of Property Plant and Equipment

 

Depreciation of property, plant and equipment is dependent upon estimates of useful lives which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that consider factors such as economic and market conditions and the useful lives of assets.

 

Estimated Useful Lives of and Amortization of Intangible Assets

 

Amortization of intangible assets is recorded over their estimated useful lives which do not exceed any contractual periods, if any. Intangible assets that have indefinite useful lives are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

 

Business Combinations

 

In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.

 

Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year from the acquisition date.

 

Goodwill Impairment

 

An annual test for goodwill impairment will be performed, and whenever events or circumstances make it more likely than not that an impairment may have occurred. Determining whether an impairment has occurred requires valuation using a discounted cash flow method. When available and as appropriate, comparative market multiples are used to corroborate discounted cash flow results based on several factors, including actual operating results, future business plans, economic projections and market data.

 

 

Consolidation

 

Judgment is applied in assessing whether we exercise control and have significant influence over entities in which we directly or indirectly own an interest. We have control when we have the power over the subsidiary, have exposure or rights to variable returns, and have the ability to use our power to affect the returns. Significant influence is defined as the power to participate in the financial and operating decisions of the subsidiaries. Where we are determined to have control, these entities are consolidated. Additionally, judgment is applied in determining the effective date on which control was obtained.

 

Stock-Based Payments

 

Valuation of stock-based compensation and warrants requires management to make estimates regarding the inputs for option pricing models, such as the expected life of the option, the volatility of our stock price, the vesting period of the option and the risk-free interest rate are used. Actual results could differ from those estimates. The estimates are considered for each new grant of stock options or warrants.

 

Leases

 

The Company uses the following policies to evaluate its leases:

 

Determining a lease: At contract inception, we review the facts and circumstances of the arrangement to determine if the contract is or contains a lease. The Company follows the guidance in ASU 2016-02, Leases (Topic 842), ASU 2018-11, Leases (Topic 842): Targeted Improvements, and ASU 2019-01, Leases (Topic 842): Codification Improvements to evaluate if:

 

	●	the contract has an identified asset;
	●	we have the right to obtain substantially all economic benefits from the asset; and
	●	we have the right to direct the use of the underlying asset.

 

When determining if a contract has an identified asset, we consider both explicit and implicit assets, and whether the vendor has the right to substitute the asset. When determining if we have the right to direct the use of an underlying asset, we consider if we have the right to direct how and for what purpose the asset is used throughout the period of use and if we control the decision-making rights over the asset.

 

Discount rate: At commencement, lease-related assets and liabilities are measured at the present value of future lease payments over the lease term using an incremental borrowing rate. As most of our leases do not provide an implicit rate, we exercise judgment in determining the incremental borrowing rate based on information available at the time the lease commences.

 

Rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses. We assess each contract individually and apply appropriate payments based on the terms of the agreement.

 

Renewal, purchase and termination options: Our lease terms may include options to extend or terminate the lease. We exercise judgment in determining the term of these leases when extension or termination options are present and include such options in the calculation of the lease terms when it is reasonably certain that we will exercise these options.

 

Recognizing leases: We do not recognize leases with a contractual term of less than 12 months or low value leases on our financial statements. Lease payments are expensed on a straight-line basis over the lease terms.

 

Residual value guarantees, restrictions or covenants: Our lease agreements do not contain residual value guarantees, restrictions or covenants.

 

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

 

Our financial instruments consist of cash and cash equivalents, amounts receivable, due from related parties, accounts payable and accrued liabilities, due to related parties, promissory note and convertible debenture.

 

The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of current financial instruments approximates their carrying values as long as they are short-term in nature or bear interest at market rates.

 

 

Financial instruments recorded at fair value are classified using a fair value hierarchy that prioritizes inputs used in determining the fair value and depending on the degree to which they are observable. The three levels of hierarchy are:

 

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2 — Inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and

 

Level 3 — Inputs for the asset or liability that are not based on observable market data.

 

As at July 31, 2021, October 31, 2020 and October 31, 2019, the fair value of cash and cash equivalents held by us was based on Level 1 inputs of the fair value hierarchy. There were no transfers between the levels during the reporting periods.

 

Financial Risk Management

 

The Company’s board of directors has the overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in response to the Company’s activities. Management regularly monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.

 

In the normal course of operations, the Company is exposed to various risks such as interest rate, foreign exchange, commodity, credit, and liquidity. To manage these risks, management determines what activities must be undertaken to minimize potential exposure to risks. The objectives of the Company in managing risks are as follows:

 

	●	Maintaining sound financial condition;
	●	Financing operations; and
	●	Ensuring liquidity to all operations.

 

In order to satisfy these objectives, the Company has adopted the following policies:

 

	●	Prepare budget documents at prevailing market rates to ensure clear corporate alignment to performance management and achievement of targets;
	●	Recognize and observe the extent of operating risk within the business; and
	●	Identify the magnitude of the impact of market risk factors on the overall risk of the business and take advantage of natural risk reductions that arise from these relationships.

 

There have been no changes in risks that have arisen or how the Company manages those risks during the nine months ended July 31, 2021 and 2020 and the years ended October 31, 2020 and 2019.

 

[i] Interest rate risk

 

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. The Company is exposed to interest rate risk on its cash on deposits with banks and, from time to time, on its holdings of short-term investments. As of July 31, 2021, October 31, 2020 and October 31, 2019, the Company had cash on deposits with banks of $383,243, $39,571 and $33,649, respectively. The Company had no short-term investment as at July 31, 2021, October 31 2020 and October 31, 2019. Given the level of cash and cash equivalents held by the Company, fluctuations in the market interest rates had no significant impact on its interest income during the nine months ended July 31, 2021 and 2020 and the years ended October 31, 2020 and 2019.

 

 

[ii] Foreign currency risk

 

The Company is exposed to foreign currency risk on fluctuations related to cash and cash equivalents, accounts payable and accrued liabilities, and due from/to related parties that are denominated in US dollars. The Company has not entered into foreign exchange derivative contracts. A significant change in the currency exchange rates between the Canadian dollar relative to the US dollar could have a material effect on the Company’s balance sheet, results of operations, or cash flows.

 

Based on the Company net exposures as at July 31, 2021, assuming that all other variables remain constant, a 5% appreciation or deterioration of the Canadian dollar against the US dollar would result in an increase or decrease of $211,863 in the Company’s net income (loss) and comprehensive income (loss).

 

[iii] Commodity price risk

 

The value of the Company’s magnesium production business and its exploration and evaluation assets are dependent on the price of magnesium and the outlook for this mineral. Market prices for these metals historically have fluctuated widely and are affected by numerous factors outside the Company’s control, including but not limited to, levels of worldwide production, short-term changes in supply and demand, industrial and retail demand, as well as certain other factors related specifically to magnesium. If magnesium prices decline for a prolonged period below the cost of production, it may not be economically feasible to continue towards production.

 

[iv] Credit risk

 

Credit risk is the risk of loss if counterparties do not fulfill their contractual obligations and arises principally from trade receivables. The Company’s credit risk is primarily attributable to cash and cash equivalents and amounts receivable. The Company limits its exposure to credit risk on cash and cash equivalents as these financial instruments are held with major banks in Canada and the United States. Amounts receivable consist primarily of goods and services tax due from the Federal Government of Canada and other subsidy receivable. Management believes the credit risk concentration with respect to amounts receivable is remote. The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents the Company’s maximum exposure to credit risk.

 

[v] Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company’s exposure to liquidity risk is dependent on its purchasing commitments and obligations and its ability to raise funds to meet commitments and sustain operations. The Company manages liquidity risk by continuously monitoring its actual and forecasted working capital requirements to ensure there is capital to meet short-term and long-term obligations. As of July 31, 2021, October 31, 2020 and October 31, 2019, we had working capital deficiency of $4,553,374, $2,392,189 and $1,448,294, respectively. As disclosed in note 1 of the Company’s financial statements, the ability of the Company to continue as a going concern is dependent on many factors. The Company’s cash is primarily deposited in bank accounts and held by certain related parties as advances to them. The Company anticipates that its cash on hand, together with expected funds raised from private placements and on exercise of warrants and options, as well as debt financing, will provide sufficient financial resources to carry out its operations through the current fiscal year. However, additional funding will be required. There can be no assurance that the Company will be able to raise the funds necessary to continue future operations. Liquidity risk has been assessed as high.

 

 

ITEM 3. PROPERTIES

 

The following tables set forth our principal physical properties as of July 31, 2021, unless otherwise indicated.

 

Corporate Properties
Type		Location		Leased / Owned
Office		580 Hornby Street, Suite 900, Vancouver, British Columbia, Canada		Leased
Office		3733 Howard Hughes Parkway, Suite 249, Las Vegas, Nevada		Leased
Office		8180 Greensboro Drive, Suite 720, McLean, Virginia		Leased(1)

 

(1) Lease executed on July 21, 2021 with a lease term commencing on September 14, 2021.

 

Production Properties
Type		Description/Location		Leased / Owned
Mining Claim		Tami Mosi Magnesium Claim, Ely, Nevada		Leased
Mining Claim		Silverado Property, Pinto Mining District, Nevada		Leased
Research and Development Pilot Production Facility		5140 North Fraser Way, Unit 102, Burnaby, British Columbia, Canada		Leased

 

Tami Mosi Mining Claims. We hold a 100% interest in 81 unpatented lode mining claims issued by the U.S. Bureau of Land Management totaling approximately 1,637 acres located in White Pine County, Nevada (the “Tami Mosi Mining Claims”) and four unpatented lode mining claims totaling approximately 10 acres located in the Moor Mining District, Elco County, Nevada. These mining claims are subject to a 2% net smelter royalty in favor of the prior owner of the claims.

 

The Tami Mosi Mining Claims are located in the Duck Creek Range, a mountain range located in central Nevada. The area is underlain by more than 10,900 feet of mineral fragments and carbonate rocks, including a geological formation known as the Devonian Guilmette Formation. Bands of dolomite altered from the limestone are characteristic within this formation.

 

Silverado Mining Claim. We hold a 100% interest in three patented mining claims located in the Pinto mining district of Nevada totaling approximately 296 acres. This claim has been impaired to $1.

 

Mining Plans. We do not plan on commencing extraction of minerals from any mining claims we hold at this time. In addition, we do not consider our mining claims to be material to our business or financial condition.

 

Research and Development Pilot Production Facility. In October 2020, we leased a 12,493 square foot facility in Burnaby, British Columbia, Canada for a term of three years with a first right of offer to lease the premises beyond the expiration of the term if the landlord’s other tenant does not require the premises for the expansion of its business operations at the expiration of the term. We have commenced construction of a research and development pilot plant at this facility which is in the Vancouver metropolitan area and is located near major transportation routes and the Vancouver International Airport.

 

 

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

As of October 4, 2021, we had 391,433,525 shares of common stock issued and outstanding. The following table sets forth the beneficial ownership of our common stock as of the date of this registration statement on Form 10 for (i) each member of our board of directors, (ii) each named executive officer (as defined below), (iii) each person known to us to be the beneficial owner of more than 5% of our securities and (iv) the members of our board of directors and our executive officers as a group. Beneficial ownership is determined according to the rules of the SEC. Generally, a person has beneficial ownership of a security if the person possesses sole or shared voting or investment power of that security, including any securities that a person has the right to acquire beneficial ownership within 60 days. Information with respect to beneficial owners of more than 5% of our securities is based on completed questionnaires and related information provided by such beneficial owners as of the date of this registration statement on Form 10. Except as indicated, all shares of our securities will be owned directly, and the person or entity listed as the beneficial owner has sole voting and investment power. The address for each director and executive officer is c/o Western Magnesium Corporation, 580 Hornby Street, Suite 900, Vancouver, British Columbia, Canada, V6C 3B6.

 

		Common Stock
Name, Position and Address of Beneficial Owner		No. of Shares of Common Stock Beneficially Owned				% of Common Stock
Karim Alameddine(1) Corporate Secretary			850,000				0.22	%
Rabih Ataya(2) Director and Senior Vice President (“SVP”), Strategy			1,700,000				0.43	%
Sam Ataya(3) Director, Executive President and Chief Executive Officer (“CEO”)			15,919,230				3.91	%
Robert Brown(4) Director			1,080,000				0.28	%
Andrea Chan(5) Chief Controller			500,000				0.13	%
Kim Evans Chief Financial Officer (“CFO”)			–				–
Edward Lee(6) Director, Executive Chairman and former President and CEO			17,131,000				4.21	%
Lisa Maxwell(7) Executive Vice President (“EVP”), Corporate Development			5,940,000				1.49	%
Michael Rutkowski(8) EVP, Enterprise Business and Defense			1,000,000				0.25	%
Peter O’Rourke(9) Director and SVP, Business Development and Government Affairs			1,000,000				0.25	%
Paul Sauvé(10) SVP, Technology and Operations			2,070,837				0.53	%
Stephen Thorlakson(11) Director			3,249,291				0.83	%
Jeff Wilson(12) Director			1,650,000				0.42	%
All directors and executive officers as a group			52,090,358				11.86	%
Five Percent Shareholders:
None.

 

Notes:

 

(1)	Includes the following: (i) no shares of common stock, (ii) 150,000 options to purchase common stock at an exercise price of CAD$0.15 per share, (iii) 50,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (iv) 400,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (v) 250,000 options to purchase common stock at an exercise of CAD$0.50 per share. The stock options fully vested upon award.
(2)	Includes the following: (i) no shares of common stock, (ii) 450,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (iii) 250,000 options to purchase common stock at an exercise price of CAD$0.15 per share, (iv) 500,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (v) 500,000 options to purchase common stock at an exercise of CAD$0.50 per share. The stock options fully vested upon award.
(3)	Includes the following: (i) 384,615 shares of common stock, (ii) 384,615 warrants to purchase common stock at an exercise price of CAD$0.19 per share, (iii) 3,000,000 options to purchase common stock at an exercise price of CAD$0.05 per share, (iv) 2,650,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (v) 4,500,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (vii) 5,000,000 options to purchase common stock at an exercise of CAD$0.50 per share. The stock options fully vested upon award.
(4)	Includes the following: (i) no shares of common stock, (ii) 730,000 options to purchase common stock at an exercise price of CAD$0.05 per share, and (iii) 350,000 options to purchase common stock at an exercise price of CAD$0.12 per share. The stock options fully vested upon award.
(5)	Includes the following: (i) no shares of common stock and (ii) 500,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(6)	Includes the following: (i) 1,281,000 shares of common stock, (ii) 1,850,000 options to purchase common stock at an exercise price of CAD$0.05 per share, (iii) 3,000,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (iv) 5,000,000 options to purchase common stock at an exercise price of CAD$0.13 per share and (v) 6,000,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(7)	Includes the following: (i) no shares of common stock, (ii) 790,000 options to purchase common stock at an exercise price of CAD$0.05 per share, (iii) 900,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (iv) 750,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (v) 3,500,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(8)	Includes the following: (i) no shares of common stock and (ii) 1,000,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(9)	Includes the following: (i) no shares of common stock, (ii) 500,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (iii) 500,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(10)	Includes the following: (i) 70,837 shares of common stock, (ii) 100,000 options to purchase common stock at an exercise price of CAD$0.11 per share, (iii) 150,000 options to purchase common stock at an exercise price of CAD$0.15 per share, (iv) 750,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (v) 1,000,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(11)	Includes the following: (i) 2,249,291 shares of common stock, (ii) 400,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (iii) 300,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (iv) 300,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.
(12)	Includes the following: (i) 300,000 shares of common stock, (ii) 500,000 options to purchase common stock at an exercise price of CAD$0.05 per share, (iii) 350,000 options to purchase common stock at an exercise price of CAD$0.12 per share, (iv) 200,000 options to purchase common stock at an exercise price of CAD$0.13 per share, and (v) 300,000 options to purchase common stock at an exercise price of CAD$0.50 per share. The stock options fully vested upon award.

 

 

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

 

Our bylaws, as amended, (the “Bylaws”) provide that our board of directors should not have fewer than three directors. Each director shall hold office until the close of the next annual general meeting of our shareholders, or until his or her successor is duly elected or appointed, unless his or her office is earlier vacated. Our board of directors currently consists of seven directors, of whom three are considered to be independent persons. See Item 7—”Certain Relationships and Related Transactions, and Director Independence – Director Independence” for details on the independence of our directors.

 

The following table sets forth the individuals that are our directors and executive officers as of the date of filing this registration statement on Form 10 and their respective positions.

 

Name		Age		Position
Karim Alameddine		28		Corporate Secretary
Rabih Ataya		61		Director and SVP, Strategy
Sam Ataya		53		Director, President and CEO
Robert Brown		90		Director
Andrea Chan		42		Chief Controller
Kim Evans		50		CFO
Edward Lee		59		Director, Executive Chairman and former President and CEO
Lisa Maxwell		54		EVP, Corporate Development
Michael Rutkowski		50		EVP, Enterprise Business and Defense
Peter O’Rourke		49		Director and SVP, Business Development and Government Affairs
Paul Sauvé		35		SVP, Technology and Operations
Stephen Thorlakson		72		Director
Jeffrey Wilson		52		Director

 

All of our directors will be appointed to hold office until the next annual general meeting of shareholders or until their successors are duly elected or appointed, unless their office is earlier vacated.

 

The Bylaws provide that the directors may, from time to time, appoint such officers as the directors determine. The directors may, at any time, terminate any such appointment.

 

Director and Executive Officer Biographies

 

Karim Alameddine. Mr. Alameddine joined Western Magnesium in 2019 as Assistant Corporate Secretary. From November 2013 to October 2019, he worked with the Toronto-Dominion Bank (“TDB”), one of the largest multinational banks in Canada. During his time with TDB he developed a thorough understanding of the regulatory standards which he utilized in his day-to-day responsibilities throughout his various positions within the organization. Mr. Alameddine’s drive for professionalism and passion for corporate services has created a unique opportunity for him with our company, where he serves shareholders in meeting their needs while centering his focus on industry and regulatory proceedings.

 

Rabih Ataya. Mr. Ataya has been our Vice President, Strategy and a member of our board of directors since March 2020. He brings to us over 30 years of extensive operational experience in the automotive industry. From 2018 to March 2020, Mr. Ataya had taken a brief hiatus from the industry. From 2010 to 2018, he was the General Manager of Alfardan Automobiles, LLC, from 2002 to 2010 he was the General Manager of the Automotive Division of Mohammad Saleh & Reza Yousuf Behbehani Company and from 1996 to 2002 he was the General Manager of Mirage General Trading Establishment. He has led strategies into tactical initiatives that drove bottom line results. Mr. Ataya’s extensive experience in the automotive industry includes the North American, European, and Middle Eastern markets. This has afforded him opportunities to understand the industry throughout the supply chain process – by understanding the materials market, dealing with the full range of original equipment manufacturers and finally expanding dealership business for high-end automobile makers. He has developed, nurtured and maintained strong relationships in the global auto industry. Mr. Ataya received his Executive Master of Business Administration from HEC Paris, France, one of the most recognized universities in the world, and an Innovative Management and Entrepreneurial Leadership Certification from Babson College. In addition, Mr. Ataya holds a Bachelor of Engineering in Mechanical Engineering from American University of Beirut, Lebanon.

 

Rabih Ataya is the cousin of Sam Ataya, our Chief Executive Office and member of the board of directors.

 

 

Sam Ataya. Mr. Sam Ataya has been our Chief Executive Officer and a director since September 2018. Mr. Ataya has a record with key strengths in demonstrating “big picture” approaches toward project management that require long term strategic planning and operational management. His ability to manage multi-faceted projects through team leadership has led him through operational turnarounds, management changes and the ability to mobilize resources to achieve the wanted results from strategic planning and analysis. From 2008 to 2018, Sam Ataya was the CEO of The Stirling Group of Vancouver, B.C., a “One Stop” consulting service focused on assisting Micro-Cap, Mid-Cap, and Large-Cap Companies in need of financial recapitalization. The Stirling Group aids companies in strengthening their business models, investment proposals and helps source capital directly from an established global funding network. From 1987 to 2008 he was the President of ASK Ventures, a venture capital firm. Sam Ataya studied Business Administration at Langara College, Canada in 1990 and at the American University of London, England in 1992.

 

Sam Ataya is the cousin of Rabih Ataya, our Vice President, Strategy and member of the board of directors.

 

Robert Brown. Mr. Brown has been a director of our company since November 2013. He brings 50 years of varied metals industry experience in both ferrous and non-ferrous materials. He spent 20 years in the technical management areas of light metal foundries or reduction plants and has been a metallurgical consultant to major magnesium companies. He has been the Publisher of Magnesium Monthly Review since 1971 and a Contributing Editor and columnist for Light Metal Age and Australian Journal of Mining and is a Technical Consultant to Magnesium.com. He is a virtual fount of knowledge about the total magnesium industry, historical, present and future.

 

From 2011 to 2018, he was a consultant to Takamul Investments, an investment group 90% owned by Oman Oil where he has advised and helped establish a magnesium metal production industry in the Sultanate of Oman. From 2009 to 2011 he was a consultant to Molycor Gold Corporation (now Western Magnesium Corporation), working with Wardrop Engineering on the development of the NI 43-101 Technical Report. From 2008 to 2010 he was also a consultant to Chinese Magnesium Corporation, a joint venture based in Brisbane, Australia devoted to establishing a joint venture with Chinese magnesium producer in Shanxi Province to provide magnesium to Australia and the world magnesium market. During the period from 2008 to 2010, he also advised Advanced Magnesium Alloys Corporation (AMACOR) on the technical aspects of new silicothermic magnesium process. In August 2007 he worked with Thixomat, Inc. reviewing specific magnesium programs and recommended target markets and product specifics based on survey of magnesium wrought product suppliers. In April 2007 he worked as a consultant with Globex on the world magnesium industry. In the Fall of 2006, he worked on a proposed project to Magnesium Elektron North America (Spectrulite) on an idea to use magnesium sheet to reduce gas consumption and emissions from tractor trailers, with a potential for both governmental and private project funding. Prior to this, he worked all over the world as a consultant to a wide variety of companies as a magnesium specialist. Mr. Brown holds a B.S. in Metallurgical Engineering from the Michigan Technological University in Houghton, Michigan.

 

Andrea Chan. Ms. Chan brings to our company extensive experience in accounting and corporate finance in various industries including pharmaceuticals, technology and insurance with roles of increasing responsibility. Prior to joining our company in March 2021 as our Chief Controller, Ms. Chan served from March 2016 to March 2021 as Interim Chief Financial Officer, Director, Finance and Administration and Corporate Secretary at Pacgen Life Science Corporation, a TSX-V listed company, where she oversaw and managed the accounting and corporate regulatory functions of the company, and assisted the completion of various corporate transactions including an initial public offering, private placement financings, acquisitions, financial restructuring and licensing transactions. Ms. Chan was also a senior consultant at KeenVision Consulting Inc. from September 2014 to March 2021, where she provided consulting services to public and private companies across different industries. Ms. Chan is a Chartered Professional Accountant, Certified General Accountant, and a Certified Public Accountant designated in the State of Delaware. She graduated from the University of British Columbia with a Bachelor of Commerce Degree in Accounting.

 

Kim Evans. Ms. Evans has been our Chief Financial Officer since July 2020 on a part-time basis. She brings over 20 years of experience as a corporate finance executive, with several public companies. In addition, since 2015, she has been a Director and CFO of BIGG Digital Assets Inc., a developer of blockchain technology solutions. In April 2004 she founded Golden Reign Resources (now Mako Mining Corp.) and served as the President and Director until November 2018. From June 2002 to April 2012 she worked with Eastcoal Inc. as a director, Corporate Secretary and CFO. Her experience has allowed her to optimize full cycle accounting in prudent, progressive, and purposeful ways producing high-level results. Her expertise extends to working with corporations on financial systems, strategic plans, budgets, capital decisions and corporate acquisitions. She is well versed in structuring and negotiating transactions and has experience in creating strategic alliances with corporate leaders to align and support key business initiatives. Ms. Evans has experience with initial public offerings, U.S. GAAP, in-depth knowledge of regulatory requirements, and creation of internal processes and controls, resulting in improved financial performance and heightened productivity. Ms. Evans is a CPA, CGA, and holds a Financial Management Program diploma from the British Columbia Institute of Technology and a Bachelor of Arts from the University of British Columbia.

 

 

Edward Lee. A longtime entrepreneur in private business in northern British Columbia, Mr. Lee has been a member of our board of directors since March 2003. In addition, he served as our President from March 2013 to November 2019, as our Chief Executive Officer from March 2013 to October 2018 and as our Executive Chairman since 2019. Mr. Lee served on the Boards of American Manganese, Inc. from August 2011 to March 2013 and Goldrea Resources Corp. from November 2003 to April 2013. Previously, he was a Director and Executive Vice President for Adanac Molybdenum Corp. from November 2006 to January 2009. Since 1989, Mr. Lee has been assisting public companies in capital formation and strategic business development. He brings Western Magnesium invaluable strategic insight, industry expertise and proven leadership.

 

Lisa Maxwell. Ms. Maxwell joined our company in August 2013 as Corporate Secretary and full time in April 2019 as Executive Vice President, Corporate Development. She brings with her over 25 years of experience in project management and business development. In December 2010 she founded Sequoia Corporate Services Inc., a management consulting firm where she provided project management, compliance, corporate governance, business development and regulatory compliance services for public companies from December 2010 to April 2019. In 2000 she founded Maxwell & Associates, where she provided project management services for public, private and crown corporations in the areas of education, healthcare and transportation from 2000 until 2010. Ms. Maxwell studied International Business at Athabasca University, Alberta, Canada and Capilano University, North Vancouver, British Columbia, Canada.

 

Michael Rutkowski. Colonel Michael Rutkowski, (Retired), joined Western Magnesium on September 1, 2021 as the Executive Vice President of Enterprise Business and Defense. Prior to joining the Western Magnesium team, Colonel Rutkowski was the Director for Strategic Initiatives for B3 Group, an award-winning IT consulting firm specializing in digital services and innovative technology solutions in Herndon, Virginia from April 2021 to September 2021. From March 2020 to April 2021, he was the Executive Vice President and Chief of Business Development for MCI a global engagement and marketing agency that creates human-centric touchpoints that unleash the power of people to deliver innovation and growth. From 2011 to March 2020 Colonel Rutkowski served in the United States Army in the Aviation Branch and achieved the rank of Colonel. At the time of his retirement in March 2020, he was serving as the Senior Military Advisor to the Secretary of Veteran’s Affairs (VA) where he worked in numerous leadership roles throughout the agency. He was appointed as Deputy Director for Electronic Healthcare Records Management (EHRM) from April 2019 to November 2019 and helped oversee one of the largest information technology acquisition programs ever in the federal government. Colonel Rutkowski served as a program manager for Air Traffic Control from June 2011 to June 2014 and following that assignment he was a program manager in the Joint Office of the Pentagon (J8 - Capabilities and Acquisition Division) then as the Chief of Staff for two J8 directors.

 

Colonel Rutkowski holds a BS in Business Management (1993) from Niagara University, an MBA with concentration in supply chain management (2005) from Florida State University and an MS in National Security and Resource Strategy with concentration in Space Industry (2018) from the Eisenhower War College - National Defense University in Washington D.C.

 

Peter O’Rourke.

 

Prior to joining our company in November 2020 as a director and Senior Vice President, Business Development and Government Affairs, Mr. O’Rourke was Managing Partner of TCI Partners LLC a multidisciplinary consultancy based in Washington DC (December 2018-April 2021). Mr. O’Rourke was the acting Secretary of Veterans Affairs and Senior Advisor to the Secretary of Veterans Affairs for the US government (May – December 2018). Between February and May 2018 he was the Chief of Staff, Department of Veterans Affairs and led the Department’s staff and executive functions during a time of significant organizational change. He began his service with the VA as Senior Advisor to the Secretary (January – April 2017) moving up to the position of Executive Director for the Office of Accountability and Whistleblower Protection (May 2017 – February 2018) and then promoted to VA Chief of Staff (February – May 2018). In these roles he organized the VA’s senior staff and spearheaded the implementation of Presidential and Congressional intent to reset the definition of accountability in the civilian workforce and operationalized the protection and support for government whistleblowers. Mr. O’Rourke was a self-employed government affairs consultant (September—December 2016). Between May 2015 and July 2016 he was the Principal of Calibre Systems, a company which led the development of transformational plans for Veterans Affairs, the U.S. Department of Defense, and other government organizations. From January to April 2015 he worked as a self-employed consultant. Between May and December 2014 Mr. O’Rourke served as a Senior Policy Advisor in the US House of Representatives. From February to April 2014 he worked as a self-employed consultant. Between March 2012 and January 2014 he was the Vice-President, Marketing & Business Development with Blackland Aerospace where he created the worldwide marketing and business development capabilities for the firm and its aerospace manufacturing facilities.

 

Mr. O’Rourke was the Executive Director for Strong America Now where he led development and daily operations for a non-profit focused on generating support for government efficiency and cost savings using Lean Six Sigma methods from November 2010 to April 2012. Prior to this he was the Director, Marketing & Business Development for Accenture Federal Services from 2007 through 2009), in this capacity he led development and execution of global strategic and operational marketing and business development activities for a new acquisition (George Group Consulting, LP). campaigns and client teams to enable effective business development initiatives and between 2005 and 2007 he was a Senior Consultant for George Group Consulting LP where he coached, mentored and taught U.S. Department of Defense senior officers and executives Lean Six Sigma methods, tools, and implementation strategies as a certified Lean Six Sigma Master Black Belt. Between 1998 and 2006, Mr. O’Rourke held multiple assignments worldwide as a high-performing expert in multiple supply chain and logistics disciplines. Mr. O’Rourke completed undergraduate studies from 1995 until 1998. From 1990 – 1994 he was an Airman (Enlisted), U.S. Navy, performing assignments worldwide as Plane Captain, Fighter Squadron 213, Miramar Naval Air Station, California. Mr. O’Rourke holds a B.A. Political Science from the University of Tennessee.

 

Paul Sauvé. Mr. Sauvé has been our Senior Vice President, Technology and Operations since March 2020 and brings with him over 15 years of experience in the mining industry including senior positions with Teck Resources as Senior Project Engineer and Metallurgist from June 2006 – March 2020. Based on his strong chemical engineering background, he has had extensive experience with diversified metals & mining companies, gaining valuable know how in process development and optimization; fully integrated plant systems management; hydrometallurgical research facility operation that involved testing for metal recovery; process engineering for full scale studies and project execution; as well as modeling commercial sized facilities for production.

 

 

As an innovative and versatile chemical/mine engineer, he has been recognized for his in-depth expertise in metallurgy – managing a dynamic & multifaceted hydrometallurgical research facility; shift metallurgist for an operating plant; flotation plant metallurgy; metallurgist for multi-unit operation in a continuous pilot plant; and supervision of a hydrometallurgical research plant. In addition to being a member of the Association of Professional Engineers and Geoscientists of British Columbia since [insert year and month], he comes with specialized skills in lab and filed-testing protocols, METSIM (a general-purpose process simulation system designed to assist in performing mass and energy balances of complex processes), Unisim (a modeling platform that helps engineers create steady-state and dynamic models for plant design and performance monitoring), Visual Minteq (a chemical equilibrium software application) and WHMIS (workplace hazardous materials information system). He holds a Bachelor of Applied Science/Chemical Engineering degree from Lakehead University (2011) and a Diploma of Applied Science/Chemical Science Technology from BCIT (2006).

 

Stephen Thorlakson. Mr. Thorlakson has been a member of our board of directors since December 2013. He brings a wealth of experience in the construction project management and logistics industry, as well as extensive financial and business management expertise, having worked more than three decades within the construction and financial services industry. In September 2019 Mr. Thorlakson became the Vice-President of FloRite ESI and, Klassic Oilfield Services Ltd. companies which service the oil and gas industry. In 2011, he founded and became the President of Thorlakson Management Ltd., a construction management firm that specializes in quality control, safety and site remediation where he has provided guidance, direction and hands-on management of major industrial and business development projects for clients. Mr. Thorlakson continues to provide consulting services for Thorlakson Management Ltd. From June 2006 to November 2010, he was the General Manager for Surerus Pipeline. From 1980 until 2006, Mr. Thorlakson was a self- employed chartered financial planner in Fort St. John, British Columbia, a city for which he served as Mayor from 1990 through 2005 and Alderman from 1986 through 1990. He began his professional career working at Toronto Dominion Bank as Branch Manager and Senior Assistant Manager of Commercial Credit from September 1976 to September 1979.

 

Jeff Wilson. Jeff Wilson, Ph.D., P.Geo, has been a member of our board of directors since August 2014. He has worked in mineral exploration, consulting and market regulation for over 20 years. He has also worked as an independent consultant since 2013. From 2010 until 2013, Dr. Wilson was the director of Geology at Tetra Tech WEI, Inc., a leading provider of consulting, engineering and technical services focused on the worldwide water, environmental, energy, infrastructure and natural resource industries. From 2006 until 2010, Dr. Wilson worked as a Listings Manager at the TSXV, where he was responsible for reviewing technical and financial submissions by publicly traded resource companies. In addition, he has worked as a Project Geologist at Placer Dome Inc. from 2005 to 2006, Project Geologist for Fronteer Development Group from 2004 to 2005, an independent consultant from 2001 to 2004, as a Senior Structural Geologist for AngloGold Ashanti in Brazil from 2000 to 2001, an independent consultant in 1999, a Prestigious Geological Fellow at Rhodes University South Africa in 1998 and a Senior Geologist at Newcrest Mining in Indonesia in 1997. Dr. Wilson graduated with a Ph.D. in Geology from Kingston University, England in 1996 and a Bachelor Degree in Geology from Glasgow University, Scotland in 1991. and a Senior Geologist at Newcrest Mining in Indonesia from 1996 to 1997. Dr. Wilson earned a Ph.D. in Geology from Kingston University, England and a Bachelor of Science degree from Glasgow University, Scotland within Geology.

 

Board Committees

 

We currently have an audit committee, a compensation committee, and a corporate governance committee. The members of each are set out below.

 

Name of Member		Audit Committee		Compensation Committee		Corporate Governance Committee
Rabih Ataya		X		X
Edward Lee						X (1)
Stephen Thorlakson		X (1)		X (1)		X
Jeff Wilson		X		X		X

 

(1) Denotes chairperson.

 

A brief description of each committee is set out below.

 

Audit Committee

 

The audit committee of our board of directors (the “Audit Committee”) is responsible for review of our interim and annual financial statements. For the purposes of performing their duties, the members of the Audit Committee have the right at all times, to inspect all of our books and financial records and any subsidiaries and to discuss with management and our independent auditors any accounts, records and matters relating to our financial statements. The Audit Committee members meet periodically with management and annually with our independent auditors.

 

 

Composition of the Audit Committee

 

As of the date of this registration statement on Form 10, the following are the members of the Audit Committee:

 

Name of Member		Independent (1)		Financially Literate (2)
Rabih Ataya		No		Yes
Stephen Thorlakson		Yes		Yes
Jeff Wilson		Yes		Yes

 

Notes:

 

(1)	A member of the Audit Committee is independent if he or she has no direct or indirect ‘material relationship’ with Western Magnesium. A material relationship is a relationship which could, in the view of our board of directors, reasonably interfere with the exercise of a member’s independent judgment. An executive officer, such as the President or Secretary, is deemed to have a material relationship with Western Magnesium.
(2)	A member of the Audit Committee is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by our financial statements.

 

Relevant Education and Experience

 

Each member of the Audit Committee has experience relevant to his or her responsibilities as an Audit Committee member. See Item 5—”Director and Executive Officers – Director and Executive Officer Biographies” for a description of the education and experience of each Audit Committee member.

 

Audit Committee Oversight

 

At no time since the commencement of our most recently completed fiscal year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by our board of directors.

 

Audit Committee’s Charter

 

Our board of directors has adopted a written charter for the Audit Committee, which sets out the Audit Committee’s responsibilities in detail. The Audit Committee has access to all books, records, facilities and personnel and may request any information about us as it may deem appropriate. It will also have the authority to retain and compensate special legal, accounting, financial and other consultants or advisors to advise the Audit Committee.

 

Compensation Committee

 

The compensation committee of our board of directors (the “Compensation Committee”) has the responsibility of assisting our board of directors in discharging its oversight responsibilities relating to the attraction, compensation, evaluation and retention of key senior management employees, and in particular the Chief Executive Officer. In addition, the Compensation Committee is tasked with reviewing our annual disclosure regarding executive compensation for inclusion where appropriate in our disclosure documents. The Compensation Committee is also charged with annually reviewing the Western Magnesium Corporation 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”) and proposing changes thereto, approving any awards of options under the 2021 Equity Incentive Plan and recommending any other employee benefit plans, incentive awards and perquisites with respect to our executive officers.

 

Composition of the Compensation Committee

 

As of the date of this registration statement on Form 10, the following are the members of the Compensation Committee:

 

Name of Member		Independent (1)
Rabih Ataya		No
Stephen Thorlakson		Yes
Jeff Wilson		Yes

 

Notes:

 

(1)

A member of the Compensation Committee is independent if he or she has no direct or indirect ‘material relationship’ with Western Magnesium. A material relationship is a relationship which could, in the view of our board of directors, reasonably interfere with the exercise of a member’s independent judgment. An executive officer, such as the President or Secretary, is deemed to have a material relationship with Western Magnesium.

 

 

Compensation Committee’s Charter

 

Our board of directors has adopted a written charter for the Compensation Committee, which sets out the Compensation Committee’s responsibilities in detail.

 

For additional details on the Compensation Committee, see Item 6—”Executive Compensation – Compensation Governance.”

 

Corporate Governance Committee

 

The Corporate Governance committee of our board of directors (the “Corporate Governance Committee”) is responsible to develop and monitor our approach to matters of governance.

 

Composition of the Corporate Governance Committee

 

As of the date of this registration statement on Form 10, the following are the members of the Corporate Governance Committee:

 

Name of Member		Independent (1)
Edward Lee		No
Stephen Thorlakson		Yes
Jeff Wilson		Yes

 

Notes:

 

(1)

A member of the Corporate Governance Committee is independent if he or she has no direct or indirect ‘material relationship’ with Western Magnesium. A material relationship is a relationship which could, in the view of our board of directors, reasonably interfere with the exercise of a member’s independent judgment. An executive officer, such as the President or Secretary, is deemed to have a material relationship with Western Magnesium.

 

Board Qualifications

 

We believe that each of the members of our board of directors has the experience, qualifications, attributes and skills that make him or her suitable to serve as our director, in light of our highly regulated magnesium business and the complex nature of our operations. See above under the heading Item 5—”Director and Executive Officers – Director and Executive Officer Biographies” for a description of the education and experience of each director.

 

Mr. Rabih Ataya’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	Finance and financial reporting expertise; and
	●	Operating and management experience.

 

Mr. Sam Ataya’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	Finance and financial reporting expertise; and
	●	Operating and management experience.

 

 

Mr. Brown’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	Finance and financial reporting expertise; and
	●	Operating and management experience.

 

Mr. Lee’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	Finance and financial reporting expertise; and
	●	Operating and management experience.

 

Mr. O’Rourke’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	Finance and financial reporting expertise; and
	●	Operating and management experience.

 

Mr. Thorlakson’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	A deep understanding of entrepreneurship and of the industry; and
	●	Operating and management experience.

 

Mr. Wilson’s specific qualifications, experience, skills and expertise include:

 

	●	Core business skills, including financial and strategic planning;
	●	A deep understanding of entrepreneurship and of the industry; and
	●	Operating and management experience.

 

We believe these qualifications bring a broad set of complementary experience to our board of directors’ discharge of its responsibilities.

 

ITEM 6. EXECUTIVE COMPENSATION

 

Overview of Executive Compensation

 

Our board of directors is authorized to review and approve annually all compensation decisions relating to our executive officers. In accordance with reduced disclosure rules applicable to emerging growth companies as set forth in Item 402 of Regulation S-K, this section explains how our compensation program is structured for its Chief Executive Officer and the other executive officers named in the Summary Compensation Table (the “named executive officers” or “NEOs”).

 

Compensation Governance

 

We have created a Compensation Committee, the members of which are Stephen Thorlakson, Jeff Wilson and Rabih Ataya.

 

All tasks related to developing and monitoring our approach to the compensation of our NEOs and directors are performed initially by the Compensation Committee and reviewed and approved by the members of the Board. The compensation of the NEOs, directors and our employees or consultants is recommended and approved by the Board without reference to any specific formula or criteria. NEOs that are also directors of our company are involved in discussions relating to compensation, and disclose their interest in and abstain from voting on compensation decisions relating to them, as applicable, in accordance with the applicable corporate legislation. Our compensation program is intended to attract, motivate, reward and retain the management talent needed to achieve our business objectives of improving overall corporate performance and creating long term value for our shareholders. The compensation program is intended to reward executive officers on the basis of individual performance and achievement of corporate objectives, including the advancement of our exploration and development goals.

 

 

Our current compensation program is comprised of three major components: base salary or fees, short-term incentives such as discretionary bonuses and long-term incentives such as stock options.

 

In making compensation decisions, the Compensation Committee and the Board strive to find a balance between short-term and long-term compensation and cash versus equity incentive compensation. Base salaries or fees and discretionary cash bonuses primarily reward recent performance and incentive stock options encourage NEOs and directors to continue to deliver results over a longer period of time and serve as a retention tool. The annual salary or fee for each NEO, as applicable, is recommended by the Compensation Committee and determined by the Board based on the level of responsibility and experience of the individual, the relative importance of the position to us, the professional qualifications of the individual and the performance of the individual over time. The NEOs’ performances and salaries or fees are to be reviewed periodically. Increases in salary or fees are to be evaluated on an individual basis and are performance and market-based. The amount and award of cash bonuses to key executives and senior management is discretionary, depending on, among other factors, the financial targeted goal, employee retention and advancement within our company. The Executive Chairman and CEO make the recommendation which is then sent to the Board for their approval. A peer group is not used to determine compensation.

 

Pension Plan Benefits

 

The Company does not have any pension, defined benefit, defined contribution or deferred compensation plans in place.

 

Long-Term Equity Incentive Awards

 

The long-term component of compensation for executive officers, including the Named Executive Officers, will be based on equity awards issued pursuant to the Western Magnesium Corporation 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”) that was approved by our shareholders on June 11, 2021. The 2021 Equity Incentive Plan permits the grant of the following (collectively, the “Awards”): (i) nonqualified stock options (“NQSOs”) and incentive stock options (“ISOs”) (collectively, “Options”); (ii) stock appreciate rights (“SARs”); (iii) restricted stock (“Restricted Stock”) and restricted stock units (“RSUs”); (iv) performance awards; (v) dividend equivalents; and (vi) other stock-based awards. This component of compensation is intended to reinforce management’s commitment to long term improvements in our performance.

 

The purpose of the 2021 Equity Incentive Plan is to enable us and certain of our subsidiaries to obtain and retain services of the eligible participants, which is essential to our long-term success. The granting of Options and other Awards under the 2021 Equity Incentive Plan is intended to promote our long-term financial interests and growth and the long-term financial interests and growth of our subsidiaries by attracting and retaining management and other personnel and key service providers with the training, experience and ability to enable them to make a substantial contribution to the success of our business. Moreover, the 2021 Equity Incentive Plan aims to align the interests of eligible participants with those of our shareholders through opportunities for increased equity-based ownership in our company.

 

 

Summary Compensation Table

 

The following table sets forth all compensation paid to or earned by the named executive officers in the last two (2) fiscal years.

 

Name and Principal Position		Fiscal Year ended October 31				Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards (1) ($)				Non-Equity Incentive Plan Compensation ($)				Non-qualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Sam Ataya			2020				360,000				37,150				—				64,195				—				—				89,160				550,505
Director, President and CEO (2)			2019				302,768				—				—				262,174				—				—				11,290				576,232
Edward Lee			2020				420,000				—				—				69,173				—				—				—				489,673
Director, Executive Chairman and former President and CEO (3)			2019				451,546				—				—				226,124				—				—				—				677,670
Kim Evans			2020				—				—				—				—				—				—				29,720				29,720
CFO (4)			2019				—				—				—				—				—				—				—				—
Kristina Khersonski			2020				85,000				—				—				19,764				—				—				—				104,764
Former CFO (5)			2019				82,280				—				—				48,180				—				—				6,774				137,234
Dennis Mee			2020				—				—				—				—				—				—				—				—
Former Director and CFO (6)			2019				28,225				—				—				8,697				—				—				61,155				98,077
Rabih Ataya			2020				180,000				—				—				45,771				—				—				—				225,771
Director and SVP, Strategy (7)			2019				—				—				—				21,900				—				—				21,075				42,975
Lisa Maxwell			2020				120,000				—				—				39,527				—				—				2,601				162,128
EVP (8)			2019				93,072				—				—				52,498				—				—				—				145,570
Paul Sauvé			2020				95,154				—				—				35,961				—				—				—				131,115
SVP, Technology & Operations			2019				—				—				—				—				—				—				—				—
Barrie Fraser			2020				45,323				—				—				—				—				—				—				45,323
Former Director, President and Chief Operating Officer (9)			2019				167,174				—				—				101,782				—				—				—				268,956

 

Notes:

 

(1)

The amounts reported in the Option Awards column reflects aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation—Stock Compensation. These amounts reflect our calculation of the value of these awards at the grant date and do not necessarily correspond to the actual value that may ultimately be realized by the named executive officer. Assumptions used in the calculation of these amounts are included in Note 13 to our audited consolidated financial statements for the fiscal year ended October 31, 2020, which are included elsewhere in this registration statement.

 

The 2019 Option Award compensation includes the following:

 

The 2019 Option Award compensation for Sam Ataya reflects the issuance of:

 

●

3,000,000 stock options granted on December 5, 2018, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.05 until December 4, 2023; and

●

2,000,000 stock options granted on May 23, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until May 22, 2024.

 

These stock options were fully vested on the grant date.

 

The 2019 Option Award compensation for Edward Lee reflects the issuance of:

 

●

850,000 stock options granted on December 5, 2018, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.05 until December 4, 2023; and

●

2,300,000 stock options granted on May 23, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until May 22, 2024.

 

These stock options were fully vested on the grant date.

 

The 2019 Option Award compensation for Kristina Khersonski reflects the issuance of 550,000 stock options granted on May 23, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until May 22, 2024, and vested in full on the grant date.

 

The 2019 Option Award compensation for Dennis Mee reflects the issuance of 300,000 stock options granted on December 5, 2018, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.05 until December 4, 2023, and vested in full on the grant date.

 

The 2019 Option Award compensation for Rabih Ataya reflects the issuance of 250,000 stock options granted on May 23, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until May 22, 2024, and vested in full on the grant date.

 

 

The 2019 Option Award compensation for Lisa Maxwell reflects the issuance of:

 

●

300,000 stock options granted on December 5, 2018, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.05 until December 4, 2023; and

●

500,000 stock options granted on May 23, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until May 22, 2024.

 

These stock options were fully vested on the grant date.

 

The 2019 Option Award compensation for Barrie Fraser reflects the issuance of:

 

●

2,000,000 stock options granted on December 5, 2018, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.05 until December 4, 2023; and

●

500,000 stock options granted on May 23, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until May 22, 2024.

 

These stock options were fully vested on the grant date.

 

The 2020 Option Award compensation includes the following:

 

The 2020 Option Award compensation for Sam Ataya reflects the issuance of 650,000 stock options granted on April 24, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until April 23, 2025, and vested in full on the grant date.

 

The 2020 Option Award compensation for Edward Lee reflects the issuance of 700,000 stock options granted on April 24, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until April 23, 2025, and vested in full on the grant date.

 

The 2020 Option Award compensation for Kristina Khersonski reflects the issuance of 200,000 stock options granted on April 24, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until April 23, 2025, and vested in full on the grant date.

 

The 2020 Option Award compensation for Rabih Ataya reflects the issuance of:

 

●

250,000 stock options granted on November 4, 2019, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.15 until November 3, 2024; and

●

200,000 stock options granted on April 24, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until April 23, 2025,

 

These stock options were fully vested on the grant date.

 

The 2020 Option Award compensation for Lisa Maxwell reflects the issuance of 400,000 stock options granted on April 24, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until April 23, 2025, and vested in full on the grant date.

 

The 2020 Option Award compensation for Paul Sauvé reflects the issuance of:

 

●

300,000 stock options granted on March 27, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.11 until March 26, 2024; and

●

150,000 stock options granted on April 24, 2020, which entitles the holder of each such stock option to purchase one share of our common stock at an exercise price of CAD$0.12 until April 23, 2025.

 

These stock options were fully vested on the grant date.

 

(2)

Mr. Ataya was appointed as our CEO and elected to our board of directors effective September 21, 2018. Mr. Ataya was appointed as our President effective January 31, 2020. The compensation disclosed for Mr. Ataya is for his position as our CEO and he was not separately compensated as a director. Mr. Ataya’s reported 2020 salary includes $75,000 accrued not yet paid. Mr. Ataya’s reported 2020 All Other Compensation includes consulting fees of $89,160 paid to a company where Mr. Ataya is principal. His reported 2019 All Other Compensation includes consulting fees of $11,290 paid to a company where he is principal.

 

 

(3)	Mr. Lee was appointed as our Executive Chairman and CEO on March 24, 2013 and resigned as CEO on September 21, 2018. Mr. Lee was appointed as a director on March 29, 2004. The compensation disclosed for Mr. Lee is for his position as our Executive Chairman and he was not separately compensated as a director. Mr. Lee’s reported 2020 Salary includes $87,500 accrued not yet paid.
(4)	Ms. Evans was appointed as CFO on July 22, 2020. Ms. Evans’ reported 2020 All Other Compensation includes consulting fees of $29,720 paid to her.
(5)	Ms. Khersonski was appointed as CFO on May 11, 2019 and resigned on May 8, 2020. Ms. Khersonski’s reported 2019 All Other Compensation includes professional fees of $6,774 paid to her.
(6)	Mr. Mee was appointed as CFO and a director on September 25, 2017. Mr. Mee passed away on February 14, 2019. The compensation disclosed for Mr. Mee was for his position as our former CFO and he was not separately compensated as a director. Mr. Mee’s reported 2019 All Other Compensation includes consulting fees of $61,155 paid to a company where Mr. Mee was principal.
(7)	Mr. Ataya was appointed as SVP, Strategy on November 1, 2019 and as a director on March 10, 2020. The compensation disclosed for Mr. Ataya is for his position as our SVP, Strategy and he was not separately compensated as a director. Mr. Atay’s reported 2019 All Other Compensation includes consulting fees of $21,075 paid to him.
(8)	Ms. Maxwell was appointed as SVP, Corporate Development on December 1st, 2020 and promoted as EVP effective July 15, 2021. Ms. Maxwell’s reported 2020 All Other Compensation includes consulting fees of $2,601 paid to a company where Ms. Maxwell is principal.
(9)	Mr. Fraser was appointed as President and Chief Operating Officer on November 1, 2018. Mr. Fraser was also a director of the Company. He resigned from his position on our board of directors and our company on January 31, 2020. The compensation disclosed for Mr. Fraser was for his position as our former President and Chief Operating Officer and he was not separately compensated as a director.

 

Employment and Severance Agreements

 

Except as described below, we do not have any contracts, arrangements, agreements or plans that provide for payments to a named executive officer.

 

Employment, Consulting and Management Agreements

 

We have employment agreements with Edward Lee, Executive Chairman, Sam Ataya, Executive President and CEO, Lisa Maxwell, EVP, Corporate Development, Michael Rutkowski, EVP, Enterprise Business and Defense, Peter O’Rourke, SVP, Business Development and Government Affairs, Rabih Ataya, SVP, Strategy, Paul Sauvé, SVP, Technology and Operations, Andrea Chan, Chief Controller, and Karim Alameddine, Corporate Secretary under which compensation was provided during the most recently completed financial year and/or interim period, or is payable in respect of services provided to us. We also had an employment agreement with Barrie Fraser, who served as our President and Chief Operating Officer prior to his resignation on January 31, 2020, and Kristina Khersonski, our former CFO prior to her resignation on May 8, 2020.

 

Executive Chairman, Edward Lee signed a contract on May 3, 2019 (the “Lee Contract”) and will be paid an annual base salary of USD$420,000 which will be subject to all required deductions. Mr. Lee shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding our achievement of annual financial and operating targets and his performance targets. Mr. Lee will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. Lee’s employment and for a period of one year from the end of Mr. Lee’s employment (howsoever occasioned), Mr. Lee shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. Upon the death or disability of Mr. Lee such that, in the view of our directors other than Mr. Lee, Mr. Lee is not able to carry out his responsibilities, we may terminate Mr. Lee’s employment by providing Mr. Lee or his estate with pay and severance pay, if applicable, in the amount of six (6) months’ base salary payable monthly. In the event we terminate Mr. Lee’s employment without cause within 12 months of a Change of Control (as defined below) or Mr. Lee terminates his employment for Good Reason (as defined below) within 12 months of a Change of Control, Mr. Lee is entitled to receive from us a payment equal to the greater of: (i) a onetime payment of USD$3 million, less applicable deductions and withholdings; and (ii) any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the Employment Standards Act (British Columbia) (the “BCESA”).

 

 

Executive President and CEO, Sam Ataya has signed a contract on May 3, 2019 (the “S. Ataya Contract”) and will be paid an annual base salary of USD$360,000 which will be subject to all required deductions. Mr. Ataya shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding our achievement of annual financial and operating targets and Mr. Ataya’s performance targets. Mr. Ataya will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. Ataya’s employment and for a period of one year from the end of Mr. Ataya’s employment (howsoever occasioned), Mr. Ataya shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. Upon the death or disability of Mr. Ataya such that, in the view of our directors other than Mr. Ataya, Mr. Ataya is not able to carry out his responsibilities, we may terminate Mr. Ataya’s employment by providing Mr. Ataya or his estate with pay and severance pay, if applicable, in the amount of six (6) months’ base salary payable monthly. In the event we terminate Mr. Ataya’s employment without cause within 12 months of a Change of Control (as defined below) or Mr. Ataya terminates his employment for Good Reason (as defined below) within 12 months of a Change of Control, Mr. Ataya is entitled to receive from us a payment equal to the greater of: (i) a onetime payment of USD$3 million, less applicable deductions and withholdings; and (ii) any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the BCESA.

 

CFO, Kim Evans provides services to us pursuant to an oral agreement as our CFO and directly assists our Executive President and CEO on all strategic and tactical matters as they relate to budget management, cost benefit analysis, forecasting needs and the securing of new funding necessary to meet our goals and objectives. We agreed to pay Ms. Evans a consulting fee of CAD$10,000 per month, plus GST. Either Ms. Evans or our company may terminate Ms. Evans consulting arrangement at any time, with or without cause.

 

EVP, Corporate Development, Lisa Maxwell, has signed a contract on December 1, 2020 (the “Maxwell Contract”) and will be paid an annual base salary of USD$180,000 which will be subject to all required deductions. Ms. Maxwell’s annual base salary is increased to USD$250,000 effective July 15, 2021. Ms. Maxwell will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Ms. Maxwell’s employment and for a period of one year from the end of her employment (howsoever occasioned), she shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. Upon the death or disability diagnosed by a licensed physician of the Employee such that, in the view of the Company’s directors other than the Employee, the Employee is not able to carry out his essential job functions, the Company may terminate the Employee’s employment by providing the Employee or his estate with pay and severance pay, if applicable, in the amount of six (6) months’ Base Salary payable monthly, and conditioned on the effectiveness of a Release. In the event we terminate Ms. Maxwell’s employment without cause within 12 months of a Change of Control (as defined below) or Ms. Maxwell terminates his employment for Good Reason within 12 months of a Change of Control, she is entitled to receive from us six month’s base salary and any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the BCESA.

 

EVP, Enterprise Business and Defense, Michael Rutkowski, has signed a contract on August 16, 2021 (the “Rutkowski Contract”) and will be paid an annual base salary of USD$240,000 which will be subject to all required deductions. Mr. Rutkowski shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding our achievement of annual financial and operating targets and Mr. Rutkowski’s performance targets. Mr. Rutkowski will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. Rutkowski’s employment and for a period of two years from the end of Mr. Rutkowski’s employment (howsoever occasioned), Mr. Rutkowski shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. We may terminate the employment of Mr. Rutkowski for cause at any time prior to the end of the term of the Rutkowski Contract without notice or any payment in lieu thereof. In the event we terminate Mr. Rutkowski’s employment without cause within 12 months of a Change of Control (as defined below) or Mr. Rutkowski terminates his employment for Good Reason (as defined below) within 12 months of a Change of Control, Mr. Rutkowski is entitled to receive from us a payment equal to three months’ base salary.

 

SVP, Business Development and Government Affairs, Peter O’Rourke, has signed a contract on April 2, 2021 (the “O’Rourke Contract”) and will be paid an annual base salary of USD$240,000 which will be subject to all required deductions. Mr. O’Rourke shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding our achievement of annual financial and operating targets and Mr. O’Rourke’s performance targets. Mr. O’Rourke will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. O’Rourke’s employment and for a period of two years from the end of Mr. O’Rourke’s employment (howsoever occasioned), Mr. O’Rourke shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. We may terminate the employment of Mr. O’Rourke for cause at any time prior to the end of the term of the O’Rourke Contract without notice or any payment in lieu thereof. In the event we terminate Mr. O’Rourke’s employment without cause within 12 months of a Change of Control (as defined below) or Mr. O’Rourke terminates his employment for Good Reason (as defined below) within 12 months of a Change of Control, Mr. O’Rourke is entitled to receive from us a payment equal to 12 months’ base salary.

 

SVP, Strategy, Rabih Ataya, has signed a contract on November 1, 2019 (the “R. Ataya Contract”) and will be paid an annual base salary of USD$180,000 which will be subject to all required deductions. Mr. Ataya shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding our achievement of annual financial and operating targets and Mr. Ataya’s performance targets. Mr. Ataya will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. Ataya’s employment and for a period of one year from the end of Mr. Ataya’s employment (howsoever occasioned), Mr. Ataya shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. Upon the death or disability of Mr. Ataya such that, in the view of our directors other than Mr. Ataya, Mr. Ataya is not able to carry out his responsibilities, we may terminate Mr. Ataya’s employment by providing him or his estate with pay and severance pay, if applicable, in the amount of six month’s base salary payable monthly. In the event we terminate Mr. Ataya’s employment without cause within 12 months of a Change of Control or Mr. Ataya terminates his employment for Good Reason within 12 months of a Change of Control, he is entitled to receive from us six month’s base salary and any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the BCESA.

 

 

SVP, Technology and Operations, Paul Sauvé, has signed a contract on March 23, 2020 (the “Sauvé Contract”) and will be paid an annual base salary of CAD$210,000 which will be subject to all required deductions. Mr. Sauvé’s annual base salary is increased to CAD$240,000 effective January 1, 2021. Mr. Sauvé shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding our achievement of annual financial and operating targets and Mr. Sauvé’s performance targets. Mr. Sauvé will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. Sauvé’s employment and for a period of one year from the end of Mr. Sauvé’s employment (howsoever occasioned), Mr. Sauvé shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. Upon the death or disability of Mr. Sauvé such that, in the view of our directors other than Mr. Sauvé, Mr. Sauvé is not able to carry out his responsibilities, we may terminate Mr. Sauvé’s employment by providing Mr. Sauvé or his estate with pay and severance pay, if applicable, in the amount of one (1) month’s base salary payable monthly. In the event we terminate Mr. Sauvé’s employment without cause within 12 months of a Change of Control (as defined below) or Mr. Sauvé terminates his employment for Good Reason (as defined below) within 12 months of a Change of Control, Mr. Sauvé is entitled to receive from us one month’s base salary and any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the BCESA.

 

Chief Controller, Andrea Chan, has signed a contract on March 15, 2021 (the “Chan Contract”) and will be paid an annual base salary of CAD$100,000 which will be subject to all required deductions. Ms. Chan’s annual base salary is increased to CAD$120,000 effective June 15, 2021. Ms. Chan will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Ms. Chan’s employment and for a period of one year from the end of Ms. Chan’s employment (howsoever occasioned), Ms. Chan shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. In the event we terminate Ms. Chan’s employment without cause within 12 months of a Change of Control (as defined below) or Ms. Chan terminates her employment for Good Reason within 12 months of a Change of Control, she is entitled to receive from us one month’s base salary and any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the BCESA.

 

 

Corporate Secretary, Karim Alameddine, has signed a contract on April 28, 2020 (the “Alameddine Contract”) and will be paid an annual base salary of CAD$80,000 which will be subject to all required deductions. Mr. Alameddine shall have the opportunity to earn an annual discretionary bonus upon meeting or exceeding the Company’s achievement of annual financial and operating targets and the Employee’s performance targets. Mr. Alameddine will also be granted such stock options as determined by the Board or a committee thereof in its sole discretion and be entitled to participate in our benefits plans. During Mr. Alameddine’s employment and for a period of one year from the end of Mr. Sauvé’s employment (howsoever occasioned), Mr. Alameddine shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, consultant, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe. Upon the death or disability diagnosed by a licensed physician of the Employee such that, in the view of the Company’s directors other than the Employee, the Employee is not able to carry out his essential job functions, the Company may terminate the Employee’s employment by providing the Employee or his estate with pay and severance pay, if applicable, in the amount of six (6) months’ Base Salary payable monthly, and conditioned on the effectiveness of a Release. In the event we terminate Mr. Alameddine’s employment without cause within 12 months of a Change of Control (as defined below) or Mr. Alameddine terminates his employment for Good Reason within 12 months of a Change of Control, he is entitled to receive from us one month’s base salary and any minimum entitlements to written notice of termination, payment in lieu of such notice, or a combination of written notice and payment in lieu of such notice, at our sole discretion, required by the BCESA.

 

Former President and Chief Operating Officer, Barrie Fraser, had a contract with us to be paid an annual base salary of CAD$220,000, subject to all required statutory deductions. Mr. Fraser resigned his position with us effective January 31, 2020. No compensation was issued upon termination of his employment agreement.

 

Former CFO, Kristina Khersonski, signed a contract on January 15, 2020 to be paid an annual base salary of USD$180,000, subject to all required statutory deductions. Ms. Khersonski resigned her position with us effective May 8, 2020. No compensation was issued upon termination of her employment agreement.

 

“Change of Control” is defined in the Lee Contract, S. Ataya Contract, O’Rourke Contract and Sauvé Contract (collectively, the “Management Contracts”) as:

 

(i)

an acquisition, directly or indirectly, of voting our securities (including securities of the Company on which conversion will become voting securities) by any person or group of persons acting in concert such that such person or group of persons are able for the first time to affect materially the control of our company;

 

(ii)

a merger, amalgamation or other business combination of us with or into another entity, or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately thereafter are owned by persons who were not our security holders immediately prior to such merger, amalgamation, business combination or reorganization;

 

(iii)

the exercise of the voting power of any of all of our securities so as to cause or result in the election of a majority of members of the Board who were not previously incumbent directors thereof;

 

(iv)

the completion of a tender offer, an exchange offer, a take-over bid or any other offer or bid by an entity, person or group (other than with us or a wholly-owned subsidiary of ours) of more than 50% of our issued and outstanding voting securities; or

 

 

(v)

the sale, transfer or disposition by us of all or substantially all of our assets.

 

“Good Reason” is defined in the Management Contracts as:

 

(i)

a material and detrimental change in the title, position, duties and responsibilities, authority or status of the executive with us;

 

(ii)

a material breach by us of the employment agreement; or

 

(iii)

a material reduction of the executive’s base salary.

 

and in the case of the O’Rourke Contract, also includes the assignment by us of any substantial new duties inconsistent with Mr. O’Rourke’s positions, duties, responsibilities and status with us immediately prior to such a change in assigned duties.

 

Outstanding Equity Awards Table

 

The following table sets forth outstanding equity awards for our named executive officers at fiscal 2020 year-end.

 

		Option Awards
Name and Principal Position		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 (CAD$)				Option Expiration Date			Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Sam Ataya			3,000,000				—				—				0.05			2023-12-04				—				—				—
Director, President and CEO			2,000,000				—				—				0.12			2024-05-22
			650,000				—				—				0.12			2025-04-23				—				—				—
Edward Lee			250,000				—				—				0.05			2022-03-27				—				—				—
Director, Executive			750,000				—				—				0.05			2023-08-12				—				—				—
Chairman and former			850,000				—				—				0.05			2023-12-04				—				—				—
President and CEO			2,300,000				—				—				0.12			2024-05-22				—				—				—
			700,000				—				—				0.12			2025-04-23				—				—				—
Kim Evans			—				—				—				—			—				—				—				—
CFO			—				—				—				—			—				—				—				—
Kristina Khersonski			—				—				—				—			—				—				—				—
Former CFO (1)			—				—				—				—			—				—				—				—
Dennis Mee			—				—				—				—			—				—				—				—
Former Director and CFO (2)			—				—				—				—			—				—				—				—
Rabih Ataya			250,000				—				—				0.12			2024-05-22				—				—				—
Director and SVP,			250,000				—				—				0.15			2024-11-03
Strategy			200,000				—				—				0.12			2025-04-23				—				—				—
Lisa Maxwell			250,000				—				—				0.05			2022-03-27				—				—				—
EVP			300,000				—				—				0.05			2023-08-12				—				—				—
			300,000				—				—				0.05			2023-12-04
			500,000				—				—				0.12			2024-05-22
			400,000				—				—				0.12			2025-04-23
Paul Sauvé			300,000				—				—				0.11			2025-03-26				—				—				—
SVP, Technology & Operations			150,000				—				—				0.12			2025-04-23				—				—				—
Barrie Fraser			—				—				—				—			—				—				—				—
Former Director, President and Chief Operating Officer (3)			—				—				—				—			—				—				—				—

 

 

Notes:

 

(1)	Ms. Khersonski resigned as our CFO on May 8, 2020. There were no unvested options as of May 8, 2020. Following Ms. Khersonski’s resignation, all 1,050,000 vested options expired on August 6, 2020.
(2)	Mr. Mee passed away on February 14, 2020. There were no unvested options as of February 14, 2020 and all 850,000 vested options expired on February 14, 2020.
(3)	Mr. Fraser resigned as our President, Chief Operating Officer and director on January 31, 2020. There were no unvested options as of January 31, 2020. Following Mr. Fraser’s resignation, all 2,500,000 vested options expired on Jul 31, 20202.

 

Retirement Benefit Plans

 

We do not have any pension, defined benefit, defined contribution or deferred compensation plans in place.

 

Termination and Change of Control Benefits

 

Except as described below, we do not have any contract, agreement, plan or arrangement that provides for payments to a named executive officer at, following or in connection with a termination (whether voluntary, involuntary or constructive), resignation, retirement, a change of control of our company or a change in a named executive officer’s responsibilities.

 

For each of the foregoing agreements, the following table summarizes the estimated incremental payments that are triggered by, or result from, change of control, severance, termination or constructive dismissal (assuming such events had occurred on or before October 31, 2020):

 

NEO or Director		Payout for Termination Without Cause by the Company / Change of Control (1) / Good Reason (2)
Edward Lee, Director and Executive Chairman		USD$3,000,000
Sam Ataya, Director, Executive President and CEO		USD$3,000,000
Peter O’Rourke, Director and SVP, Business Development and Government Affairs		USD$240,000 (3)
Paul Sauvé, SVP, Technology and Operations		CAD$17,500

 

Notes:

 

(1)	Termination by us without cause within 12 months of a Change of Control.
(2)	Termination by the Executive for Good Reason within 12 months of a Change of Control.
(3)	Does not apply to termination without cause by us.

 

Director Compensation

 

The following table sets forth all compensation paid to or earned by each of our directors during fiscal year 2020, except for compensation with respect to Messrs. Sam Ataya, Lee, Rabih Ataya and Fraser. Information with respect to the compensation of these current and former directors is included above in the “Summary Compensation Table.” As our executive officers, none of these current and former director (other than as described above) received any compensation for service as a director during fiscal year 2020.

 

 

Name		Fees Earned or Paid in Cash (1) ($)				Stock Awards ($)				Option Awards (2) ($)				Non-Equity Incentive Plan Compensation ($)				Non-qualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Robert Brown Current Director			—				—				9,882				—				—				—				9,882
Frank Halliday Former Director (3)			—				—				—				—				—				48,666				48,666
Michael Pickholz Former Director (4)			—				—				9,882				—				—				3,960				13,842
James Sever Former Director			—				—				—				—				—				—				—
Stephen Thorlakson Current Director			—				—				45,994				—				—				—				45,994
Jeff Wilson Current Director			—				—				9,882				—				—				—				9,882

 

Notes:

 

(1)	Director cash compensation during the fiscal year ended October 31, 2020.
(2)	The amounts reported in the Stock Awards and the Option Awards columns reflect aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation—Stock Compensation. These amounts reflect our calculation of the value of these awards at the grant date and do not necessarily correspond to the actual value that may ultimately be realized by the named executive officer. Assumptions used in the calculation of these amounts are included in Note 13 to our audited consolidated financial statements for the fiscal year ended October 31, 2020, which are included elsewhere in this registration statement.
(3)	Mr. Halliday was appointed as a director on December 19, 2018 and resigned on March 10, 2020. Mr. Halliday’s reported All Other Compensation for 2020 was salary for his position as our former Socioeconomic and Environmental Permitting Director and he was not separately compensated as a director.
(4)	Mr. Pickholz was appointed as a director on October 18, 2018 and resigned on December 8, 2020. Mr. Pickholz’s reported All Other Compensation for 2020 was consulting fees for consulting services provided and he was not separately compensated as a director.

 

Compensation Committee Interlocks and Insider Participation

 

See Item 7— “Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons” for further details.

 

None of our executive officers served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as our director or on the Compensation Committee, during fiscal 2020. None of our executive officers served as a director of another entity, one of whose executive officers served on the Compensation Committee, during fiscal 2020.

 

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

A related party transaction includes any transaction or proposed transaction in which:

 

	●	we are or will be a participant;
	●	the aggregate amount involved exceeds $120,000 in any fiscal year; and
	●	any related party has or will have a direct or indirect material interest.

 

Related parties include any person who is or was (since the beginning of the last fiscal year, even if such person does not presently serve in that role) our executive officer or director, any shareholder owning more than 5% of any class of our voting securities or an immediate family member of any such person.

 

 

Any potential related party transaction that requires approval will be reviewed and overseen by the Audit Committee, and the Audit Committee will consider such factors as it deems appropriate to determine whether to approve, ratify or disapprove the related party transaction. The Audit Committee may approve the related party transaction only if it determines in good faith that, under all of the circumstances, the transaction is in the best interests of us and our shareholders.

 

Transactions with Related Parties

 

(1) Sam Ataya

 

Mr. Ataya is a director, Executive President and Chief Executive Officer of the Company. Mr. Ataya is also principal of The Stirling Group (“Stirling”). Stirling is a consulting company that provides us with management and operational services and has been involved in facilitating payment of expenses related to the ongoing construction of our planned magnesium research and development pilot plant and to obtain necessary permits and authorizations to construct and operate the facility.

 

During the current fiscal year ending October 31, 2021, we provided advances to Stirling on our behalf for anticipated future costs related to our planned magnesium research and development pilot plant and other administrative expenses (the “Pilot Plant Advances”). During the nine months ended July 31, 2021, we advanced Stirling the aggregate amount of $987,032, of which Stirling used $486,354 for costs and expenses related to our planned pilot plant leaving a balance held of $500,678 as of July 31, 2021. Subsequent to July 31, 2021, we advanced Stirling the aggregate amount of $300,000 related to Pilot Plant Advances, of which Stirling used $18,350 for costs and expenses related to the planned pilot plant leaving a balance held of $782,328 as of August 31, 2021.

 

We did not make any Pilot Plant Advances to Stirling in our fiscal years ended October 31, 2020 or October 31, 2019.

 

During the year ended October 31, 2019, the Company received an unsecured loan of CAD$150,000 (USD equivalent $112,898) from Mr. Ataya. The loan bears interest at 18% and is due on demand. During the year ended October 31, 2020, the loan was increased by an additional CAD$60,000 (USD equivalent $44,588) to CAD$210,000 (USD equivalent $157,483) and is due on September 24, 2021. As of July 31, 2021, we have repaid the entire principal balance and all interests accrued in the amount of CAD$26,724 (USD equivalent $19,944).

 

The Company has entered into a sublease agreement with Stirling for our Canadian office at Suite 900, 580 Hornby Street, Vancouver, British Columbia, Canada, V6C 3B6. The lease had a two-year term from April 1, 2019 to March 31, 2021 and required a monthly payment of CAD$9,345 for a total of CAD$224,280. The sublease agreement has been renewed for another two-year term from April 1, 2021 to March 31, 2023 and requires a monthly payment of CAD$9,794 for a total of CAD$235,056.

 

(2) Lisa Maxwell

 

Ms. Maxwell is Executive Vice President of the Company. Ms. Maxwell is also principal of Sequoia Corporate Services Inc. (“Sequoia”). Sequoia is a consulting company that provides us with management and operational services and has been involved in facilitating payment of expenses related to the ongoing construction of our planned magnesium research and development pilot plant and to obtain necessary permits and authorizations to construct and operate the facility.

 

During the current fiscal year ending October 31, 2021, we provided Pilot Plant Advances to Sequoia. During the nine months ended July 31, 2021, we advanced Sequoia the aggregate amount of $1,420,013, of which Sequoia used $1,272,982 of such advances for costs and expenses related to the planned pilot plant leaving a balance held of $147,031 as of July 31, 2021. Subsequent to July 31, 2021, we advanced Sequoia the aggregate amount of $869,815 related to Pilot Plant Advances, of which Sequoia used $358,021 for costs and expenses related to the planned pilot plant leaving a balance held of $658,825 as of August 31, 2021.

 

We did not make any Pilot Plant Advances to Sequoia in our fiscal years ended October 31, 2020 or October 31, 2019.

 

 

Director Independence

 

For purposes of this registration statement, the independence of our directors is determined under the corporate governance rules of the Nasdaq Stock Market (“Nasdaq”). The independence rules of Nasdaq include a series of objective tests, including that an “independent” person will not be employed by us and will not be engaged in various types of business dealings with us. In addition, our board of directors is required to make a subjective determination as to each person that no material relationship exists with us either directly or as a partner, shareholder or officer of an organization that has a relationship with us. It has been determined that three of our directors are independent persons under the independence rules of Nasdaq: Robert Brown, Jeff Wilson and Stephen Thorlakson.

 

ITEM 8. LEGAL PROCEEDINGS

 

Legal Proceedings

 

As of the date of this registration statement on Form 10, to our knowledge, there are no legal proceedings or regulatory actions material to us to which we are a party, or have been a party to, or of which any of our property is or was the subject matter of, and no such proceedings or actions are known by us to be contemplated except as provided below:

 

James Sever Claim. On September 29, 2020, James Sever filed a Notice of Civil Claim against us in the Supreme Court of British Columbia (Court File No. S-209728) (the “Sever Claim”). The Sever Claim alleges that Mr. Sever had an employment and/or other similar contractual relationship with us, and that we breached such contractual relationship by way of constructive dismissal or similar conduct. The Sever Claim seeks damages in excess of $2,500,000, certain equity compensation, prejudgment garnishment, costs, interest and other non-monetary relief. On July 27, 2021, we filed a response to the Sever Claim, which included the following pleadings: (a) that we were never properly served with the Sever Claim; (b) that we have never had any form of employment, independent or consulting relationship or agreement with Sever; (c) that we had no debts, liabilities or obligations to Sever; (d) that to the extent that Sever had some form of employment, independent or consulting or similar relationship or agreement as alleged in the Sever Claim (the existence of which we denied) such contract or relationship, if one existed, was never with us and was with some other corporate entity and, furthermore:

 

(i) any such contract or relationship would be governed by laws of the United States;

 

(ii) all, many or some of the claims in the Sever Claim would be barred by the British Columbia Limitation Act to the extent British Columbia law applies;

 

(iii) any such contract or relationship did not exist as alleged in the Sever Claim;

 

(iv) Mr. Sever was not terminated or constructively dismissed and, instead, Mr. Sever never provided any services under any such contract or relationship because Mr. Sever abandoned or resigned from, and/or failed to fulfil any of his obligations under, any and all contracts and relationships; and/or

 

(v) Mr. Sever failed to mitigate or alternatively has mitigated.

 

We intend to vigorously defend against the Sever Claim, and we believe that the Sever Claim is without merit. We cannot predict the outcome of the claim, however.

 

 

GEM Yield Bahamas Limited Arbitration. On December 31, 2020, GEM Yield Bahamas Limited (“GEM”) served us with a Notice of Intention to Arbitrate (the “New York Arbitration Notice”) before the American Arbitration Association in New York, New York (Case No. 01-21-0004-2162) (the “GEM New York Arbitration”). The New York Arbitration Notice alleges we breached a Share Subscription Agreement dated November 15, 2019 entered into between us and GEM (the “GEM Agreement”), among other things, claiming damages of CDN$4.2 million (USD$ 3.3 million). On January 19, 2021, we filed a petition in the New York Supreme Court (Index No. 650401/2021 (the “New York State Action”) to stay the GEM New York Arbitration claiming the GEM Agreement was not valid. The Court in the New York State Action ruled on March 19, 2021 that there is an arbitration clause in the GEM Agreement but it is up the arbitrator in the GEM New York Arbitration to determine if the arbitration clause is valid. Following this ruling, the New York State Action was closed. GEM filed a Statement of Claim in the GEM New York Arbitration on June 9, 2021 and on June 25, 2021, we filed a Statement of Answer denying the existence of any binding agreement between us and GEM, among other defenses. Furthermore, we intend to vigorously defend ourselves and believe the allegations against us in the GEM New York Arbitration lack merit. We cannot predict the outcome of this arbitration proceeding, however.

 

There have been no substantive motions or pleadings in the GEM New York Arbitration aside from the Statement of Claim and Statement of Answer discussed above.

 

GEM Yield Bahamas Limited and GEM Global Yield LLC SC Arbitration. On or about February 8, 2021, GEM instituted another arbitration against us before the International Centre for Dispute Resolution in Montreal Canada (Case No. 01-21-0001-1245) (the “GEM Montreal Arbitration”) and joined, GEM’s affiliate, GEM Global Yield LLC SC (“GEM Global Yield” together with GEM, the “GEM Parties”). Similar to the allegations in the GEM New York Arbitration, the Statement of Claim filed by the GEM Parties alleges we breached a Share Subscription Agreement dated November 15, 2019 and promissory note, among other things, claiming damages of CDN$4.9 million (US $3.85 million), in addition to costs and expenses stemming from our alleged failure to issue to GEM Global Yield warrants to purchase up to 33,000,000 shares of our common stock. We are in the process of selecting an arbitrator in this matter along with the GEM Parties and following that, we will file a Statement of Answer. We intend to vigorously defend ourselves in the GEM Montreal Arbitration and believe the allegations against us in this arbitration proceeding lack merit. We cannot predict, however, the outcome of this arbitration proceeding.

 

There have been no substantive motions or pleadings or rulings aside from the Statement of Claim and Statement of Answer.

 

Lampert Advisors, LLC Claim. On April 19, 2021, Lampert Advisors, LLC (“Lampert”) filed a Verified Complaint against our wholly owned subsidiary Western Magnesium Corporation, a Nevada corporation (“Western Magnesium – Nevada”) in the Supreme Court of the State of New York, County of New York (Index No. 652738/2021) (the “Lampert Lawsuit”). The complaint filed in the Lampert Lawsuit alleges that Lampert entered into an agreement with Western Magnesium – Nevada to provide various financial advisory services including acquisition advisory services and act as an exclusive placement agent for a debt and equity securities (the “Lampert Agreement”), that it performed all services required under that agreement and such services were received and accepted by our subsidiary, that it is owed $367,227.32 plus interest at the rate of 9% from February 3, 2021 and that it has a right of first refusal to act as financial advisor in connection with any debt, equity or debt restructuring assignments on terms, conditions and compensation customary for Lampert for a transaction of the type contemplated. Although Lampert claims to have personally served Western Magnesium – Nevada, the company never received the Summons and Complaint and therefore, never submitted a response.

 

On September 9, 2021, Lampert filed a Motion seeking the entry of a default judgment (the “Motion”) alleging that Western Magnesium – Nevada failed to file an answer or motion with respect to the complaint in this lawsuit within the time period provided under the civil rules of procedure. On October 6, 2021, Western Magnesium – Nevada filed a request to extend the time to respond to the Motion. This request was granted and Western Magnesium – Nevada’s time to respond to the Motion is now October 21, 2021.

 

We intend to vigorously defend ourselves and believe the allegations against us in the Lampert Lawsuit lack merit. We cannot predict the outcome of this lawsuit, however.

 

Litigation Assessment

 

We have evaluated the foregoing claims to assess the likelihood of any unfavorable outcome and to estimate, if possible, the amount of potential loss as it relates to the litigation discussed above. Based on this assessment and estimate, which includes an understanding of our intention to vigorously defend the claims against us, we believe that the claims of any of the plaintiffs lack merit, however, and we cannot predict the likelihood of any recoveries by any of the plaintiffs against us. This assessment and estimate is based on the information available to management as of the date of this registration statement and involves a significant amount of management judgment, including the inherent difficulty associated with assessing litigation matters in their early stages. As a result, the actual outcome or loss may differ materially from those envisioned by the current assessment and estimate. Our failure to successfully defend or settle these claims could have a material adverse effect on our financial condition, revenue and profitability and could cause the market value of our common stock to decline.

 

 

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Trading Price and Volume

 

Our common stock is traded on the TSXV under the symbol “WMG.” The following table sets forth trading information for the shares of common stock for the periods indicated. ⁽¹⁾

 

		Low Trading Price				High Trading Price
Period		(CAD$)				(CAD$)
Third Quarter (July 31, 2021)			0.105				0.330
Second Quarter (April 30, 2021)			0.105				0.175
First Quarter (January 31, 2021)			0.100				0.180
Year Ended October 31, 2020
Fourth Quarter (October 31, 2020)			0.115				0.150
Third Quarter (July 31, 2020)			0.105				0.170
Second Quarter (April 30, 2020)			0.085				0.175
First Quarter (January 31, 2020)			0.105				0.230
Year Ended October 31, 2019
Fourth Quarter (October 31, 2019)			0.130				0.250
Third Quarter (July 31, 2019)			0.045				0.350
Second Quarter (April 30, 2019)			0.040				0.055
First Quarter (January 31, 2019)			0.040				0.055

 

Notes:

 

(1)	Source: Yahoo Finance.

 

Our common stock is also traded on the OTCQB under the symbol “MLYF.” The following table sets forth trading information for our common stock for the periods indicated, as quoted on the OTCQB. ⁽¹⁾

 

		Low Trading Price				High Trading Price
Period		($)				($)
Third Quarter (July 31, 2021)			0.0850				0.2661
Second Quarter (April 30, 2021)			0.0811				0.1400
First Quarter (January 31, 2021)			0.0769				0.1500
Year Ended October 31, 2020
Fourth Quarter (October 31, 2020)			0.0810				0.1153
Third Quarter (July 31, 2020)			0.0761				0.1200
Second Quarter (April 30, 2020)			0.0680				0.1279
First Quarter (January 31, 2020)			0.0794				0.1740
Year Ended October 31, 2019
Fourth Quarter (October 31, 2019)			0.0993				0.2000
Third Quarter (July 31, 2019)			0.0345				0.4300
Second Quarter (April 30, 2019)			0.0285				0.0480
First Quarter (January 31, 2019)			0.0252				0.0430

 

Notes:

 

(1)	Source: Yahoo Finance.

 

Shareholders

 

As of the date of this registration statement on Form 10, there are 857 holders of record of our common stock.

 

Dividends

 

We have not declared or paid any dividends on our common stock since our inception. We currently intend to reinvest all cash resources to finance the development and growth of our business. As a result, we do not intend to pay dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on the financial condition, earnings, legal requirements, restrictions in its debt agreements and any other factors that our board of directors deems relevant. In addition, as a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their respective jurisdictions of organization, agreements of our subsidiaries or covenants under future indebtedness that we or our subsidiaries may incur.

 

 

Equity Compensation Plans

 

2017 Stock Option Plan

 

Our shareholders and board of directors approved a stock option plan effective on August 8, 2017 (the “2017 Stock Option Plan”) which consisted of a fixed number stock option plan reserving for issuance pursuant to the exercise of stock options a maximum of 35,219,701 shares of our common stock. At our shareholder meeting on August 8, 2018, our shareholders approved an increase in the number of shares of common stock reserved for issuance under the 2017 Stock Option Plan to 36,643,701 (the “2017 Stock Option Plan Limit”).

 

The purpose of the 2017 Stock Option Plan is to attract and retain employees, officers, directors, consultants and management company employees to motivate them to advance our interests by affording them the opportunity to acquire an equity interest in our company through stock options. The 2017 Stock Option Plan was expected to benefit our shareholders by enabling us to attract and retain personnel of the highest caliber by offering to them an opportunity to share in any increase in the value of our common stock to which they have contributed.

 

Under the 2017 Stock Option Plan, the option exercise price must not be less than the last closing price of our common stock before the issuance of the required news release disclosing the grant of stock options (subject to the exceptions prescribed by the TSXV, less the applicable discount permitted by the policies of the TSXV). A stock option granted under the 2017 Stock Option Plan must, unless sooner terminated, expire on a date to be determined by our board of directors which cannot exceed ten years from the date the stock option is granted.

 

The number of shares of our common stock reserved for issuance to any one optionee pursuant to stock options granted under the 2017 Stock Option Plan, together with any shares of our common stock reserved for issuance pursuant to stock options granted to that optionee during the previous 12 months must not exceed 5% of the issued and outstanding common stock at the time of granting of the stock options, provided that the aggregate number of stock options granted to each of the following categories of optionee: (a) each individual consultant; and (b) persons performing investor relations activities on our behalf, must not exceed 2% of the outstanding Shares at the time of grant unless the TSXV permits otherwise.

 

Subject to the discretion of our board of directors to apply vesting to the grant of any stock option, the stock options granted to an optionee under the 2017 Stock Option Plan will fully vest on the date of grant of such stock options. In accordance with the policies of the TSXV, and subject to the TSXV’s approval to the contrary, stock options granted to consultants performing investor relations activities must vest (and not otherwise be exercisable) in stages over a minimum of 12 months with no more than ¼ of the stock options vesting in any three month period.

 

If an optionee dies prior to the expiry of the optionee’s stock option, the optionee’s heirs, administrators or legal representatives may, by the earlier of: (a) one year from the date of the optionee’s death (or such lesser period as may be specified by our board of directors at the time of granting the stock option); and (b) the expiry date of the stock option; exercise any portion of such stock option. If an optionee ceases to be a director, officer, employee or consultant for any reason other than death, then such optionee’s stock option will terminate within a reasonable period to be determined by our board of directors commencing on the effective date the optionee ceases to be employed by or provide services to us (but only to the extent that such stock option has vested on or before the date the optionee ceased to be so employed or provide services to us) as provided for in the written option agreement between us and the optionee. The maximum exercise period upon such cessation is six months unless the optionee has entered into a valid employment or consulting agreement that provides for a longer exercise period, but in no case will the exercise period in such cessation be greater than one year unless prior TSXV approval has been given.

 

Subsequent to August 8, 2018 and up to July 31, 2021, we granted additional stock options and there were 42,170,000 stock options issued and outstanding, net of 24,927,000 expired stock options and 1,913,000 exercised stock options during the period, which was in excess of the 2017 Stock Option Plan Limit. Under TSXV policies, at our annual shareholders’ meeting on June 11, 2021 (the “2021 Annual Meeting”), we obtained (a) shareholder approval for the increase in the number of shares of our common stock reserved for issuance under the 2017 Stock Option Plan to 42,370,000 shares of our common stock (the “Increased Stock Option Limit”); and (b) Disinterested Shareholder Approval for the grant of 6,626,299 stock options on December 30, 2020 that resulted in the 2017 Stock Option Plan Limit being exceeded (the “Excess Stock Option Grant”). “Disinterested Shareholder Approval” means approval by a majority of the votes cast by all our shareholders at a duly constituted shareholders’ meeting, excluding votes attached to common stock beneficially owned by insiders that received the Excess Stock Option Grants. Edward Lee, our Executive Chairman, was granted 5,000,000 stock options on December 30, 2020, and Sam Ataya, our Executive President and CEO, was granted 4,500,000 stock options on December 30, 2020. These options have an exercise price of $0.13 and expire on December 30, 2025.

 

 

Following the shareholder approval of the Increased Stock Option Limit, the Excess Stock Option Grant and the 2021 Equity Incentive Plan discussed below, we do not intend to grant additional stock options under the 2017 Stock Option Plan. Any shares of our common stock reserved for issuance under the 2017 Stock Option Plan that are forfeited as a result of the expiration or termination of any awards under that plan after the date of adoption of the 2021 Equity Incentive Plan will, however, be added to the 2021 Equity Incentive Plan.

 

2021 Equity Incentive Plan

 

Our shareholders and our board of directors approved the 2021 Equity Incentive Plan effective June 11, 2021 and to reserve for the grant of awards under that plan up to 27,312,368 shares of our common stock. We are awaiting the TSXV’s approval of the 2021 Equity Incentive Plan prior to it becoming effective. The granting of awards under the 2021 Equity Incentive Plan is intended to attract and retain the highly qualified employees essential for the execution of our business strategy. The Company believes the 2021 Equity Incentive Plan will (i) attract and retain key personnel, and (ii) provide a means whereby our directors, officers, employees, consultants, and advisors and our subsidiaries can acquire and maintain an equity interest in our company, or be paid incentive compensation, including incentive compensation measure by reference to the value of our common stock, thereby strengthening their commitment to our welfare and aligning their interests with those of our stockholders. Eligible participants under the 2021 Equity Incentive Plan include employees, directors and independent contractors (except those performing services in connection with the offer or sale of our securities in a capital raising transaction, or promoting or maintaining a market for our securities) of our company or our subsidiaries will be eligible to receive awards under the 2021 Equity Incentive Plan. The 2021 Equity Incentive Plan will be administered by our board of directors or such other committee appointed by our board of directors (the “Administrator”).

 

The 2021 Equity Incentive Plan provides for various equity-based and cash-based incentive awards, including incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”), performance units and shares and other equity-based or cash-based awards.

 

The Administrator or its permitted delegates has the power and discretionary authority to determine the amount, terms and conditions of the 2021 Equity Incentive Plan awards, including, without limitation, (i) the exercise price of any stock options or stock appreciation rights, (ii) the method of payment for shares purchased pursuant to any award, (iii) the method for satisfying any tax withholding obligation arising in connection with any award, including by net exercise or the withholding or delivery of shares, (iv) the timing, terms and conditions of the exercisability, vesting or payout of any award or any shares acquired pursuant thereto, (v) the performance criteria, if any, applicable to any award and the extent to which such performance criteria have been attained, (vi) the time of the expiration of any award, (vii) the effect of the participant’s termination of service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any award or shares acquired pursuant thereto as our board of directors shall consider to be appropriate and not inconsistent with the terms of the 2021 Equity Incentive Plan. A non-employee director may not be granted 2021 Equity Incentive Plan awards that exceed in the aggregate $300,000 in any calendar year. The foregoing limit does not apply to any award made pursuant to any election by the director to receive an award in lieu of all or a portion of annual and committee retainers and meeting fees.

 

The following table sets forth securities authorized for issuance under the 2017 Stock Option Plan as of October 31, 2020 and compensation plans not approved by our shareholders.

 

Number of securities to be issued upon exercise of outstanding options, warrant and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans

Plan Category

(#)

(CAD$)

(#)

Equity compensation plans approved by security holders

36,643,701

0.09

8,223,701

Equity compensation plans not approved by security holders

–

–

–

Total

36,643,701

0.09

8,223,701

 

 

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

 

The following information represents securities sold by us within the past three years through July 31, 2021 which were not registered under the Securities Act. Included are new issues, securities issued in exchange for property, services or other securities, securities issued upon conversion from our other share classes and new securities resulting from the modification of outstanding securities. We sold all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder.

 

Common Stock

 

During the Fiscal Year ended October 31, 2018

 

On February 5, 2018, in consideration of services provided to the Company, 1,500,000 common shares were issued to Industrial Surplus Supplies Ltd. at a price of CAD$0.05 per share for a fair value of CAD$75,000 (USD equivalent $60,082).

 

On May 7, 2018, in connection with a non-brokered private placement, 3,100,000 units were issued to private investors at a price of CAD$0.05 per share for gross proceeds of CAD$155,000 (USD equivalent $120,491). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.07 per share for a period of two years.

 

On October 4, 2018, in connection with a non-brokered private placement, 8,200,000 units were issued to private investors at a price of CAD$0.05 per share for gross proceeds of CAD$410,000 (USD equivalent $317,829). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.08 per share for a period of two years. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceeds CAD$0.10 per share for at least ten consecutive trading days. In connection with this transaction, 16,000 broker’s warrants were issued to agents exercisable at a price of CAD$0.08 per share for a period of two years. Finder’s fees of $620 were paid in cash.

 

On October 12, 2018, in connection with two non-brokered private placements of unsecured convertible notes, 9,201,150 common shares were issued to the holder of the convertible notes for settlement of the two convertible notes at a price of CAD$0.05 per share with aggregate face value and interest of CAD$460,057 (USD equivalent $353,049). Upon conversion, the equity component of CAD$39,167 (USD equivalent $30,056) previously recorded in equity reserves was reclassified to share capital.

 

During the fiscal year ended October 31, 2018, an aggregate of 13,000 common shares were issued to a director upon the exercise of options at a price CAD$0.05 per share for gross proceeds of CAD$650 (USD equivalent $498).

 

During the fiscal year ended October 31, 2018, in consideration of services provided to the Company, an aggregate of 500,000 common shares were issued to Lodestar Management Group, LLC. (“Lodestar”) at a price of CAD$0.05 per share for a fair value of CAD$25,000 (USD equivalent $19,310).

 

During the Fiscal Year ended October 31, 2019

 

On November 30, 2018, in connection with a non-brokered private placement, 7,699,760 units were issued to private investors at a price of CAD$0.05 per share for gross proceeds of CAD$384,988 (USD equivalent $289,443). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.08 per share for a period of two years. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceeds CAD$0.10 per share for at least ten consecutive trading days. In connection with this transaction, 145,960 common shares were issued to agents at a price of CAD$0.05 for a fair value of CAD$7,298 (USD equivalent $5,487). Finder’s fees of $18,097 were paid in cash.

 

 

On January 23, 2019, in connection with a non-brokered private placement, 6,348,435 units were issued to private investors at a price of CAD$0.05 per share for gross proceeds of CAD$317,422 (USD equivalent $237,805). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.08 per share for a period of two years. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceeds CAD$0.10 per share for at least ten consecutive trading days. In connection with this transaction, 597,001 common shares at a price of CAD$0.05 for a fair value of CAD$29,850 (USD equivalent $22,363) and 40,000 broker’s warrants exercisable at a price of CAD$0.08 per share for a period of two years were issued to agents. Finder’s fees of $5,530 were paid in cash.

 

On March 29, 2019, in connection with a non-brokered private placement, 11,750,464 units were issued to private investors at a price of CAD$0.05 per share for gross proceeds of CAD$587,523 (USD equivalent $439,664). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.08 per share for a period of two years. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceeds CAD$0.10 per share for at least ten consecutive trading days. In connection with this transaction, 218,287 common shares were issued to agents at a price of CAD$0.05 for a fair value of CAD$10,914 (USD equivalent $8,168). Finder’s fees of $28,262 were paid in cash.

 

On May 13, 2019, in connection with a non-brokered private placement, 34,712,595 units were issued to private investors at a price of CAD$0.05 per share for gross proceeds of CAD$1,735,630 (USD equivalent $1,289,053). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.08 per share for a period of two years. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceeds CAD$0.10 per share for at least ten consecutive trading days. Finder’s fees of $94,216 were paid in cash.

 

On September 6, 2019, 328,571 common shares were issued to a non-arm’s length party for settlement of debt at a price of CAD$0.175 per share for a fair value of CAD$57,500 (USD equivalent $43,647).

 

During the fiscal year ended October 31, 2019, an aggregate of 3,455,235 common shares were issued to private investors upon the exercise of warrants at a price of CAD$0.05 per share for gross proceeds of CAD$172,762 (USD equivalent $131,071).

 

During the fiscal year ended October 31, 2019, an aggregate of 11,600,109 common shares were issued to private investors upon the exercise of warrants at a price of CAD$0.08 per share for gross proceeds of CAD$928,009 (USD equivalent $706,111).

 

During the fiscal year ended October 31, 2019, an aggregate of 1,100,000 common shares were issued to certain officers and consultants upon the exercise of options at a price CAD$0.05 per share for gross proceeds of CAD$55,000 (USD equivalent $41,553). Upon exercise, CAD$36,750 (USD equivalent $27,723) previously recorded in reserves was reclassified to share capital.

 

During the fiscal year ended October 31, 2019, in consideration of services provided to the Company, an aggregate of 150,000 common shares were issued to a service provider at a price of CAD$0.05 per share for a fair value of CAD$7,500 (USD equivalent 5,668).

 

During the Fiscal Year ended October 31, 2020

 

On December 20, 2019, the Company exercised its right to call all outstanding common share purchase warrants set to expire between May 7, 2020 and May 13, 2021 to expiry on January 19, 2020, and then extended the expiration date to February 19, 2020. Any unexercised warrants were voided and of no value after February 19, 2020. From November 13, 2019 through March 11, 2020, an aggregate of 32,472,661common shares were issued to private investors upon the exercise of warrants at a price of CAD$0.08 per share for gross proceeds of CAD$2,597,813 (USD equivalent $1,969,797), an aggregate of 3,000,000 common shares were issued to private investors upon the exercise of warrants at a price of CAD$0.07 per share for gross proceeds of CAD$210,000 (USD equivalent $158,718), and a further 4,864,000 common shares were issued to private investors upon the exercise of warrants at a price of CAD$0.05 per share for gross proceeds of CAD$243,200 (USD equivalent $184,769). 24,794,484 warrants expired unexercised.

 

 

On January 17, 2020, in connection with a non-brokered private placement, 3,643,791 units were issued to private investors at a price of CAD$0.15 per share for gross proceeds of CAD$546,569 (USD equivalent $416,719). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.21 per share for a period of one year. Subsequent to October 31, 2020, we extended the expiration date of the warrants to August 31, 2021. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceeds CAD$0.30 per share for at least ten consecutive trading days. Finder’s fees of $41,275 were paid in cash.

 

On May 26, 2020, 100,000 common shares were issued to a consultant upon the exercise of options at a price CAD$0.05 per share for gross proceeds of CAD$5,000 (USD equivalent 3,568).

 

On May 26, 2020, 400,000 common shares were issued to a consultant upon the exercise of options at a price CAD$0.08 per share for gross proceeds of CAD$32,000 (USD equivalent $22,833). Upon exercise, CAD$27,715 (USD equivalent $19,775) previously recorded in equity reserves was reclassified to share capital.

 

During the Nine months ended July 31, 2021

 

On November 20, 2020, in connection with a non-brokered private placement, 5,599,171 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$727,892 (USD equivalent $556,876). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On January 15, 2021, in connection with a non-brokered private placement, 7,400,214 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$962,029 (USD equivalent $755,798). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On January 29, 2021, in connection with a non-brokered private placement, 5,382,303 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$699,699 (USD equivalent $547,496). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On March 24, 2021, in connection with a non-brokered private placement, 6,554,172 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$852,042 (USD equivalent $678,270). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On April 27, 2021, in connection with a non-brokered private placement, 851,395 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$110,681 (USD equivalent $89,237). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On March 12, 2021, 100,000 common shares were issued to a consultant upon the exercise of options at a price CAD$0.05 per share for gross proceeds of CAD$5,000 (USD equivalent $4,002).

 

On April 26, 2021, an aggregate of 400,000 common shares were issued to private investors upon the exercise of common share purchase warrants at a price of CAD$0.05 per share for gross proceeds of CAD$20,000 (USD equivalent $16,113).

 

On May 18, 2021, in connection with the conversion of the July 2020 Convertible Debenture including accrued interest, 1,360,959 common shares were issued to private investors with a value of $162,829.

 

On May 28, 2021, in connection with a non-brokered private placement, 5,223,420 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$679,044 (USD equivalent $561,843). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On June 7, 2021, in consideration of services provided to the Company, 1,538,461 common shares were issued to Industrial Surplus Supplies Ltd. at a price of CAD$0.13 per share for a fair value of CAD$200,000 (USD equivalent $165,658).

 

On June 10, 2021, 200,000 common shares were issued to a consultant upon the exercise of options at a price CAD$0.05 per share for gross proceeds of CAD$10,000 (USD equivalent $8,269).

 

On June 17, 2021, in connection with a non-brokered private placement, 17,853,506 units were issued to private investors at a price of CAD$0.13 per share for gross proceeds of CAD$2,320,956 (USD equivalent $1,880,687). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.19 per share for a period of one year.

 

On June 30, 2021, 54,901 common shares were issued to a private investor upon the exercise of common share purchase warrants at a price of CAD$0.05 per share for gross proceeds of CAD$2,745 (USD equivalent $2,215) and an aggregate of 20,000 common shares were issued to private investors upon the exercise of common share purchase warrants at a price of CAD$0.19 per share for gross proceeds of CAD$3,800 (USD equivalent $3,066).

 

On July 16, 2021, in connection with a non-brokered private placement, 4,350,000 units were issued to private investors at a price of CAD$0.20 per share for gross proceeds of CAD$870,000 (USD equivalent $690,860). Each unit consists of one common share and one common share purchase warrant exercisable into one common share at a price of CAD$0.30 per share for a period of one year.

 

On July 19, 2021, an aggregate of 50,000 common shares were issued to private investors upon the exercise of common share purchase warrants at a price of CAD$0.19 per share for gross proceeds of CAD$9,500 (USD equivalent $7,446).

 

Debt Securities

 

During the fiscal year ended October 31, 2019, we received an unsecured loan of CAD$150,000 (USD equivalent $112,898) from a director and officer. The loan bears interest at 18% and is due on demand. During the fiscal year ended October 31, 2020, the loan was increased by an additional CAD$60,000 (USD equivalent $44,588), to CAD$210,000 (USD equivalent $157,483), and is due on September 24, 2021. As of July 31, 2021, we have made repayments of the entire balance of principal and all interests accrued.

 

 

On July 27, 2020, we issued to a private investor a CAD$150,000 (USD equivalent $112,124) principal amount 12% convertible debenture convertible at the option of the holder to common shares at the greater of CAD$0.15 per share and the market price on the date of the conversion notice. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares. The net proceeds from this transaction were used to fund working capital and general corporate purposes. On May 18, 2021, 1,360,959 common shares were issued in connection with the conversion of the July 2020 Convertible Debenture including accrued interest.

 

On April 22, 2021, we issued to a private investor a CAD$100,000 (USD equivalent $80,000) principal amount 12% convertible debenture convertible at the option of the holder to common shares at a price of CAD$0.12 per share and common share purchase warrants exercisable at a price of CAD$0.20 per share for a period of two years. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares. The net proceeds from this transaction were used to fund working capital and general corporate purposes.

 

On June 15, 2021, we issued an unsecured convertible note in the principal amount of $1,500,000 (the “June 2021 Convertible Debenture”). The June 2021 Convertible Debenture bears interest at 12% per annum and matures on December 10, 2022. The June 2021 Convertible Debenture is convertible into 15,000,000 units, where each unit consists of (i) one share of our common stock, (ii) one-half of one Class A common stock purchase warrant, with each whole warrant being exercisable at a price of $0.13 until June 10, 2026, and (iii) one-half of one Class B common stock purchase warrant, with each whole warrant being exercisable at a price of $0.19 until June 10, 2026 (collectively, the “Class A and B Warrants”). In addition, the conversion price for accrued interest is the greater of (i) $0.10 and (ii) the minimum conversion price permitted by the TSX Venture Exchange at the time of conversion (should our common stock then be listed on such exchange).

 

Other Issuances

 

On April 19, 2018, 1,100,000 options to purchase common shares were granted to certain consultants as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.05 per share. These options vest immediately on the grant date and expire 5 years after the grant date.

 

During the fiscal year ended October 31, 2018, we extended the expiration date of 4,010,000 options from August 12, 2018 to August 12, 2023.

 

On December 5, 2018, 9,600,000 options to purchase common shares were granted to certain directors, officers, employees and consultants as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.05 per share. These options vest immediately on the grant date and expire 5 years after the grant date.

 

On May 23, 2019, 10,000,000 options to purchase common shares were granted to certain directors, officers, employees and consultants as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.12 per share. These options vest immediately on the grant date and expire 5 years after the grant date.

 

During the fiscal year ended October 31, 2019, we extended the expiration date of 400,000 options from May 9, 2019 to May 8, 2024.

 

On November 4, 2019, 700,000 options to purchase common shares were granted to certain officer, employee and consultant as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.15 per share. These options vest immediately on the grant date and expire 5 years after the grant date.

 

On November 25, 2019, 900,000 options to purchase common shares were granted to certain employees and consultants as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.16 per share. These options vest immediately on the grant date and expire 5 years after the grant date.

 

 

On March 27, 2020, 300,000 options to purchase common shares were granted to certain officer as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.11 per share. These options vest immediately on the grant date and expire 5 years after the grant date.

 

On April 24, 2020, 4,200,000 options to purchase common shares were granted to certain directors, officers, employees and consultants as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.12 per share. 3,750,000 options vest immediately on the grant date. 450,000 options vest 25% every three-month period. These options expire 5 years after the grant date.

 

On August 26, 2020, 500,000 options to purchase common shares were granted to certain consultant as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.13 per share. These options vest immediately on the grant date and expire 2 years after the grant date.

 

On December 30, 2020, 15,650,000 options to purchase common shares were granted to certain directors, officers, employees and consultants as additional compensation pursuant to our 2017 Stock Option Plan at an exercise price of CAD$0.13 per share. These options vest immediately on the grant date. 9,500,000 of the options expire 5 years after the grant date and 6,150,000 of the options expire 2 years after the grant date.

 

ITEM 11. DESCRIPTION OF THE REGISTRANT’S SECURITIES TO BE REGISTERED

 

Description of Our Securities

 

The following is a description of our capital stock and the material provisions of our certificate of incorporation, our proposed amended and restated certificate of incorporation, bylaws (as amended) and other agreements to which we and our shareholders are parties, in each case as of the date of this registration statement on Form 10.

 

General

 

Our authorized capital stock consists of 1,000,000,000 shares of common stock, par value $0.001 per share. As of the date of this registration statement on Form 10, there were 391,433,525 shares of our common stock issued and outstanding held of record by 857 stockholders. At our June 11, 2021 annual and special meeting of shareholders, our shareholders approved a special resolution authorizing us to amend and restate our Certificate of Incorporation, to include (a) an amendment for the purpose of authorizing up to 100,000,000 shares of undesignated preferred stock, and (b) certain other corporate maintenance matters (the “Proposed Amended and Restated Certificate of Incorporation”). We are awaiting the TSXV’s approval of the Proposed Amended and Restated Certificate of Incorporation prior to filing it with the Delaware Secretary of State. Following TSXV approval and the filing of the Amended and Restated Certificate of Incorporation, our board of directors may from time to time authorize by resolution the issuance of any or all shares of our common stock or preferred stock authorized in accordance with the terms and conditions set forth in the amended and restated certificate of incorporation for such purposes, in such amounts, to such persons, corporations, or entities, for such consideration and in the case of the preferred stock, in one or more series, all as our board of directors in its discretion may determine and without any vote or other action by the stockholders, except as otherwise required by law.

 

A description of the material terms and provisions of our certificate of incorporation affecting the rights of holders of our capital stock is set forth below. The description is intended as a summary only.

 

Common Stock

 

Voting. The holders of our common stock are entitled to one vote for each outstanding share of common stock owned by that stockholder on every matter properly submitted to the stockholders for their vote. Stockholders are not entitled to vote cumulatively for the election of directors. Except for the election of directors, which are elected by a plurality vote, a majority vote of common stockholders is generally required to take action under our certificate of incorporation and bylaws, as amended.

 

Conversion, Redemption and Preemptive Rights. Holders of our common stock have no conversion, redemption, preemptive, subscription or similar rights.

 

 

Dividend Rights. Subject to the rights of holders of preferred stock, holders of our common stock shall be entitled to receive such cash dividends as may be declared thereon by our board of directors from time to time out of assets of funds of our company legally available for the payment of dividends.

 

Preferred Stock

 

Following TSXV approval and the filing of the Proposed Amended and Restated Certificate of Incorporation with he Delaware Secretary of State, we will be authorized to issue up to 100,000,000 shares of preferred stock. Our board of directors will have the authority to issue this preferred stock in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights and terms of redemption (including sinking fund provisions) and liquidation preferences, without further vote or action by the stockholders. If shares of preferred stock with voting rights are issued, such issuance could affect the voting rights of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights. If our board of directors authorized the issuance of shares of preferred stock with conversion rights, the number of shares of common stock outstanding could potentially be increased by up to the authorized amount. Issuance of preferred stock could, under certain circumstances, have the effect of delaying or preventing a change in control of our company and may adversely affect the rights of the holders of our common stock. Also, preferred stock could have preferences over our common stock (and other series of preferred stock) with respect to dividend and liquidation rights. We currently have no plans to issue any preferred stock.

 

Warrants

 

In conjunction with a private offering of securities between February 22, 2017 and May 10, 2017, we issued 13,051,460 warrants with an exercise price of CAD$0.05 per share. These warrants are exercisable for a period of five years after the date of issuance. In connection with this transaction, we issued 263,626 broker’s warrants with an exercise price of CAD$0.05 per share for a period of five years. As of the date of this registration statement on Form 10, 4,165,200 of these warrants and 135,750 of these broker’s warrants are outstanding. The warrants were subject to an acceleration clause in the years three, four and five whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants within 30 days should the closing price of the Company’s common shares exceeds the exercise price of the warrants by 25% of more for at least ten consecutive trading days.

 

In conjunction with a private offering of securities on August 15, 2017, we issued 1,570,000 warrants with an exercise price of CAD$0.05 per share. These warrants are exercisable for a period of five years after the date of issuance. As of the date of this registration statement on Form 10, 200,000 of these warrants are outstanding. The warrants were subject to an acceleration clause in the years three, four and five whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants within 30 days should the closing price of the Company’s common shares exceeds CAD$0.0625 per share for at least ten consecutive trading days.

 

In conjunction with a private offering of securities on January 20, 2020, we issued 3,643,791 warrants with an exercise price of CAD$0.21 per share. These warrants are exercisable for a period of one year after the date of issuance. Subsequent to October 31, 2020, we extended the expiration date of the warrants to August 31, 2021. As of the date of this registration statement on Form 10, 3,118,618 warrants were exercised and 525,173 warrants were expired unexercised.

 

In conjunction with a private offering of securities between November 20, 2020 and April 27, 2021, we issued 25,787,255 warrants with an exercise price of CAD$0.19 per share. These warrants are exercisable for a period of one year after the date of issuance. As of the date of this registration statement on Form 10, 24,891,462 of these warrants are outstanding.

 

In conjunction with a private offering of securities between May 28, 2021 and June 17, 2021, we issued 23,076,926 warrants with an exercise price of CAD$0.19 per share. These warrants are exercisable for a period of one year after the date of issuance. As of the date of this registration statement on Form 10, 23,046,926 of these warrants are outstanding.

 

In conjunction with a private offering of securities on July 16, 2021, we issued 4,350,000 warrants with an exercise price of CAD$0.30 per share. These warrants are exercisable for a period of one year after the date of issuance. As of the date of this registration statement on Form 10, 4,350,000 of these warrants are outstanding.

 

In conjunction with a private offering of securities on August 11, 2021, we issued 3,827,601 warrants with an exercise price of $0.52 per share. These warrants are exercisable for a period of eighteen months after the date of issuance. As of the date of this registration statement on Form 10, 3,827,601 of these warrants are outstanding.

 

 

Limitations on Directors’ Liability; Indemnification of Directors and Officers

 

As permitted by Delaware law, our certificate of incorporation provides that no director will be liable to us or our stockholders for monetary damages for breach of certain fiduciary duties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of certain fiduciary duties as a director, except that a director will be personally liable for:

 

●

any breach of his or her duty of loyalty to us or our stockholders;

 

●

acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law;

 

●

the payment of dividends or the redemption or purchase of stock in violation of Delaware law; or

 

●

any transaction from which the director derived an improper personal benefit.

 

This provision does not affect a director’s liability under the federal securities laws.

 

At present, we maintain directors’ and officers’ liability insurance in order to limit the exposure to liability for indemnification of directors and officers, including liabilities under the Securities Act; however, we are in the process of obtaining such insurance.

 

Provisions of our Certificate of Incorporation and Proposed Amended and Restated Certificate of Incorporation that May Have an Anti-Takeover Effect

 

Other than our authorized but unissued common stock and “blank-check” preferred stock following the filing of the Proposed Amended and Restated Certificate of Incorporation available for future issuance without stockholder approval, as described under “Common Stock” and “Preferred Stock” above, our certificate of incorporation does not contain any provisions that may be deemed to have an anti-takeover effect or may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

 

Delaware Takeover Statute

 

In general, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation that is a public company from engaging in any “business combination” (as defined below) with any “interested stockholder” (defined generally as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with such entity or person) for a period of three years following the date that such stockholder became an interested stockholder, unless: (1) prior to such date, our board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (3) on or subsequent to such date, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

 

 

Section 203 of the Delaware General Corporation Law defines “business combination” to include: (1) any merger or consolidation involving the corporation and the interested stockholder; (2) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (3) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (4) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (5) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

Potential for Anti-Takeover Effects

 

While certain provisions of Delaware law may have an anti-takeover effect, these provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board, and to discourage certain types of transactions that may involve an actual or threatened change of control. In that regard, these provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

 

Choice of Forum

 

Our bylaws, as amended, provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising under the Delaware General Corporation Law, our certificate of incorporation or our bylaws, as amended; any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws, as amended; and any action asserting a claim against us that is governed by the internal affairs doctrine.

 

These exclusive forum provisions may limit a stockholder’s ability to bring certain claims in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find either exclusive forum provision in our bylaws, as amended, to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could have a material adverse effect on our business, financial condition, and results of operations.

 

Transfer Agent and Registrar

 

The transfer agent for our shares of common stock is Computershare Trust Company of Canada, 510 Burrard Street, 3rd Floor, Vancouver, British Columbia, Canada V6C 3B9.

 

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Section 145 of the Delaware General Corporation Law (the “DGCL”) empowers a Delaware corporation to indemnify any persons who are, or are threatened to be made, parties to any threatened, pending, or completed legal action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer or director of such corporation, or is or was serving at the request of such corporation as a director, officer, employee, or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding, provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation’s best interests, and, for criminal proceedings, had no reasonable cause to believe his conduct was illegal. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation in the performance of his duty. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director actually and reasonably incurred.

 

 

Our bylaws, as amended, provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law, except that no indemnification will be provided to a director, officer, employee, or agent if the indemnification sought is in connection with a proceeding initiated by such person without the authorization of our board of directors. The bylaws, as amended, also provide that the right of directors and officers to indemnification will be a contract right and will not be exclusive of any other right now possessed or hereafter acquired under any statute, provision of the certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The bylaws, as amended, also permit us to secure insurance on behalf of any officer, director, employee, or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws, as amended, would permit indemnification of any such liability.

 

In accordance with Section 102(b)(7) of the DGCL, our certificate of incorporation provides that directors will not be personally liable for monetary damages for breaches of their fiduciary duty as directors. The effect of this provision is to eliminate the personal liability of directors for monetary damages or actions involving a breach of their fiduciary duty of care, including any actions involving gross negligence.

 

We also maintain director and officer liability insurance to insure our directors and officers against the cost of defense, settlement or payment of a judgment under specified circumstances.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required to be included in this registration statement appear immediately following the signature page to this registration statement beginning on page F-1.

 

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Engagement of Dale Matheson Carr-Hilton LaBonte LLP

 

We appointed Dale Matheson Carr-Hilton LaBonte LLP, Chartered Professional Accountants (“Dale Matheson”) located at Suite 1500, 1140 West Pender Street, Vancouver, British Columbia, Canada, V6E 4G1 as our independent registered public accounting firm effective January 22, 2014. The engagement of Dale Matheson was approved by the Audit Committee and our board of directors. Dale Matheson will complete an audit of our company for the year ended October 31, 2021. Additionally, in connection with this registration statement, Dale Matheson provided audits of our company for the years ended October 31, 2020 and 2019.

 

Dale Matheson’s reports on our consolidated financial statements for the years ended October 31, 2020 and 2019 contained a disclaimer of opinion and was qualified as to uncertainty related to us as a going concern and using the going concern basis of accounting.

 

 

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

 

(a)	Western Magnesium Corporation Interim Unaudited Condensed Consolidated Financial Statements for the Nine months ended July 31, 2021 and 2020

 

Interim Unaudited Condensed Consolidated Balance Sheets as of July 31, 2021 and October 31, 2020	F-2
Interim Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss for the nine months ended July 31, 2021 and 2020	F-3
Interim Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the nine months ended July 31, 2021 and 2020	F-4
Interim Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2021 and 2020	F-5
Notes to Condensed Interim Consolidated Financial Statements	F-6

 

(b)	Western Magnesium Corporation Consolidated Financial Statements for the Years Ended October 31, 2020 and 2019

 

Report of Independent Registered Public Accounting Firm	F-32
Consolidated Balance Sheets as of October 31, 2020 and 2019	F-33
Consolidated Statements of Loss and Comprehensive Loss for the years ended October 31, 2020 and 2019	F-34
Consolidated Statements of Shareholders Deficit for the years ended October 31, 2020 and 2019	F-35
Consolidated Statements of Cash Flows for the years ended October 31, 2020 and 2019	F-36
Notes to Consolidated Financial Statements	F-37

 

(c)	A list of exhibits filed with this registration statement is included in the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.

 

 

 

WESTERN MAGNESIUM CORPORATION

 

INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2021 AND 2020

 

(Expressed in thousands of United States dollars)

 

 

WESTERN MAGNESIUM CORPORATION

Index to Interim Unaudited Condensed Consolidated Financial Statements

 

 

INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

		Page(s)
Interim Unaudited Condensed Consolidated Balance Sheets		F-2
Interim Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss		F-3
Interim Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit		F-4
Interim Unaudited Condensed Consolidated Statements of Cash Flows		F-5
Notes to the Condensed Interim Consolidated Financial Statements		F-6

 

 

 

 

WESTERN MAGNESIUM CORPORATION

  

C0NDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the Nine Months Ended July 31, 2021 and 2020

 

(Unaudited – expressed in US Dollars)

 

 

WESTERN MAGNESIUM CORPORATION Condensed Consolidated Interim Balance Sheets As at July 31, 2021 and October 31, 2020 Unaudited – expressed in US dollars

 

				July 31, 2021				October 31, 2020
		Note		$				$
ASSETS
Current assets
Cash and cash equivalents					383,243				39,571
Amounts receivable					122,855				4,579
Prepayments					147,545				115,109
Deposits held by related parties		8[a]			647,709				–
					1,301,352				159,259
Non-current assets
Property, plant and equipment		4			1,858,851				79,436
Right-of-use assets		5			353,024				373,987
Mineral property costs		7			93,453				93,453
Reclamation deposit					2,809				2,628
TOTAL ASSETS					3,609,489				708,763
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued liabilities					2,136,234				1,169,817
Due to related parties		8[b]			815,512				843,990
Lease obligations – current		6			171,912				143,709
Promissory note		10			–				60,567
Provision for flow through share issuances		11			231,825				216,924
Convertible debenture		12			59,773				96,318
Convertible debenture – derivative liability		12			2,439,470				20,123
					5,854,726				2,551,448
Non-current liabilities
Lease obligations – non-current		6			189,763				237,218
Total liabilities					6,044,489				2,788,666
Shareholders’ deficit
Capital stock
Authorized: 1 billion common stock at par value of $0.001
Issued and paid: 380,358,029 (2020 – 323,419,527)		13			27,048,716				21,322,022
Additional paid-in-capital		13			–				4,182,037
Obligations to issue shares		13			5,210,915				596,872
Accumulated other comprehensive income					224,201				399,175
Deficit					(34,918,832	)			(28,580,009	)
Total shareholders’ deficit					(2,435,000	)			(2,079,903	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT					3,609,489				708,763
Nature of operations and going concern [note 1]
Contingent liabilities and commitments [note 9]
Subsequent events [note 17]

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

WESTERN MAGNESIUM CORPORATION Condensed Consolidated Interim Statements of Loss and Comprehensive Loss For the three and nine months ended July 31, 2021 and 2020 Unaudited – expressed in US dollars

 

				Three Months Ended July 31,								Nine Months Ended July 31,
				2021				2020				2021				2020
		Notes		$				$				$				$
Expenses (recoveries)
Bank charges					4,890				1,931				11,044				8,317
Computer system and software					11,854				22,043				83,639				39,405
Consulting and management					274,094				223,476				613,048				521,599
Depreciation		5, 6			62,781				19,035				159,774				57,544
Due diligence expenses					2,010				272				3,974				20,982
Engineering expenses					32,364				225,855				87,818				279,733
Foreign exchange loss (gain)					(35,499	)			43,191				(121,726	)			17,290
Interest and accretion		6, 10			28,242				3,497				64,576				17,353
Investor relations					131,739				59,890				202,675				199,437
Legal and professional fees					257,648				37,722				545,234				118,129
Office and general					23,794				31,125				83,405				132,944
Facilities and rent					68,635				9,839				153,910				36,329
Salaries and benefits					809,253				413,425				2,176,185				1,292,785
Stock-based compensation		13			1,057,013				–				1,057,013				591,492
Shareholder communications					(36,722	)			10,051				49,512				42,335
Subsidies and recoveries					(477	)			–				(41,724	)			–
Transfer agent and regulatory fees					37,508				14,840				61,138				48,283
Travel expenses					107,546				16,159				218,222				86,570
					2,836,673				1,132,351				5,407,717				3,510,527
Other items
Change in fair value of derivative liability		12			(806,853	)			–				(790,197	)			–
Loss on recognition of debt host liability		12			(140,909	)			–				(140,909	)			–
Gain on sale of assets previously written off					–				–				–				37,156
					(947,762	)			–				(931,106	)			37,156
Net loss for the period					(3,784,435	)			(1,132,351	)			(6,338,823	)			(3,473,371	)
Other comprehensive income (loss)
Foreign currency translation					16,075				(33,598	)			(174,974	)			(36,722	)
Comprehensive loss for the period					(3,768,360	)			(1,165,949	)			(6,513,797	)			(3,510,093	)
Basic and diluted loss per share					(0.01	)			(0.00	)			(0.02	)			(0.01	)
Weighted average number of common shares outstanding – basic and diluted					365,235,017				323,278,223				340,461,383				308,720,463

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

WESTERN MAGNESIUM CORPORATION Condensed Consolidated Interim Statements of Shareholders’ Deficit For the nine months ended July 31, 2021 and 2020 Unaudited – expressed in US dollars

 

		Common shares								Additional paid-in capital				Obligation to issue shares				Accumulated other comprehensive income (loss)				Accumulated deficit				Shareholders’ deficit
		Number				$				$				$				$				$				$
Balance, October 31, 2019			278,939,075				18,587,118				3,535,553				39,722				475,981				(23,907,404	)			(1,212,780	)
Shares issued pursuant to private placements			3,643,791				416,719				–				(39,722	)			–				–				376,997
Shares issued on warrants exercised			40,336,661				2,313,543				–				–				–				–				2,313,543
Shares issued on options exercised			500,000				46,176				(19,775	)			–				–				–				26,401
Share issue costs							(41,534	)			–				–				–				–				(41,534	)
Stock-based compensation			–				–				591,492				–				–				–				591,492
Equity component of convertible debt			–				–				5,701				–				–				–				5,701
Share subscriptions			–				–				–				223,101				–				–				223,101
Foreign currency translation			–				–				–				–				(36,722	)			–				(36,722	)
Net loss for the period			–				–				–				–				–				(3,473,371	)			(3,473,371	)
Balance, July 31, 2020			323,419,527				21,322,022				4,112,971				223,101				439,259				(27,380,775	)			(1,283,422	)
Balance, October 31, 2020			323,419,527				21,322,022				4,182,037				596,872				399,175				(28,580,009	)			(2,079,903	)
Shares issued pursuant to private placements [note 13[b]]			53,214,181				5,761,068				–				(596,872	)			–				–				5,164,196
Shares issued on warrants exercised [note 13[b]]			524,901				33,132				(4,292	)			–				–				–				28,840
Shares issued on options exercised [note 13[b]]			300,000				36,114				(23,843	)			–				–				–				12,271
Shares issued for convertible debenture [notes 12[a] and 13[b]]			1,360,959				162,829				–				–				–				–				162,829
Shares issued for services [note 13[b]]			1,538,461				165,658				–				–				–				–				165,658
Share issue costs			–				(432,107	)			–				–				–				–				(432,107	)
Stock-based compensation [note 13[d]]			–				–				1,057,013				–				–				–				1,057,013
Foreign currency translation			–				–				–				–				(174,974	)			–				(174,974	)
Net loss for the period			–				–				–				–				–				(6,338,823	)			(6,338,823	)
Balance, July 31, 2021			380,358,029				27,048,716				5,210,915				–				224,201				(34,918,832	)			(2,435,000	)

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

WESTERN MAGNESIUM CORPORATION Condensed Consolidated Interim Statements of Cash Flows For the nine months ended July 31, 2021 and 2020 Unaudited – expressed in US dollars

 

		Nine Months Ended July 31,
		2021				2020
		$				$
OPERATING ACTIVITIES
Net loss for the period			(6,338,823	)			(3,473,371	)
Add (subtract) items not affecting cash:
Accrued interest and accretion			32,124				14,224
Change in fair value of derivative liability			790,197				–
Loss on recognition of debt host liability			140,909				–
Depreciation of property, plant and equipment			22,355				15,800
Depreciation of right-of-use assets			137,419				41,744
Foreign exchange gain (loss)			(27,812	)			(27,282	)
Interest expense on lease obligations			16,946				2,835
Shares issued for services			165,658				–
Stock-based compensation			1,057,013				591,492
Changes in non-cash working capital items relating to operations:
Amounts receivable			(118,276	)			(12,619	)
Prepayments			(32,436	)			10,874
Deposits held by related parties			(653,915	)			(5,961	)
Accounts payable and accrued liabilities			877,574				182,556
Due to related parties			(85,623	)			(16,686	)
Cash used in operating activities			(4,016,689	)			(2,676,394	)
INVESTING ACTIVITIES
Property, plant and equipment			(1,779,316	)			(12,807	)
Cash provided by (used in) investing activities			(1,779,316	)			(12,807	)
FINANCING ACTIVITIES
Proceeds from issuance of shares, net of share issuance costs			4,773,200				2,675,407
Proceeds from share subscriptions			–				223,101
Proceeds from convertible debenture			1,579,475				110,799
Payments of promissory note			(65,745	)			(56,138	)
Payments of lease obligations			(153,145	)			(43,296	)
Cash provided by financing activities			6,133,785				2,909,873
Change in cash for the period			337,780				220,672
Cash and cash equivalents, beginning of the period			39,571				33,649
Effect of foreign exchange on cash			5,892				(28,717	)
Cash and cash equivalents, end of the period			383,243				225,604

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.91

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

1.	NATURE OF OPERATIONS AND GOING CONCERN

 

Western Magnesium Corporation (the “Company”, or “WMC”) was incorporated under the laws of British Columbia on March 24, 1966. On May 14, 2019, the Company discontinued from the jurisdiction of the Business Corporations Act (British Columbia) and domesticated under the General Corporation Law of the State of Delaware under the name “Western Magnesium Corporation”. The Company is a reporting issuer in Canada listed for trading on the TSX Venture Exchange (the “TSX-V”) under the symbol “WMG.V”. The Company’s common stock is also traded in the United States on the OTCQB tier of the OTC Markets (the “OTCQB”) under the symbol “MLYF”. The Company has developed proprietary magnesium production technology with the aim of becoming a premier low-cost producer of green primary magnesium metal. The Company’s proprietary technology utilizes a continuous silicothermic process that is engineered to produce high grade magnesium with low labour and energy costs while generating minimal waste and toxic by-products.

 

As at July 31, 2021, the Company had an accumulated deficit of $34,918,832 (October 31, 2020 – $28,580,009) and working capital deficiency of $4,553,374 (October 31, 2020 – $2,392,189). For the nine months ended July 31, 2021, the Company reported a comprehensive loss of $6,513,797 (2020 – $3,510,093).

 

The Company is considered to be in the development stage. It has not yet achieved profitable operations and expects to incur further losses in the development of its business. The Company has financed its activities and operations through equity issuances and debt financing and expects to continue to do so to the extent such instruments are issuable under terms acceptable to the Company and until such time as its operations provide positive cash flows. Accordingly, the Company’s Interim Financial Statements are presented on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its liabilities in the normal course of operations. Management believes that the going concern assumption is appropriate for these Interim Financial Statements based on its continuing ability to raise financing through share and debt issuances. If future financing is unavailable, the Company may not be able to meet its ongoing obligations, in which case the realizable value of its assets may decline materially from current estimates. If the going concern assumption was not appropriate for these Interim Financial Statements, potentially material adjustments may be necessary to the carrying value of assets and liabilities, the reported expenses, and the statement of financial position classifications used. These factors indicate the existence of a material uncertainty that cast substantial doubt on the Company’s ability to continue as a going concern.

 

In March 2020, the World Health Organization declared COVID-19 a global pandemic. In order to combat the spread of COVID-19, governments worldwide, including Canada, have enacted emergency measures including travel bans, legally enforced or self-imposed quarantine periods, social distancing and business and organization closures. These measures have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. The impact on the Company has not been significant but could affect the Company’s ability to raise financings in the future and restrict access to travel. Management continues to monitor the situation.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

2.	BASIS OF PRESENTATION

 

These unaudited condensed consolidated interim financial statements (the “Interim Financial Statements”) comprise the financial statements of Western Magnesium Corporation and its wholly owned subsidiaries, Western Magnesium Corp., incorporated in the State of Nevada in the United States and Western Magnesium Canada Corporation, incorporated in British Columbia of Canada.

 

[a] Accounting standards

 

The accompanying Interim Financial Statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) on the basis that the Company will continue as a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for the next year. Realization values may be substantially different from carrying values as shown and these Interim Financial Statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

These Interim Financial Statements have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. In addition, these Interim Financial Statements have been prepared using the accrual basis of accounting, except for cash flow information. They do not include all the information required for full annual financial statements, and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended October 31, 2020 (the “Fiscal 2020 Financial Statements”).

 

[b] Functional and presentation currency

 

These Interim Financial Statements are presented in US dollars, except where indicated and except for per share amounts. The functional currency of each entity of the Company is as follows:

 

Entity		Functional Currency
Western Magnesium Corporation		Canadian dollar (“CAD” or “CA$”)
Western Magnesium Canada Corporation		Canadian dollar
Western Magnesium Corporation (United States)		United States dollar

 

The accounts of the Company, and those of its subsidiary Western Magnesium Canada Corporation, have been translated to US dollars.

 

[c] Critical accounting estimates and judgments

 

Significant estimates and assumptions

 

The preparation of these Interim Financial Statements in accordance with US GAAP requires the Company to make estimates and assumptions concerning the future. Management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

Estimates and assumptions where there is a potential risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of property, plant and equipment, the recoverability of the carrying value of exploration and evaluation assets, fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities, provisions for restoration and environmental obligations and contingent liabilities.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

2.	BASIS OF PRESENTATION (cont’d.)

 

[c] Critical accounting estimates and judgments (cont’d.)

 

Significant judgments

 

The preparation of these Interim Financial Statements in accordance with US GAAP requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s Interim Financial Statements include:

 

-	the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to substantial doubt;
-	whether there are indicators of impairment of the Company’s exploration and evaluation assets and other non-current assets;
-	the classification / allocation of expenditures as exploration and evaluation expenditures or operating expenses; and,
-	the classification of financial instruments.

 

3.	RECENT ACCOUNTING PRONOUNCEMENTS

 

New Standards Adopted During the Period

 

Fair Value Measurements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” which adds the disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain alternatives apply. Effective November 1, 2020, the Company adopted the new standard. The adoption of this ASU did not have any material adjustments to the Interim Financial Statements.

 

New Standards Not Yet Adopted

 

There are no new accounting standards not yet adopted by the Company that are expected to have a significant impact on its Interim Financial Statements.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

4.	PROPERTY, PLANT AND EQUIPMENT

 

		Computer Equipment				Furniture				Leasehold Improvement				Furnace & Plant Equipment				Total
		$				$				$				$				$
Cost
Balance, October 31, 2019			22,632				33,584				5,850				27,897				89,963
Additions			9,852				5,672				1,810				838				18,172
Foreign exchange effect			(166	)			(340	)			(50	)			(322	)			(878	)
Balance, October 31, 2020			32,318				38,916				7,610				28,413				107,257
Additions			10,763				5,563				127,982				1,635,008				1,779,316
Foreign exchange effect			2,324				2,727				1,761				17,769				24,581
Balance, July 31, 2021			45,405				47,206				137,353				1,681,190				1,911,154
Accumulated Depreciation
Balance, October 31, 2019			3,184				1,679				1,950				–				6,813
Depreciation expense			11,412				6,598				2,861				–				20,871
Foreign exchange effect			81				49				7				–				137
Balance, October 31, 2020			14,677				8,326				4,818				–				27,821
Depreciation expense			7,173				5,442				4,140				5,600				22,355
Foreign exchange effect			1,078				625				370				54				2,127
Balance, July 31, 2021			22,928				14,393				9,328				5,654				52,303
Net Book Value
Balance, October 31, 2019			19,448				31,905				3,900				27,897				83,150
Balance, October 31, 2020			17,641				30,590				2,792				28,413				79,436
Balance, July 31, 2021			22,477				32,813				128,025				1,675,536				1,858,851

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

5.	RIGHT-OF-USE ASSETS

 

As at July 31, 2021, the right-of-use assets are leases for the Company’s corporate office in Vancouver, British Columbia and its research and development pilot plant located in Burnaby, British Columbia. These leases terminate on March 31, 2023 and September 30, 2023, respectively. The lease for the Company’s office in Las Vegas, Nevada ended on May 31, 2021.

 

		Vancouver Office				Nevada Office				Pilot Plant				Total
		$				$				$				$
Cost
Balance, October 31, 2019			–				–				–				–
Initial adoption of ASU 2016-02			60,418				23,131				–				83,549
Additions			–				–				354,263				354,263
Foreign exchange effect			(717	)			(275	)			3,686				2,694
Balance, October 31, 2020			59,701				22,856				357,949				440,506
Additions			91,215				–				–				91,215
Foreign exchange effect			4,984				1,570				24,588				31,142
Balance, July 31, 2021			155,900				24,426				382,537				562,863
Accumulated Depreciation
Balance, October 31, 2019			–				–				–				–
Depreciation expense			44,095				15,104				10,404				69,603
Foreign exchange effect			(1,953	)			(670	)			(461	)			(3,084	)
Balance, October 31, 2020			42,142				14,434				9,943				66,519
Depreciation expense			33,788				8,913				94,718				137,419
Foreign exchange effect			3,222				1,079				1,600				5,901
Balance, July 31, 2021			79,152				24,426				106,261				209,839
Net Book Value
Balance, October 31, 2019			–				–				–				–
Balance, October 31, 2020			17,559				8,422				348,006				373,987
Balance, July 31, 2021			76,748				–				276,276				353,024

 

6.	LEASE OBLIGATIONS

 

On adoption of ASU 2016-02, the Company recognized lease liability of $83,549 which had previously been classified as operating leases. The lease liability was measured at the present value of the remaining lease payments and discounted using the lessee’s incremental borrowing rate of approximately 7% at November 1, 2019.

 

During the year ended October 31, 2020, the Company entered into a new operating lease with respect to its research and development pilot plant located in Burnaby, British Columbia and recognized lease liability of $354,263, which was measured by discounting lease payments using an incremental borrowing rate of approximately 6%.

 

During the nine months ended July 31, 2021, the Company renewed its operating lease with respect to its corporate office in Vancouver, British Columbia and recognized lease liability of $91,215, which was measured by discounting lease payments using an incremental borrowing rate of approximately 7%.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

6.	LEASE OBLIGATIONS (cont’d.)

 

As at July 31, 2021, the Company had total lease obligations of $361,675, of which $171,912 was current and $189,763 was non-current.

 

		Vancouver Office				Nevada Office				Pilot Plant				Total
		$				$				$				$
Balance, October 31, 2019			–				–				–				–
Initial adoption of ASU 2016-02			60,418				23,131				–				83,549
Additions			–				–				354,263				354,263
Lease payments			(43,627	)			(14,990	)			(10,831	)			(69,448	)
Interest expenses			2,477				1,005				3,551				7,033
Foreign exchange effect			(1,145	)			3,065				3,610				5,530
Balance, October 31, 2020			18,123				12,211				350,593				380,927
Additions			91,215												91,215
Lease payments			(35,749	)			(9,454	)			(104,253	)			(149,456	)
Interest expenses			1,801				219				14,927				16,947
Prior period adjustment			–				(3,065	)			–				(3,065	)
Foreign exchange effect			1,799				–				–				25,107
Balance, July 31, 2021			77,189				–				284,486				361,675
Which consist of:
Current lease obligation			45,185				–				126,727				171,912
Non-current lease obligation			32,004				–				157,759				189,763
Balance, July 31, 2021			77,189				–				284,486				361,675

 

7.	EXPLORATION AND EVALUATION ASSETS

 

		Beaverdell Property				Silverado Property				Tami Mosi Property				Total
		$				$				$				$
Balance, October 31, 2019			1				1				93,452				93,454
Sale of mineral property			(1	)			–				–				(1	)
Balance, October 31, 2020 and July 31, 2021			–				1				93,452				93,453

 

[a] Beaverdell Property, Greenwood Mining Division, British Columbia, Canada

 

The Beaverdell property is located 3 kilometers southeast of Beaverdell, British Columbia, and was 100% owned by the Company until the fiscal year ended October 31, 2020. During the year ended October 31, 2020, the Company sold its 100% interest in and to the mineral property for aggregate proceeds of CA$50,000 (USD equivalent $37,157) to be paid in two equal tranches: (i) upon signing of the sale agreement (received); and (ii) on or before April 7, 2020 (received). As a result, the Company recognized a gain on sale of $37,156. The carrying value of the property was $1.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

7.	EXPLORATION AND EVALUATION ASSETS (cont’d.)

 

[b] Silverado Property, Nevada, United States

 

The Silverado property is located in the Pinto mining district of Nevada, consists of 3 patented mining claims totaling approximately 120 hectares, and is 100% owned by the Company. The carrying value of the property is $1.

 

[c] Tami Mosi Property Nevada, United States

 

The Company holds a 100% interest in 81 unpatented lode mining claims totaling approximately 1,637 acres located in White Pine County, Nevada and four unpatented lode mining claims totaling approximately 10 acres located in the Moor Mining District, Elko County, Nevada. These mining claims are subject to a 2% net smelter royalty in favor of the prior owner of the claims.

 

8.	RELATED PARTY TRANSACTIONS

 

[a] Deposits held by related parties

 

Since this fiscal year, the Company provided related parties with advances that were held as deposits for anticipated future costs related to the Company’s planned magnesium research and development pilot plant and other administrative expenses (the “Pilot Plant Advances”). During the nine months ended July 31, 2021, the Company provided Pilot Plant Advances to a company controlled by a director and officer an aggregate amount of $987,032, of which $486,354 were used for costs and expenses related to the planned pilot plant leaving a balance held of $500,678 as of July 31, 2021. During the same period, the Company provided Pilot Plant Advances to a company controlled by an officer an aggregate amount of $1,420,013, of which $1,272,982 were used for costs and expenses related to the planned pilot plant leaving a balance held of $147,031 as of July 31, 2021. The aggregate deposits held by related parties were $647,709 as of July 31, 2021.

 

[b] Due to related parties

 

As at July 31, 2021, balances due to related parties were $815,512 (October 31, 2020 – $843,990). They were unsecured and non-interest bearing, and had no stated terms of repayment.

 

		July 31, 2021				October 31, 2020
		$				$
Wages payable to directors and officers			357,500				162,500
Benefits payable to directors and officers			365,718				–
Fees and expenses payable to directors and officers			92,294				681,490
Total			815,512				843,990

 

[c] Key management compensation

 

As at July 31, 2021, the Company had ten executives including Executive Chairman, Executive President and Chief Executive Officer, Executive Vice President, Senior Vice President of Business Development and Government Affairs, Senior Vice President of Strategy, Senior Vice President of Operations, Chief Financial Officer, Chief Controller, and Corporate Secretary. Their aggregate annualized compensation is approximately $2,100,000.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

8.	RELATED PARTY TRANSACTIONS (cont’d.)

 

[c] Key management compensation (cont’d.)

 

During the nine months ended July 31, 2021, the Company incurred salaries, management and consulting fees totaling $1,369,457 to directors, officers and related companies with directors in common, and stock-based compensation totaling $924,534 for options granted to directors and officers of the Company.

 

9.	CONTINGENT LIABILITIES AND COMMITMENTS

 

[a] Contingent liabilities

 

[i] On September 29, 2020, James Sever filed a Notice of Civil Claim against the Company in the Supreme Court of British Columbia (the “Sever Claim”). The Sever Claim alleges that Mr. Sever had an employment and/or other similar contractual relationship with the Company, and that the Company breached such contractual relationship by way of constructive dismissal or similar conduct. The Sever Claim seeks damages in excess of $2.5 million, certain equity compensation, prejudgment garnishment, costs, interest and other non-monetary relief. On July 27, 2021, the Company filed a response to the Sever Claim, which included the following, among other things: (a) that the Company was never properly served with the Sever Claim; (b) that the Company had never had any form of employment, independent or consulting relationship or agreement with Mr. Sever; (c) that the Company had no debts, liabilities or obligations to Mr. Sever; (d) that to the extent that Mr. Sever had some form of employment, independent or consulting or similar relationship or agreement as alleged in the Sever Claim, such contract or relationship, if one existed, was never with the Company and was with some other corporate entity. The Company intends to vigorously defend against the Sever Claim, and believes that the Sever Claim is without merit. As the Company cannot predict the outcome of the Sever Claim, no provision has been recognized as there is no present obligation and the probability of an outcome cannot be determined.

 

[ii] On December 30, 2020, the Company entered into a settlement agreement with Frank Halliday, a former director and officer of the Company, whereby the Company has agreed to pay Mr. Halliday termination pay in the amount of CA$102,001 (USD equivalent $76,589) via installment payments commencing in January 2021 until October 2021. As at October 31, 2020, the Company had recorded a provision for the settlement amount. For the nine months ended July 31, 2021, the Company had made aggregate payments of CA$79,001 (USD equivalent $62,786) (2020 – $Nil) to Mr. Halliday, reducing the provision accordingly.

 

[iii] On December 30, 2020, GEM Yield Bahamas Limited (“GEM”) served the Company with a Notice of Intention to Arbitrate (the “New York Arbitration Notice”) before the American Arbitration Association in New York (the “GEM New York Arbitration”). The New York Arbitration Notice alleges the Company breached a Share Subscription Agreement dated November 15, 2019 entered into between the Company and GEM (the “GEM Agreement”), among other things, claiming damages of CA$4.2 million (USD equivalent $3.4 million). On January 19, 2021, the Company moved to stay the GEM New York Arbitration claiming the GEM Agreement was not valid. On March 19, 2021, the Court ruled that there was an arbitration clause but it was up to the arbitrator to determine if the arbitration clause was valid. Therefore, the New York State action was closed. In June 2021, GEM filed an arbitration, and the Company filed a Statement of Answer denying the existence of any binding agreement between the Company and GEM, among other defenses. The Company intends to vigorously defend itself in the GEM New York Arbitration and believes the allegations lack merit. As the Company cannot predict the outcome of this arbitration proceeding, no provision has been recognized in respect to the GEM New York Arbitration as there is no present obligation and the probability of an outcome cannot be determined.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

9.	CONTINGENT LIABILITIES AND COMMITMENTS

 

[a] Contingent liabilities

 

[iv] On February 8, 2021, GEM instituted another arbitration against the Company before the International Centre for Dispute Resolution in Montreal Canada (the “GEM Montreal Arbitration”) and joined GEM’s affiliate, GEM Global Yield LLC SC (“GEM Global Yield” together with GEM, the “GEM Parties”). The Statement of Claim filed by the GEM Parties alleges the Company breached a Share Subscription Agreement dated November 15, 2019 and promissory note, among other things, claiming damages of approximately CA$4.9 million (USD equivalent $3.9 million), in addition to costs and expenses. The Company and the GEM Parties are in the process of selecting an arbitrator in this matter and following such appointment, the Company will file a Statement of Answer. The Company intends to vigorously defend itself in the GEM Montreal Arbitration and believes the allegations lack merit. As the Company cannot predict the outcome of this arbitration proceeding, no provision has been recognized in respect to the GEM Montreal Arbitration as there is no present obligation and the probability of an outcome cannot be determined.

 

[b] Commitments

 

[i] On January 1, 2016, the Company signed a service agreement with Lodestar, a US corporate logistics company. Lodestar provides advisory, consulting, negotiation and other management services relating to corporate management, administrative and/or operational activities of the Company. The term of the contract is for one year and has been renewed under the same terms subsequently. The Company has agreed to compensate Lodestar in the amount of CA$2,500 (USD equivalent $2,006) per month by either cash or arrangement of the issuance of shares. The number of shares issued will be based on the share price on the day of issuance that is not lower than the CA$0.05 per common share minimum requirement and will not exceed $2,500 (USD equivalent $2,006) in value. The shares will be issued on the last working day of each month for a period of twelve months. The Company issued 150,000 shares at a price of CA$0.05 during the year ended October 31, 2019. There were no shares issued to Lodestar during the nine months ended July 31, 2021 and 2020.

 

[ii] During the year ended October 31, 2020, the Company has entered into a lease agreement for its research and development pilot plant in Burnaby, British Columbia with a lease term from October 1, 2020 to September 30, 2023 at a monthly rent of CA$20,715 (USD equivalent $16,623). In June 2021, the Company has renewed its sublease agreement with a company controlled by a director and officer for its corporate office in Vancouver, British Columbia with a lease term from April 1, 2021 to March 31, 2023 at a monthly rent of CA$9,794 (USD equivalent $7,859) [notes 5 and 6].

 

[iii] During the year ended October 31, 2019, the Company signed a letter of intent for the potential purchase of a former smelter site in the state of Washington in the United States. The Company was granted access to the site to perform certain due diligence activities in furtherance of the proposed acquisition. The acquisition did not complete and the Company is renegotiating the letter of intent. During the year ended October 31, 2019, the Company incurred $409,709 in connection with this investigation. The Company incurred another $15,979 during the nine months ended July 31, 2020, and $Nil during the nine months ended July 31, 2021.

 

[iv] On November 19, 2019, the Company signed a three-year capital commitment with New York-based GEM Global Yield whereby GEM Global Yield will make available $150 million for the Company to use at its discretion, subject to certain terms, in its pursuit to commercialize production of high-grade magnesium metal. The Company will pay fees of 2% in cash or shares and issue 33 million warrants with an exercise price of CA$0.26 in connection with this share subscription facility. Any draw down on such funding is subject to regulatory approval. As at July 31, 2021, the Company had not received regulatory approval of this agreement and no funds had been drawn-down. During the period ended July 31, 2021, the Company received notices from the GEM Parties of their intention to arbitrate the GEM Agreement [notes 9[a][iii] and 9[a][iv]].

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

10.	PROMISSORY NOTE

 

During the year ended October 31, 2019, the Company received a loan of CA$150,000 (USD equivalent $112,895) from a related party. The loan is unsecured, bears interest at 18% and is due on demand. During the year ended October 31, 2020, the loan was increased by an additional CA$60,000 (USD equivalent $44,588) to CA$210,000 (USD equivalent $157,483), and is due on September 24, 2021. During the nine months ended July 31, 2021, the Company accrued interest expense of $1,638 (2020 – $15,108) and made repayments of the entire balance and interest totaling $65,745 (2020 – $60,401). As at July 31, 2021, the outstanding balance was $Nil (October 31, 2020 – $60,567).

 

11.	PROVISION FOR FLOW THROUGH SHARE ISSUANCES

 

The Company has recorded a provision in the amount of $231,825 (October 31, 2020 – $216,924) for tax and related obligations relating to flow through share issuances from prior years.

 

12.	CONVERTIBLE DEBENTURE

 

[a] July 2020 Convertible Debenture

 

On July 27, 2020, the Company closed a non-brokered private placement of an unsecured convertible note in the principal amount of CA$150,000 (USD equivalent $112,124, the “July 2020 Convertible Debenture”). The note bears interest at 12% per annum and is due on the date that is one year following the closing date. The note is convertible into common shares of the Company at the price which is the greater of CA$0.15 per common share and the market price on the date of the conversion notice. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares. No finder’s fees were paid in connection with this private placement. On May 18, 2021, the Company issued 1,360,959 common shares on the conversion of the July 2020 Convertible Debenture including accrued interest. The Company incurred $26,286 in transaction costs.

 

[b] April 2021 Convertible Debenture

 

On April 22, 2021, the Company received advance subscription on a non-brokered private placement of an unsecured convertible note in the principal amount of CA$100,000 (USD equivalent $80,000, the “April 2021 Convertible Debenture”). The note bears interest at 12% per annum and is due on the date that is one year following the closing date. The note is convertible at a price of CA$0.12 per Unit, where each Unit is comprised of one common share and one common share purchase warrant exercisable at a price of CA$0.20 per common share for a period of two years. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares. No finder’s fees were paid in connection with this private placement. The Company received final approval of the TSX-V on July 15, 2021.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

12.	CONVERTIBLE DEBENTURE (cont’d.)

 

[c] June 2021 Convertible Debenture

 

On June 15, 2021, the Company closed a non-brokered private placement of an unsecured convertible note in the principal amount of $1,500,000 (the “June 2021 Convertible Debenture”). The note bears interest at 12% per annum and matures on December 10, 2022. The June 2021 Convertible Debenture is convertible into 15,000,000 units, where each unit consists of (i) one share of the Company’ common stock, (ii) one-half of one Class A common stock purchase warrant, with each whole warrant being exercisable at a price of $0.13 until June 10, 2026, and (iii) one-half of one Class B common stock purchase warrant, with each whole warrant being exercisable at a price of $0.19 until June 10, 2026 (collectively, the “Class A and B Warrants”). In addition, the conversion price for accrued interest is the greater of (i) $0.10 and (ii) the minimum conversion price permitted by the TSX-V at the time of conversion.

 

Under the terms of the June 10, 2021 Securities Purchase Agreement the Company entered into as part of the offering of the June 2021 Convertible Debenture (the “Securities Purchase Agreement”), the Company agreed to use commercially reasonable efforts to file a registration statement with the United States Securities and Exchange Commission (the “SEC”) by August 14, 2021, covering the public resale of the shares of common stock underlying such debenture and, upon its conversion, the Class A and B Warrants issuable upon such conversion (the “Underlying Shares”), and to use its best efforts to cause the registration statement to be declared effective on October 13, 2021.

 

In addition to certain covenants contained in the Securities Purchase Agreement, the terms of the June 2021 Convertible Debenture contain certain negative covenants by the Company, including, among others, sell or offer to sell any securities with non-fixed or floating price features, issue any common stock or common stock equivalents at a price lower than the Conversion Price herein then in effect, or issue any equity or debt instruments with anti-dilution provisions.

 

In the event the Company issues or sells any common stock or common stock equivalents with terms that the purchaser holding the outstanding June 2021 Convertible Debenture (the “Convertible Debenture Holder”) or the Class A and B Warrants reasonably believes are more favorable to such holder than the terms of the June 2021 Convertible Debenture or the Class A and B Warrants, then upon notice to the Company by such holder within five trading days after notice to such holder by the Company, the Company will use commercially reasonable efforts to obtain the approval of the TSX-V and any additional required regulatory approval to amend the terms of the June 2021 Convertible Debenture or the Class A and B Warrants as required, as the case may be, so as to give such holder the benefit of such more favorable terms or conditions.

 

The conversion price of the June 2021 Convertible Debenture and the exercise price of the Class A and B Warrants are subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events, including merger or consolidation of the Company or in a “Fundamental Transaction” as defined in the June 2021 Convertible Debenture.

 

The Company has granted the holders certain rights of first refusal on its future offerings for as long as the June 2021 Convertible Debenture or the Class A and B Warrants are outstanding.

 

The Company may prepay and satisfy the June 2021 Convertible Debenture so long as an event of default has not occurred, upon 20 days’ prior written notice received by the Company to the holder, by paying 125% of the amounts owed on the June 2021 Convertible Debenture, including all principal, interest and other fees. The holder of this debenture may, however, convert all or a portion of the debenture during the 20-day notice period.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

12.	CONVERTIBLE DEBENTURE (cont’d.)

 

[d] Debt Host Liability and Embedded Derivative Liability

 

The July 2020 Convertible Debenture, the April 2021 Convertible Debenture and the June 2021 Convertible Debenture were determined to be hybrid financial instruments comprised of a debt host liability and an embedded derivative liability, as under the conversion feature the number of shares that will or may be issued to settle the notes may vary. The Company uses the Black-Scholes Option Pricing Model and based on different default risks and assumptions. The debt host liability of the convertible note will be measured at amortized cost, with the embedded derivative liability measured at fair value through profit and loss.

 

On issuance date of the July 2020 Convertible Debenture, the fair value of its debt host liability was determined to be $87,083 and the respective embedded derivative liability was valued at $25,041. Fair value adjustments were made to the embedded derivative liability of the July 2020 Convertible Debenture on conversion date of May 18, 2021. As at July 31, 2021, the amortized cost of the July 2020 Convertible Debenture’s debt host liability was $Nil (October 31, 2020 – $96,318) and the fair value of the embedded derivative liability was $Nil (October 31, 2020 – $20,123), resulting in a combined value of $Nil (October 31, 2020 – $116,441).

 

On issuance date of the April 2021 Convertible Debenture, the fair value of its debt host liability was determined to be $52,640, and the respective embedded derivative liability was valued at $27,360. As at July 31, 2021, the amortized cost of the April 2021 Convertible Debenture’s debt host liability was $59,769 (October 31, 2020 – $Nil) and the fair value of the embedded derivative liability was $129,594 (October 31, 2020 – $Nil), resulting in a combined value of $189,363 (October 31, 2020 – $Nil).

 

On issuance date of the June 2021 Convertible Debenture, the embedded derivative liability was valued at $1,646,600 which exceeded the face value of the note itself of $1,500,000, the fair value of the debt host liability was then determined to be $1, with an immediate loss on recognition of the debt host liability. As at July 31, 2021, the amortized cost of the June 2021 Convertible Debenture’s debt host liability was $4 (October 31, 2020 – $Nil) and the fair value of the embedded derivative liability was $2,309,876 (October 31, 2020 – $Nil), resulting in a combined value of $2,309,880 (October 31, 2020 – $Nil).

 

The inputs used in the Convertible Debenture pricing model are as follows:

 

		July 31,				June 10,				April 22,				July 27,
		2021				2021				2021				2020
Risk free rate of interest			0.31	%			0.31	%			0.31	%			0.26	%
Expected life in years			0.96-1.36 year				1.50 year				1.23 year				0.74 year
Conversion exercise price			CA$0.12 / $0.10			$	0.10				CA$0.12				CA$0.15
Underlying share price of the Company			CA$0.31				CA$0.23				CA$0.12				CA$0.13
Expected volatility			79.28%-79.79	%			87.17	%			86.55	%			82.54	%
Expected dividend rate			Nil				Nil				Nil				Nil

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

12.	CONVERTIBLE DEBENTURE (cont’d.)

 

[d] Debt Host Liability and Embedded Derivative Liability (cont’d.)

 

		July 2020 Convertible Debenture				April 2021 Convertible Debenture				June 2021 Convertible Debenture				Total
		$				$				$				$
Debt Host Liability
Value of debt host liability recognized			87,083				–				–				87,083
Accretion and interest expense			8,751				–				–				8,751
Foreign currency translation			484				–				–				484
Balance, October 31, 2020			96,318				–				–				96,318
Value of debt host liability recognized			–				52,640				1				52,641
Accretion and interest expense			22,532				6,902				3				29,437
Conversion			(124,479	)			–				–				(124,479	)
Foreign currency translation			5,629				227				–				5,856
Balance, July 31, 2021			–				59,769				4				59,773
Embedded Derivative Liability
Fair value of embedded derivative liability recognized			25,041				–				–				25,041
Fair value adjustment			(4,979	)			–				–				(4,979	)
Foreign currency translation			61				–				–				61
Balance, October 31, 2020			20,123				–				–				20,123
Fair value of embedded derivative liability recognized			–				27,360				1,646,600				1,673,960
Fair value adjustment			(16,054	)			101,172				705,079				790,197
Conversion			(5,245	)			–				–				(5,245	)
Foreign currency translation			1,176				1,062				(41,803	)			(39,565	)
Balance, July 31, 2021			–				129,594				2,309,876				2,439,470
Combined Value of Convertible Debenture
Balance, October 31, 2020			116,441				–				–				116,441
Balance, July 31, 2021			–				189,363				2,309,880				2,499,243

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL

 

[a] Authorized capital

 

The authorized share capital consists of 1,000,000,000 common voting shares at par value of $0.001.

 

[b] Common shares issued

 

Fiscal 2020

 

[i] On December 20, 2019, the Company exercised its right to call, subject to acceleration provisions, all outstanding common share purchase warrants set to expire between May 7, 2020 and May 13, 2021. The expiry was amended to January 19, 2020. This expiry date was then extended to February 19, 2020. As of February 19, 2020, any unexercised warrants were extinguished. In all, 35,472,661 warrants at an average price of CA$0.08 per common share were exercised and 24,794,484 expired unexercised. A further 4,864,000 warrants were also exercised during the year at CA$0.05 per common share.

 

[ii] On January 17, 2020, the Company closed a non-brokered private placement consisting of 3,643,792 units at a price of CA$0.15 per unit for gross proceeds of CA$546,569 (USD equivalent $416,719), of which CA$52,922 (USD equivalent $39,722) was recorded as advance share subscriptions received prior to October 31, 2019. Each unit consists of one common share and one common share purchase warrant exercisable at a price of CA$0.21 per common share for a period of one year. The expiration date of these common share purchase warrants was subsequently extended to August 31, 2021. These common share purchase warrants were subject to an expiry acceleration provision, upon thirty days’ written notice, should the price of the Company’s common shares exceed CA$0.30 for at least ten consecutive trading days. The fair value of the common shares was equal to the total proceeds raised and as a result, no amount was allocated to the fair value of the common share purchase warrants. Finder’s fees of $41,275 were paid or accrued in connection with the placement.

 

[iii] On May 26, 2020, the Company issued a total of 500,000 common shares on the exercise of stock options for gross proceeds of CA$37,000 (USD equivalent $26,401) and re-classified $19,775 from equity reserves to share capital.

 

[iv] On September 10, 2020, the Company announced a non-brokered private placement of up to 53,846,154 units at a price of CA$0.13 per unit to raise gross proceeds of up to CA$7,000,000. Each unit is comprised of one common share and one common share purchase warrant exercisable at CA$0.19 per common share for a period of one year. At October 31, 2020, the Company had received advance share subscriptions of CA$747,392 (USD equivalent $596,872).

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL (cont’d.)

 

[b] Common shares issued (cont’d.)

 

Fiscal 2021

 

[i] In connection with the non-brokered private placement announced on September 10, 2020:

 

On November 20, 2020, the Company closed the first tranche of a non-brokered private placement, issuing 5,599,171 units at a price of CA$0.13 per unit for gross proceeds of CA$727,892 (USD equivalent $556,876), which had been received prior to October 31, 2020 and recorded as advance share subscriptions.

 

On January 15, 2021, the Company closed the second tranche of the non-brokered private placement, consisting of 7,400,214 units at a price of CA$0.13 per unit for gross proceeds of CA$962,029 (USD equivalent $755,798), of which $39,996 was recorded as advance share subscriptions received prior to October 31, 2020.

 

On January 29, 2021, the Company closed the third tranche of the non-brokered private placement consisting of 5,382,303 units at a price of CA$0.13 per unit for gross proceeds of CA$699,699 (USD equivalent $547,496).

 

On March 24, 2021, the Company closed the fourth tranche of the non-brokered private placement consisting of 6,554,172 units at a price of CA$0.13 per unit for gross proceeds of CA$852,042 (USD equivalent $678,270).

 

On April 27, 2021, the Company closed the fifth and final tranche of the non-brokered private placement consisting of 851,395 units at a price of CA$0.13 per unit for gross proceeds of CA$110,681 (USD equivalent $89,237).

 

The Company closed an aggregate 25,787,255 units at a price of CA$0.13 per unit for aggregate gross proceeds of CA $3,352,343 (USD equivalent $2,627,677). Each unit issued consists of one common share and one common share purchase warrant entitling the holder thereof to acquire a further common share at a price of CA$0.19 for a period of one year from the date of closing of the respective financing tranche. The fair value of the common shares was equal to the total proceeds raised and as a result, no amount was allocated to the fair value of the common share purchase warrants. The Company incurred aggregate share issue costs of $194,044. Proceeds from the share issuance are for general working capital use and for the Company’s research and development pilot plant use.

 

[ii] On March 12, 2021, the Company issued a total of 100,000 common shares on the exercise of stock options at a price of CA$0.05 per share for gross proceeds of CA$5,000 (USD equivalent $4,002).

 

[iii] On April 26, 2021, the Company issued a total of 400,000 common shares on the exercise of common share purchase warrants at a price of CA$0.05 for gross proceeds of CA$20,000 (USD equivalent $16,113).

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL (cont’d.)

 

[b] Common shares issued (cont’d.)

 

Fiscal 2021 (cont’d.)

 

[iv] On May 5, 2021, the Company announced a non-brokered private placement priced at CA$0.13 per unit to raise gross proceeds of up to CA$3,000,000. On May 28, 2021, the Company closed the first tranche of the non-brokered private placement issuing 5,223,420 units at a price of CA$0.13 per unit for gross proceeds of $679,044 (USD equivalent $561,843). On June 17, 2021, the Company closed the second and final tranche of the non-brokered private placement consisting of 17,853,506 units at a price of CA$0.13 per unit for gross proceeds of CA$2,320,956 (USD equivalent $1,880,687). The Company closed at its maximum offering and issued aggregate 23,076,923 units at a price of CA$0.13 per unit for aggregate gross proceeds of CA$3,000,000 (USD equivalent $2,442,530). Each unit issued consists of one common share and one common share purchase warrant entitling the holder thereof to acquire a further common share at a price of CA$0.19 for a period of one year from the date of closing of the respective financing tranche. The fair value of the common shares was equal to the total proceeds raised and as a result, no amount was allocated to the fair value of the common share purchase warrants. The Company incurred aggregate share issue costs of $154,977. Proceeds from the share issuance are for general working capital use and for the Company’s research and development pilot plant use.

 

[v] On May 18, 2021, the Company issued 1,360,959 common shares on the conversion of the July 2020 Convertible Debenture including accrued interest. The Company incurred $26,286 in transaction costs.

 

[vi] On June 7, 2021, the Company received final approval from the TSX-V for an agreement with Industrial Surplus Supplies Ltd. (“ISL”), pursuant to which ISL will build a prototype internally heated testing lab furnace for the testing of a magnesium production process. In consideration of the services provided, the Company issued 1,538,461 common shares at a price of CA$0.13 per share with a total fair value of CA$200,000 (USD equivalent $165,658).

 

[vii] On June 10, 2021, the Company issued a total of 200,000 common shares on the exercise of stock options at a price of CA$0.05 per share for gross proceeds of CA$10,000 (USD equivalent $8,269).

 

[viii] On June 30, 2021, the Company issued 54,901 common shares on the exercise of common share purchase warrants at a price of CA$0.05 per share for gross proceeds of CA$2,745 (USD equivalent $2,215) and 20,000 common shares on the exercise of common share purchase warrants at a price of CA$0.19 per share for gross proceeds of CA$3,800 (USD equivalent $3,066).

 

[ix] On July 16, 2021, the Company closed a non-brokered private placement and issued 4,350,000 units at a price of CA$0.20 per unit for gross proceeds of CA$870,000 (USD equivalent $690,860). Each unit consists of one common share and one common share purchase warrant entitling the holder thereof to acquire a further common share at a price of CA$0.30 for a period of one year from the date of closing. The fair value of the common shares was equal to the total proceeds raised and as a result, no amount was allocated to the fair value of the common share purchase warrants. The Company incurred aggregate share issue costs of $50,625. Proceeds from the share issuance are for general working capital use and for the Company’s research and development pilot plant use.

 

[x] On July 19, 2021, the Company issued a total of 50,000 common shares on the exercise of common share purchase warrants at a price of CA$0.19 per share for gross proceeds of CA$9,500 (USD equivalent $7,446).

 

[xi] With respect to the exercises of options and common share purchase warrants, the Company reclassified $23,843 and $4,292, respectively, from equity reserves to share capital during the nine months ended July 31, 2021.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL (cont’d.)

 

[c] Common share purchase warrants

 

A summary of the changes in the Company’s common share purchase warrants during the nine months ended July 31, 2021 are as follows:

 

Expiry Date		Exercise Price (CA$)				Weighted Average Life (Years)		October 31, 2020				Granted				Exercised				Expired/ Cancelled				July 31, 2021
August 31, 2021*			0.21			0.08			3,643,791				-				–				–				3,643,791
November 20, 2021			0.19			0.31			–				5,599,171				–				–				5,599,171
January 15, 2022			0.19			0.46			–				7,400,214				70,000				–				7,330,214
January 29, 2022			0.19			0.50			–				5,382,303				–				–				5,382,303
February 21, 2022			0.05			0.56			1,505,200				–				–				–				1,505,200
March 24, 2022			0.19			0.65			–				6,554,172				–				–				6,554,172
March 27, 2022			0.05			0.65			1,482,025				–				–				–				1,482,025
April 27, 2022			0.19			0.74			–				851,395				–				–				851,395
May 9, 2022			0.05			0.77			2,368,626				–				54,901				–				2,313,725
May 28, 2022			0.19			0.82							5,223,420				–				–				5,223,420
June 17, 2022			0.19			0.88							17,853,506				–				–				17,853,506
July 16, 2022			0.30			0.96							4,350,000				–				–				4,350,000
August 14, 2022			0.05			1.04			1,110,000				–				(400,000	)			–				710,000
Total									10,109,642				53,214,181				(524,901	)			–				62,798,922
Weighted average exercise price									CA$0.11				CA$0.20				CA$0.07				CA$–				CA$0.11

 

* The Company received approval of the TSX-V on January 13, 2021 and amended the expiry date of 3,643,791 warrants, extending the expiry date from January 17, 2021 to August 31, 2021, subject to acceleration if the closing price of the Company’s shares exceeds CA$0.30 per common share for at least 10 consecutive trading days.

 

A summary of the changes in the Company’s common share purchase warrants during the nine months ended July 31, 2020 are as follows:

 

Expiry Date		Exercise Price (CA$)				Weighted Average Life (Years)		October 31, 2019				Granted				Exercised				Expired/ Cancelled				July 31, 2020
January 17, 2021			0.21			–			–				3,643,791				–				–				3,643,791
February 21, 2022			0.05			2.31			1,505,200				–				–				–				1,505,200
March 27, 2022			0.05			2.41			3,426,025				–				(1,944,000	)			–				1,482,025
May 9, 2022			0.05			2.52			5,088,626				–				(2,720,000	)			–				2,368,626
August 14, 2022			0.05			2.79			1,310,000				–				(200,000	)			–				1,110,000
May 7, 2020*			0.07			0.52			3,100,000				–				(3,000,000	)			(100,000	)			–
October 4, 2020*			0.08			0.93			5,016,000				–				(3,425,000	)			(1,591,000	)			–
November 30, 2020*			0.08			1.08			6,169,926				–				(3,091,383	)			(3,078,543	)			–
January 23, 2021*			0.08			1.23			6,388,435				–				(3,409,160	)			(2,979,275	)			–
March 29, 2021*			0.08			1.41			8,188,046				–				(4,496,710	)			(3,691,336	)			–
May 13, 2021*			0.08			1.53			31,404,739				–				(18,050,408	)			(13,354,331	)			–
Total									71,596,997				3,643,791				(40,336,661	)			(24,794,485	)			10,109,642
Weighted average exercise price									CA$0.07				CA$0.21				CA$0.08				CA$0.08				CA$0.11

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL (cont’d.)

 

[c] Common share purchase warrants

 

* On December 20, 2019, the Company exercised its right to call, subject to acceleration provisions, all outstanding warrants set to expire between May 7, 2020 and May 13, 2021. The expiry was amended to January 19, 2020. This expiry date was then extended to February 19, 2020. Any unexercised warrants were voided and of no value after February 19, 2020.

 

[d] Stock options

 

The Company has adopted an incentive stock option plan, effective on August 8, 2017 and as amended on August 8, 2018, under the rules of the TSX-V pursuant to which it is authorized to grant stock options to executive officers, directors, employees and consultants, enabling them to acquire up to 20% of the total shares outstanding of the Company, (the “2017 Stock Option Plan”). Under the 2017 Stock Option Plan, the option exercise price of any option granted shall not be less than the discounted market price of the Company’s common shares. For the purposes of the 2017 Stock Option Plan, the discounted market price is calculated in accordance with the policies of the TSX-V at the time of the grant of the options. Stock options granted are subject to a maximum term of 5 years. All options granted shall vest immediately, except for those options granted to persons performing investor relations activities for the Company. Pursuant to the policies of the TSX-V, shares issued upon the exercise of options are restricted from trading during the 4-month period subsequent to the exercise of options.

 

On June 11, 2021, the Company adopted the 2021 Equity Incentive Plan which replaces the 2017 Stock Option for providing stock-based compensation to directors, officers, employees, consultants, and advisors of the Company and no further options will be granted under the 2017 Stock Option Plan. Under the 2021 Equity Incentive Plan, the Company is authorized to issue up 27,312,368 shares of the Company. In addition, any common shares reserved for issuance under the 2017 Stock Option Plan that are forfeited as a result of the expiration or termination of any awards under that plan will be added to the 2021 Equity Incentive Plan. The 2021 Equity Incentive Plan provides for various equity-based and cash-based incentive awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards, dividend equivalents and other equity-based or cash-based awards.

 

On December 30, 2020, the Company approved the grant of an aggregate 15,650,000 stock options to directors, officers, employees and consultants at a price of CA$0.13 per share, of which 9,500,000 were exercisable for a period of five years and 6,150,000 were exercisable for a period of two years. However, these options exceeded the maximum allowed under the Company’s 2017 Stock Option Plan. On June 11, 2021, the Company received shareholders’ approval on the amendment to the Company’s 2017 Stock Option Plan to increase the number of common shares reserved for issuance under such plan and rectified the grant of these options. During the nine months ended July 31, 2021, the Company recognized a net stock-based compensation totaling $1,057,013 (2020 – $591,492) in relation to the grant of its stock options.

 

The fair value of stock options was estimated on the measurement date using the Black-Scholes Option Pricing Model. The assumptions used to calculate the fair value were as follows:

 

		2021				2020
Risk free rate of interest			0.20% – 0.39%				0.43% – 1.51%
Expected life of options			2 to 5 years				5 years
Exercise price of options			CA$0.13				CA$0.11 – CA$0.16
Expected annualized volatility			130.88% – 147.28	%			120.13% – 188.46	%
Expected dividend rate			Nil				Nil

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL (cont’d.)

 

[d] Stock options (cont’d.)

 

A summary of the changes in the Company’s stock options during the nine months ended July 31, 2021 are as follows:

 

Expiry Date		Exercise Price (CA$)				Weighted Average Life (Years)		October 31, 2020				Granted				Exercised				Expired/ Cancelled				July 31, 2021
February 11, 2021			0.05			–			800,000				–				–				(800,000	)			–
August 16, 2021			0.05			0.30			600,000				–				–				–				600,000
March 27, 2022			0.05			0.91			1,750,000				–				–				–				1,750,000
August 26, 2022			0.13			–			500,000				–				–				(500,000	)			–
December 30, 2022			0.13			–			–				6,150,000				–				–				6,150,000
April 19, 2023			0.05			1.97			800,000				–				–				–				800,000
August 12, 2023			0.05			2.28			3,120,000				–				300,000				–				2,820,000
December 3, 2023			0.05			2.60			7,000,000				–				–				–				7,000,000
May 22, 2024			0.12			3.06			7,950,000				–				–				–				7,950,000
November 3, 2024			0.15			3.52			700,000				–				–				–				700,000
November 24, 2024			0.16			3.58			900,000				–				–				–				900,000
March 26, 2025			0.11			3.91			300,000				–				–				–				300,000
April 23, 2025			0.12			3.99			4,000,000				–				–				(300,000	)			3,700,000
December 30, 2025			0.13			–			–				9,500,000				–				–				9,500,000
Total									28,420,000				15,650,000				(300,000	)			(1,600,000	)			42,170,000
Weighted average exercise price									CA$0.09				CA$0.13				CA$0.05				CA$0.0				CA$0.10

 

A summary of the changes in the Company’s stock options during the nine months ended July 31, 2020 are as follows:

 

Expiry Date		Exercise Price (CA$)				Weighted Average Life (Years)		October 31, 2019				Granted				Exercised				Expired/ Cancelled				July 31, 2020
May 8, 2020			0.08			–			400,000				–				(400,000	)			–				–
June 3, 2020			0.05			–			550,000				–				–				(550,000	)			–
February 11, 2021			0.05			0.79			1,300,000				–				–				(750,000	)			550,000
August 16, 2021			0.05			1.29			1,200,000				–				–				(300,000	)			900,000
March 27, 2022			0.05			1.90			2,000,000				–				–				(250,000	)			1,750,000
April 19, 2023			0.05			2.97			800,000				–				–				–				800,000
August 12, 2023			0.05			3.28			3,780,000				–				(100,000	)			(560,000	)			3,120,000
December 3, 2023			0.05			3.60			9,600,000				–				–				(2,300,000	)			7,300,000
May 22, 2024			0.12			4.06			10,000,000				–				–				(1,100,000	)			8,900,000
November 3, 2024			0.15			4.52			-				700,000				–				–				700,000
November 24, 2024			0.16			4.58			-				900,000				–				–				900,000
March 26, 2025			0.11			4.91							300,000				–				–				300,000
April 23, 2025			0.12			4.99							4,200,000				–				–				4,200,000
Total									29,630,000				6,100,000				(500,000	)			(5,810,000	)			29,420,000
Weighted average exercise price									CA$0.07				CA$0.13				CA$0.07				CA$0.06				CA$0.07

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

13.	SHARE CAPITAL (cont’d.)

 

[e] Share-based payments and other reserves

 

The share-based payments and other reserves are used to recognize the fair value of stock options granted to executive officers, directors, employees and consultants as part of their remuneration, as well as those of broker warrants issued in relation to the Company’s financings. When stock options and broker warrants are subsequently exercised, the fair value of such stock options and broker warrants in reserves is credited to share capital.

 

Common share purchase warrants attached to units as part of a unit placement are assigned a $Nil value. The residual method is used to calculate the fair value of the warrant component of units issued, whereby the residual of the private placement proceeds less the fair value of the share component is assigned as the fair value of the warrants.

 

[f] Obligations to issue shares

 

During the nine months ended July 31, 2021, the Company issued 5,749,169 units in connection with advance share subscriptions of $596,872 received during the prior fiscal year ended October 31, 2020 in respect of a non-brokered private placement [notes 13[b][iv] and 13[b][v]].

 

14.	CAPITAL MANAGEMENT

 

The Company classifies the components of shareholders’ equity as capital, which at July 31, 2021, was a deficiency of $2,435,000 (October 31, 2020 – $2,079,903). When managing capital, the Company’s objective is to ensure the entity continues as a going concern and advance stakeholders’ interests. Management adjusts the capital structure as necessary in order to support its business and technology development. The Company’s board of directors does not establish qualitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company’s goal is to be a low-cost producer of green, primary magnesium metal, a strategic commodity prized for its strength and light weight. The Company looks to use a continuous silicothermic process to produce magnesium, which significantly reduces labour and energy costs relative to current methods and processes, while being environmentally friendly. The Company focuses on plant operations and magnesium production and continues to move towards the buildout of its pilot plant facility and the development of a full-scale commercial magnesium production facility. The Company is considered to be in the development stage and is dependent upon external financing to fund its activities. In order to carry out its business development activities and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is appropriate. There were no changes in the Company’s approach to capital management during the period. The Company is not subject to any externally imposed capital requirements.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

15.	FINANCIAL INSTRUCMENTS AND FINANCIAL RISK MANAGEMENT

 

Financial Instruments		Measurement Method		Associated Risk		Fair Value at July 31, 2021 ($)
Cash and cash equivalents		FVTPL		Credit and currency			383,243
Amounts receivable		Amortized cost		Credit and concentration			122,855
Prepayments		Amortized cost		Credit and currency			147,545
Deposits held by related parties		Amortized cost		Credit and currency			647,709
Accounts payable and accrued liabilities		Amortized cost		Currency			2,136,235
Due to related parties		Amortized cost		Currency			815,512
Convertible debenture		Amortized cost		Currency			59,773
Convertible debenture - derivative liability		FVTPL		Currency			2,439,470

 

[a] Fair value

 

The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of current financial instruments approximates their carrying values as long as they are short-term in nature or bear interest at market rates.

 

[b] Fair value hierarchy

 

Financial instruments that are held at fair value are categorized based on a valuation hierarchy which is determined by the valuation methodology utilized:

 

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

 

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

Cash and cash equivalents are valued using a market approach based upon unadjusted quoted prices for identical assets in an active market obtained from securities exchanges.

 

As at July 31, 2021, the fair value of cash and cash equivalents held by the Company was based on Level 1 of the fair value hierarchy. There were no transfers between levels 1 and 2 during the period.

 

[c] Financial risk management

 

The Company’s board of directors has the overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in response to the Company’s activities. Management regularly monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

15.	FINANCIAL INSTRUCMENTS AND FINANCIAL RISK MANAGEMENT (cont’d.)

 

[c] Financial risk management (cont’d.)

 

In the normal course of operations, the Company is exposed to various risks such interest rate, foreign exchange, commodity, credit, and liquidity. To manage these risks, management determines what activities must be undertaken to minimize potential exposure to risks. The objectives of the Company in managing risks are as follows:

 

●	Maintaining sound financial condition:
●	Financing operations; and
●	Ensuring liquidity to all operations.

 

In order to satisfy these objectives, the Company has adopted the following policies:

 

●	Prepare budget documents at prevailing market rates to ensure clear corporate alignment to performance management and achievement of targets;
●	Recognize and observe the extent of operating risk within the business; and
●	Identify the magnitude of the impact of market risk factors on the overall risk of the business and take advantage of natural risk reductions that arise from these relationships.

 

There have been no changes in risks that have arisen or how the Company manages those risks during the nine months ended July 31, 2021.

 

[i] Interest rate risk

 

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. The Company is exposed to interest rate risk on its cash on deposits with banks and, from time to time, on its holdings of short-term investments. As of July 31, 2021, the Company had $383,243 (October 31, 2020 − $39,571) of cash on deposits with banks. The Company had no short-term investment as at July 31, 2021 and October 31, 2020. Given the level of cash and cash equivalents held by the Company, fluctuations in the market interest rates had no significant impact on its interest income during the nine months ended July 31, 2021.

 

[ii] Foreign currency risk

 

The Company is exposed to foreign currency risk on fluctuations related to cash and cash equivalents, prepayments, deposits held by related parties, accounts payable and accrued liabilities, due to related parties and convertible debenture that are denominated in US dollars. The Company has not entered into foreign exchange derivative contracts. A significant change in the currency exchange rates between the Canadian dollar relative to the US dollar could have a material effect on the Company’s financial position, results of operations, or cash flows.

 

		July 31, 2021
		$
Cash and cash equivalents			340,795
Prepayments			97,227
Deposits held by related parties			826,902
Accounts payable and accrued liabilities			(1,066,036	)
Due to related parties			(450,500	)
Convertible debenture			(1,500,000	)
Total			(1,751,612	)

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

15.	FINANCIAL INSTRUCMENTS AND FINANCIAL RISK MANAGEMENT (cont’d.)

 

[c] Financial risk management (cont’d.)

 

[ii] Foreign currency risk (cont’d.)

 

Based on the Company net exposures as at July 31, 2021, assuming that all other variables remain constant, a 5% appreciation or deterioration of the Canadian dollar against the US dollar would result in an increase or decrease of $211,863 in the Company’s net income (loss) and comprehensive income (loss).

 

[iii] Commodity price risk

 

The value of the Company’s magnesium production business and its exploration and evaluation assets are dependent on the price of magnesium and the outlook for this mineral. Market prices for these metals historically have fluctuated widely and are affected by numerous factors outside the Company’s control, including but not limited to, levels of worldwide production, short-term changes in supply and demand, industrial and retail demand, as well as certain other factors related specifically to magnesium. If magnesium prices decline for a prolonged period below the cost of production, it may not be economically feasible to continue towards production.

 

[iv] Credit risk

 

Credit risk is the risk of loss if counterparties do not fulfill their contractual obligations and arises principally from trade receivables. The Company’s credit risk is primarily attributable to cash and cash equivalents, prepayments, and deposits held by related parties. The Company limits its exposure to credit risk on cash and cash equivalents as these financial instruments are held with major Canadian and international banks. Amounts receivable consist primarily of GST due from the Federal Government of Canada. Management believes the credit risk concentration with respect to amounts receivable is remote. The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents the Company’s maximum exposure to credit risk.

 

[v] Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company’s exposure to liquidity risk is dependent on its purchasing commitments and obligations and its ability to raise funds to meet commitments and sustain operations. The Company manages liquidity risk by continuously monitoring its actual and forecasted working capital requirements to ensure there is capital to meet short-term and long-term obligations. As of July 31, 2021 and October 31, 2020, the Company had working capital deficiency of $4,553,374 and $2,392,189, respectively. As disclosed in note 1 of the Interim Financial Statements, the ability of the Company to continue as a going concern is dependent on many factors. The Company’s cash is primarily deposited in bank accounts and held as deposits by certain related parties. The Company anticipates that its cash on hand and deposits, together with expected funds raised from private placements and on exercises of warrants and stock options, as well as debt financing, will provide sufficient financial resources to carry out its operations through the current fiscal year. However, additional funding will be required. There can be no assurance that the Company will be able to raise the funds necessary to continue future operations. Liquidity risk has been assessed as high.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

16.	SEGMENTED INFORMATION

 

The Company focuses on plant operations and magnesium production and continues to move towards the buildout of its pilot plant facility and the development of a full-scale commercial magnesium production facility. The Company also owns mining claims for the exploration for and development of mineral property interests. Geographic information for the Company’s assets is as follows:

 

		July 31, 2021				October 31, 2020
		$				$
Canada – property, plant and equipment			1,858,851				79,436
United States – exploration and evaluation assets			93,453				93,453
			1,952,304				172,889
Canada – other assets			1,652,023				533,815
United States – other assets			5,162				2,059
			1,657,185				535,874
Total Assets			3,609,489				708,763

 

17.	SUBSEQUENT EVENTS

 

[i] Subsequent to July 31, 2021, the Company issued 5,471,153 common shares on the exercise of common share purchase warrants at a price ranging from CA$0.05 to CA$0.21 per share for gross proceeds of CA$890,491. 525,173 warrants expired unexercised.

 

[ii] Subsequent to July 31, 2021, the Company issued a total of 1,790,000 common shares on the exercise of stock options at a price ranging from CA$0.05 to CA$0.16 per share for gross proceeds of CA$112,800.

 

[iii] Effective as of August 4, 2021, the Company entered into a Real Estate Option Agreement (the “Option”) with Harrison County Community Improvement Corporation, an unrelated party (the “Seller”), to purchase a parcel of land comprising approximately 122 acres in the Village of Cadiz, Harrison County, Ohio (the “Property”). The Company is entitled to exercise the Option at any time up until its expiration on August 3, 2023. The Option contains covenants, representations and warranties that are customary of real estate purchase and sale agreements including, but not limited to, completion of title work and a survey of the Property, an environmental audit, an engineering feasibility study of the Property, availability of certain utilities, obtaining permits, approval of the Option by the Company’ Board of Directors, the Company’s exercise of the Option and obtaining certain state and local economic incentives and tax abatements.

 

[iv] On August 11, 2021, the Company closed a non-brokered private placement and issued 3,827,601 units at a price of US$0.44 (CA$0.55) per unit for gross proceeds of US$1,684,144 (CA$2,105,180). Each unit consists of one common share and one common share purchase warrant entitling the holder thereof to acquire a further common share at a price of US$0.52 (CA$0.65) for a period of eighteen months from the date of closing. Proceeds from the share issuance are for general working capital use and for the Company’s research and development pilot plant use.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Nine months Ended July 31, 2021 and 2020 Unaudited – expressed in US dollars, except where otherwise indicated and except for per share amounts

 

17.	SUBSEQUENT EVENTS

 

[v] On August 30, 2021, the Company granted 21,700,000 incentive stock options pursuant to its 2021 Equity Incentive Plan to its directors, officers, employees and consultants. These options are exercisable at a price of CA$0.50 per share for a period of five years.

 

[vi] Effective September 14, 2021, the Company entered into a lease agreement for its office in McLean, Virginia with a lease term from September 14, 2021 to February 28, 2025. The Company will be abated for the beginning five months and will then pay monthly rent of $9,113.

 

[vii] On September 21, 2021, the Company announced that it has signed a Letter of Intent with The Shelly Company to supply high quality dolomite to the Company at any location in the contiguous United States to produce magnesium metal.

 

[viii] On October 1, 2021, the Company granted 1,450,000 incentive stock options pursuant to its 2021 Equity Incentive Plan to its officer and employee and consultants. These options are exercisable at a price of CA$0.50 per share for a period of five years.

 

 

 

WESTERN MAGNESIUM CORPORATION

 

CONSOLIDATED FINANCIAL STATEMENTS

 

For the Years Ended October 31, 2020 and 2019

 

(Expressed in US Dollars)

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and the board of directors of Western Magnesium Corporation

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Western Magnesium Corporation (the “Company”) as of October 31, 2020 and 2019, the related consolidated statements of loss and comprehensive loss, stockholders’ deficit, and cash flows, for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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 in accordance with the standards of the PCAOB.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ DMCL

 

DALE MATHESON CARR-HILTON LABONTE LLP

CHARTERED PROFESSIONAL ACCOUNTANTS

 

We have served as the Company’s auditor since 2013

Vancouver, Canada

August 4, 2021

 

 

 

WESTERN MAGNESIUM CORPORATION Consolidated Balance Sheets As at October 31, 2020 and 2019 Expressed in US Dollars

 

		Note		2020				2019
				$				$
ASSETS
Current assets
Cash and cash equivalents					39,571				33,649
Accounts receivable					4,579				20,079
Prepaid expenses and deposits					115,109				79,792
					159,259				133,520
Non-current assets
Property, plant and equipment		5			79,436				83,150
Right of use assets		6			373,987				-
Mineral property costs		8			93,453				93,454
Reclamation deposit					2,628				2,660
Total Assets					708,763				312,784
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable					1,079,104				620,779
Accrued liabilities					90,713				-
Due to related parties		9,10			843,990				639,492
Promissory note		11			60,567				102,014
Provision for flow through share issuances		12			216,924				219,529
Lease obligations - current		7			143,709				-
Convertible debenture		11			96,318				-
Derivative liability		11			20,123				-
					2,551,448				1,581,814
Non-current liabilities
Lease obligations – non-current		7			237,218				-
Total Liabilities					2,788,666				1,581,814
Shareholders’ deficit
Capital stock
Authorised: 1 billion common voting shares at par value of CAD$0.001
Issued and paid: 323,419,527 (2019 - 278,939,075; 2018 - 200,832,658)		13			21,322,022				18,587,118
Additional paid-in-capital		13			4,182,037				3,535,553
Obligations to issue shares		13			596,872				39,722
Accumulated other comprehensive income					399,175				475,981
Deficit					(28,580,009	)			(23,907,404	)
Total Shareholders’ deficit					(2,079,903	)			(1,269,030	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT					708,763				312,784
Nature of operations and going concern		1
Contingencies		10
Commitments		12,13,14
Subsequent events		19

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

WESTERN MAGNESIUM CORP. Consolidated Statements of Loss and Comprehensive Loss For the Years Ended October 31, 2020 and 2019 Expressed in US Dollars

 

		Notes		2020				2019
				$				$
Expenses
Bank charges					10,764				7,720
Depreciation		5,6			86,706				7,727
Due diligence expenses		14			594,921				388,065
Consulting and management fees		9			598,574				509,461
Exploration expenses					15,098				15,065
Foreign exchange loss (gain)					(10,685	)			7,778
Investor relations					237,874				130,290
Interest and accretion		7,11			60,638				1,599
Office and general					294,087				237,195
Professional fees					138,916				544,605
Salaries		9			1,797,783				1,348,937
Shareholder communications					54,554				390,198
Stock-based compensation		9,13			666,259				1,155,454
Transfer agent and filing fees					64,371				74,394
Travel					104,880				145,809
Loss from operating activities					(4,714,740	)			(4,964,297	)
Other Items
Gain on sale of exploration and evaluation assets previously written off		8			37,156				-
Change in fair value of derivative liability		11			4,979				-
Write off of equipment		5			-				(3,589	)
Net loss for the year					(4,672,605	)			(4,967,886	)
Other comprehensive income (loss)
Foreign currency gain (loss) on translation of parent and subsidiary					(76,806	)			3,897
Total comprehensive loss for the year					(4,749,411	)			(4,963,989	)
Basic and diluted loss per share					(0.01	)			(0.02	)
Weighted average number of common shares outstanding – basic and diluted					312,450,631				241,051,823

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

WESTERN MAGNESIUM CORPORATION Consolidated Statements of Shareholders Deficit For the Years Ended October 31, 2020 and 2019 Expressed in US Dollars

 

		Common shares								Additional paid-in capital				Obligation to issue shares				Deficit				Accumulated other comprehensive income (loss)				Shareholders’ deficit
		#				$				$				$				$				$				$
Balance, October 31, 2018			200,832,658				15,521,922				2,406,971				-				(18,939,518	)			472,084				(538,541	)
Private placements (Note 13)			61,472,502				2,291,983				-				-				-				-				2,291,983
Shares issued for services (Note 13)			150,000				5,668				-				-				-				-				5,668
Shares issued on warrants exercised (Note 13)			15,055,344				837,182				-				-				-				-				837,182
Shares issued on options exercised (Note 13)			1,100,000				69,276				(27,723	)			-				-				-				41,553
Shares issued on debt settlement (Note 13)			328,571				43,647				-				-				-				-				43,647
Share subscriptions (Note 13)			-				-				-				39,722				-				-				39,722
Share issue costs (Note 13)			-				(182,560	)			851				-				-				-				(181,709	)
Share based compensation (Note 13)			-				-				1,155,454				-				-				-				1,155,454
Comprehensive income (loss) for the year			-				-				-				-				(4,967,886	)			3,897				(4,963,989	)
Balance, October 31, 2019			278,939,075				18,587,118				3,535,553				39,722				(23,907,404	)			475,981				(1,269,030	)
Private placements (Note 13)			3,643,791				416,719				-				(39,722	)			-				-				376,997
Shares issued on warrants exercised (Note 13)			40,336,661				2,313,284				-				-				-				-				2,313,284
Shares issued on options exercised (Note 13)			500,000				46,176				(19,775	)			-				-				-				26,401
Share subscriptions (Note 13)			-				-				-				596,872				-				-				596,872
Share issue costs (Note 13)			-				(41,275	)			-				-				-				-				(41,275	)
Share based compensation (Note 13)			-				-				666,259				-				-				-				666,259
Comprehensive loss for the year			-				-				-				-				(4,672,605	)			(76,806	)			(4,749,411	)
Balance, October 31, 2020			323,419,527				21,322,022				4,182,037				596,872				(28,580,009	)			399,175				(2,079,903	)

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

WESTERN MAGNESIUM CORPORATION Consolidated Statements of Cash Flows For the Year Ended October 31, 2020 and 2019 Expressed in US Dollars

 

		2020				2019
		$				$
Cash provided by (used in):
Operating activities
Net loss for the year			(4,672,605	)			(4,967,886	)
Items not affecting cash:
Accrued interest and accretion			60,638				1,599
Depreciation			86,706				7,727
Write off of equipment			-				3,589
Shares issued for services			-				5,668
Stock-based compensation			666,259				1,155,454
Foreign exchange			(55,080	)			-
Change in fair value of derivative liability			(4,979	)			-
Gain on sale of exploration and evaluation assets			(37,156	)			-
Changes in non-cash working capital items:
Accounts receivable			15,500				(12,932	)
Prepaid expenses			(35,317	)			(69,907	)
Accounts payable and accrued liabilities			510,773				650,946
Due to related parties			194,727				34,020
Net cash used in operating activities			(3,270,534	)			(3,191,722	)
Investing activities
Purchase of equipment			(16,362	)			(89,848	)
Leasehold improvement			(1,810	)			-
Proceeds from sale of exploration and evaluation assets			37,157				-
Net cash provided by (used in) investing activities			18,985				(89,848	)
Financing activities
Proceeds from issuance of shares, net of share issuance costs			2,715,129				2,989,009
Proceeds from share subscription			557,150				39,722
Proceeds from convertible debenture			111,470				-
Proceeds from (repayment of) promissory note			(56,478	)			100,415
Lease payments			(69,448	)			-
Net cash provided by financing activities			3,257,823				3,129,146
Change in cash for the year			6,274				(152,424	)
Cash and cash equivalents, beginning of the year			33,649				182,474
Effect of foreign exchange on cash			(352	)			3,599
Cash and cash equivalents, end of the year			39,571				33,649
Cash and cash equivalents consist of:
Cash			39,571				18,340
Guaranteed investment certificate			-				15,309
			39,571				33,649
Other non-cash transactions
Shares issued for conversion of debt and services			-				49,315
Fair value of exercised options			19,775				27,723
ROU asset addition by way of lease obligation			435,970				-
Other cash flow disclosures
Interest paid			28,199				-

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

1. Nature of Operations and Going Concern

 

Western Magnesium Corporation (the “Company”, or “WMC”) was incorporated under the laws of British Columbia on March 24, 1966. On May 14, 2019, the Company discontinued from the jurisdiction of the Business Corporations Act (British Columbia) and domesticated under the General Corporation Law of the State of Delaware under the name “Western Magnesium Corporation”. WMC is a publicly traded company with its shares listed on the TSX Venture Exchange (“TSX-V”) under the symbol “WMG.V”, OTCQB market under the symbol “MLYF” and on Frankfurt exchange under the symbol “M1V”. The Company has developed proprietary magnesium production technology which utilizes a continuous silicothermic process with the aim of becoming a premier low-cost producer of green primary magnesium metal.

 

At October 31, 2020 the Company had working capital deficiency of $2,392,189 (2019 – $1,448,294), has not yet achieved profitable operations and expects to incur further losses in the development of its business. For the year ended October 31, 2020, the Company reported a comprehensive loss of $4,749,411 (2019 – $4,963,989). As at October 31, 2020, the Company had an accumulated deficit of $28,580,009 (2019 – $23,907,404).

 

The Company has financed its activities and operations through equity issuances and debt financing and expects to continue to do so to the extent such instruments are issuable under terms acceptable to the Company until such time as its operations provide positive cash flows. Accordingly, the Company’s financial statements are presented on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its liabilities in the normal course of operations. Management believes that the going concern assumption is appropriate for these financial statements based on their continuing ability to raise financing through share and debt issuances. If future financing is unavailable, the Company may not be able to meet its ongoing obligations, in which case the realizable value of its assets may decline materially from current estimates. If the going concern assumption was not appropriate for these financial statements, then potentially material adjustments may be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. These factors indicate the existence of a material uncertainty that cast substantial doubt on the Company’s ability to continue as a going concern.

 

In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. The impact on the Company has not been significant but could affect the Company’s ability to raise financings in the future or restrict access to travel. Management continues to monitor the situation.

 

2. Basis of Presentation

 

These consolidated financial statements comprise the financial statements of Western Magnesium Corporation and its wholly owned subsidiaries, Western Magnesium Corp., incorporated in the state of Nevada, USA and Western Magnesium Canada Corp. incorporated on May 3, 2019 in British Columbia, Canada.

 

a) Accounting standards

 

The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) on the basis that the Company will continue as a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for the next year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

These consolidated financial statements have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

b) Functional and presentation currency

 

These consolidated financial statements are presented in US dollars, except where indicated and except for per share amounts. The Company’s functional currency, and that of its subsidiary Western Magnesium Canada Corp., is the Canadian dollar. The functional currency of the Company’s US subsidiary is the United States dollar (“US dollars” or “USD”). The accounts of the Company, and those of its subsidiary Western Magnesium Canada Corp., have been translated to US dollars.

 

c) Critical accounting estimates and judgments

 

Significant Estimates and Assumptions

 

The preparation of financial statements in accordance with US GAAP requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

Estimates and assumptions where there is potential risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of equipment, the recoverability of the carrying value of exploration and evaluation assets, fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities, provisions for restoration and environmental obligations and contingent liabilities.

 

Significant Judgments

 

The preparation of financial statements in accordance with US GAAP requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include:

 

-	the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to substantial doubt;
-	whether there are indicators of impairment of the Company’s exploration and evaluation assets and other non-current assets;
-	the classification / allocation of expenditures as exploration and evaluation expenditures or operating expenses; and,
-	the classification of financial instruments.

 

3. Significant Accounting Policies

 

The accounting policies set out below have been applied consistently, to all periods presented in these consolidated financial statements and have been applied consistently by the Company and its subsidiaries.

 

a) Principles of consolidation

 

These consolidated financial statements include the accounts of the Company and its wholly owned and controlled subsidiaries as described in Note 2. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All inter-company transactions and balances have been eliminated upon consolidation.

 

b) Foreign currency

 

Items included in the financial statements of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchanges gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the statement of comprehensive income.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

Assets and liabilities of the Company and its subsidiary with a functional currency in Canadian dollars are translated at the period end rates of exchange, and the results of its operations are translated at average rates of exchange for the period. Equity transactions have been translated using historical rates in effect on the date that each transaction occurred. The resulting translation adjustments are included in accumulated other comprehensive income as shareholders’ equity. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in accumulated other comprehensive income.

 

c) Cash and cash equivalents

 

Cash and cash equivalents include short-term investments that are readily convertible into cash with original maturities of three months or less.

 

d) Reclamation deposit

 

The Company maintains cash deposits, as required by regulatory bodies, as assurance for the funding of decommissioning costs. These funds are restricted to that purpose and are not available to the Company until the reclamation obligations have been fulfilled and are therefore classified as long term assets.

 

e) Property, plant and equipment

 

Property, plant and equipment (“PP&E”) is carried at cost, less accumulated depreciation and accumulated impairment losses.

 

The cost of an item of PP&E consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

 

Depreciation is provided at rates calculated to write off the cost of PP&E, less their estimated residual value.

 

The depreciation rates and method applicable to each category of property, plant and equipment are as follows:

 

Class		Rate
Office furniture		20% declining balance
Computer equipment		55% declining balance
Leasehold improvements		Term of lease
Pilot furnace		To be determined
Right-of-use assets		Term of lease

 

An item of PP&E is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss in the consolidated statement of comprehensive income or loss.

 

Where an item of PP&E comprises major components with different useful lives, the components are accounted for as separate items. Expenditures incurred to replace a component of an item of PP&E that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

f) Research and development

 

Expenditures on research activities taken to develop a pyro metallurgical process to extract and recover magnesium metal from dolomite are expensed as incurred. Development expenditures are expensed in the period incurred.

 

g) Mineral property acquisition and exploration assets

 

Mineral property acquisition costs are capitalized when incurred. Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of mineral property claims.

 

Costs related to the development of mineral reserves are capitalized when it has been determined an ore body can be economically developed. The development stage begins when an ore body is determined to be economically recoverable based on proven and probable reserves and appropriate permits are in place, and ends when the production stage or exploitation of reserves begins. Major mine development expenditures are capitalized, including primary development costs such as costs of building access ways, tailings impoundment, development of water supply and infrastructure developments.

 

Exploration costs include those relating to activities carried out (a) in search of previously unidentified mineral deposits, or (b) at undeveloped concessions. Pre-development activities involve costs incurred in the exploration stage that may ultimately benefit production that are expensed due to the lack of evidence of economic development, which is necessary to demonstrate future recoverability of these expenses. Secondary development costs are incurred for preparation of an ore body for production in a specific ore block or work area, providing a relatively short-lived benefit only to the mine area they relate to, and not to the ore body as a whole. All exploration costs have been expensed.

 

Once production has commenced, capitalized costs will be depleted using the units-of-production method over the estimated life of the proven and probable reserves. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to the Consolidated Statements of Loss in that period.

 

We assess the carrying cost of our mineral properties for impairment whenever information or circumstances indicate the potential for impairment. Such evaluations compare estimated future net cash flows with our carrying costs and future obligations on an undiscounted basis. If it is determined that the future undiscounted cash flows are less than the carrying value of the property, a write down to the estimated fair value is charged to the Consolidated Statements of Loss for the period. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if the carrying value can be recovered.

 

For significant development projects, interest is capitalized as part of the historical cost of developing and constructing assets in accordance with ASC 835-20. Interest is capitalized until the asset is ready for service. Capitalized interest is determined by multiplying the Company’s weighted-average borrowing cost on general debt by the average amount of qualifying costs incurred. Once an asset subject to interest capitalization is completed and placed in service, the associated capitalized interest is expensed through depletion or impairment.

 

h) Impairment of non-financial assets

 

Non-financial assets are evaluated at the end of each reporting period by management for indicators that carrying value is impaired and may not be recoverable. When indicators of impairment are present, non-financial assets are tested for impairment as an individual asset, as part of an asset group or at the reporting unit (RU) level. An asset group is the lowest level for which there are identifiable cash flows (i.e. both cash inflows and cash outflows) that are largely independent of the net cash flows of other groups of assets. An RU is an operating segment or one level below an operating segment if certain conditions are met. Impairment tests for non-financial assets subject to depreciation or amortisation are applied to individual assets if possible. If this is not possible, then these assets are tested for impairment at the asset group level.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

An impairment loss is triggered for non-financial assets only if the asset’s, or asset group’s, carrying amount exceeds its recoverable amount (i.e. the carrying amount is greater than the undiscounted cash flows of the asset or asset group). If the carrying amount is not recoverable, then the impairment loss is the difference between the carrying amount of the asset (asset group) and the fair value of the asset (asset group). An impairment loss for an asset group is allocated pro rata to the non-financial assets in the asset group. Impairment losses are recognized in the Consolidated Statements of Loss and are not reversed.

 

i) Income taxes

 

The Company accounts for income taxes using the asset and liability method. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

The Company has adopted the provisions of FASB ASC 740 “Income Taxes” regarding accounting for uncertainty in income taxes. The Company initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and its recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As additional information is obtained, there may be a need to periodically adjust the recognized tax positions and tax benefits.

 

These periodic adjustments may have a material impact on the Consolidated Statements of Loss. When applicable, the Company classifies penalties and interest associated with uncertain tax positions as a component of income tax expense in its consolidated statement of loss and comprehensive loss.

 

j) Loss per share

 

Basic earnings (loss) per share (“EPS”) is calculated by dividing profit or loss attributable to ordinary equity holders (numerator) by the weighted average number of ordinary shares outstanding (denominator) during the period. The denominator is calculated by adjusting the shares issued at the beginning of the period by the number of shares bought back during the period, multiplied by a time-weighting factor.

 

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential units. The effects of anti-dilutive potential units are ignored in calculating diluted EPS. All options are considered anti-dilutive when the Company is in a loss position.

 

k) Share-based payments

 

The Company has an equity settled share purchase stock option plan that is described in Note 13. Share-based payments to employees are measured at the fair value of the instruments issued at the grant date using the Black-Scholes Option Pricing Model, and are expensed over the vesting period, which is the period over which all of the specific vesting conditions are satisfied. For awards with graded vesting, the fair value of each tranche is recognized over its respective vesting period.

 

The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

 

The Company accounts for the granting of stock options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all stock options is expensed over their vesting period with a corresponding increase to additional paid-in capital.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

Compensation costs for stock-based payments that do not include performance conditions are recognized on a straight-line basis. Compensation cost associated with a share-based award having a performance condition is only recognized over the requisite service period if it is probable. Share based awards with a performance condition are accrued on an award by award basis.

 

The share-based compensation fair value is determined using an estimated forfeiture rate. Compensation ultimately recognized is revised in subsequent periods to reflect final grant amounts. For employees and consultants who are working on specific capital projects, the share-based compensation is allocated to projects under development. For the remainder of employees and consultants, the compensation is expensed.

 

l) Decommissioning liabilities

 

The Company records a liability for the reclamation of its exploration and evaluation interests based on the best estimate of costs for site closure and reclamation activities that the Company is legally or constructively required to remediate, and the liability is recognized at the time the environmental disturbance occurs. The resulting costs are capitalized to the corresponding asset. The fair value of the provision for closure and reclamation liabilities is estimated using expected cash flows, based on engineering and environmental reports prepared by third party industry specialists, discounted at a pre-tax rate specific to the liability. The capitalized amount is amortized on the same basis as the related asset. The liability is adjusted for accretion of the discounted obligation and any changes in the amount or timing of the underlying future cash flows. Significant judgments and estimates are involved in forming expectations of the amount and timing of future site closure and reclamation cash flows. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present value of the provision at the reporting date.

 

m) Share capital

 

The Company records proceeds from share issuances net of issuance costs. Shares issued for consideration other than cash are valued at the quoted price on the date the shares are issued.

 

n) Financial instruments

 

The Company’s classification of its financial instruments is as follows:

 

Asset or Liability		Classification
Cash and cash equivalents		Held-for-trading
Accounts receivable		Held-for-investment
Accounts payable		Amortized cost
Due to related parties		Amortized cost
Derivative liability		FVTPL
Promissory note and convertible debenture		Amortized cost

 

The fair value hierarchy under US GAAP is based on the following three levels of inputs, of which the first two are considered observable and the last unobservable:

 

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Observable inputs other than Level I, quoted prices for similar assets or liabilities in active prices whose inputs are observable or whose significant value drivers are observable; and

Level 3: Assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

The Company’s promissory note payable and convertible debenture to related and arms-length parties are based on Level 3 inputs in the ASC 820 fair value hierarchy. The promissory note payable and convertible debenture to related parties accumulate interest at rates of 18% and 12% per annum, respectively (see Note 11).

 

Derivative Liabilities

 

The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the Consolidated Statements of Loss. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.

 

The Company uses the Black-Scholes Option Pricing Model to value derivative liabilities. This model uses Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.

 

4. Changes in Accounting Standards

 

New Accounting Standards Adopted During the Year

 

ASU 2016-02, Leases (Topic 842)

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The new standard require lessees to recognize all leases, including operating leases, with a term greater than 12 months, on the balance sheet for the right and obligations created by those leases. Lessor accounting remains largely unchanged and the distinction between operating and finance leases is retained. The Company adopted ASU 2016-02, Leases (Topic 842) as of November 1, 2019 using the modified retrospective approach. Under this approach, there is no restatement of prior period financial information and any accumulated deficit at the date of initial application.

 

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In addition, the Company classifies a lease as either an operating lease or a finance lease at commencement of the lease, and the classification is not revised unless the lease is modified and that modification is not accounted for as a separate lease. Finance leases are further classified as either a sales-type lease or a direct financing lease based on certain criteria. Upon adoption of ASU 2016-02, Leases (Topic 842) the Company has classified its leases as operating leases.

 

The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.

 

The operating lease liability is initially measured as the present value of future lease payments excluding payments made at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The lease liability is measured at amortized cost using the effective interest method. It is re-measured to reflect lease modifications and changes in the lease payments, excluding changes caused by a change in an index or rate unless the lease liability is remeasured for another reason. In addition, the lease is re-measured if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

The carrying amount of an operating lease right-of-use asset is based on the carrying amount of the right-of-use asset less accumulated amortization and accumulated impairment losses.

 

The Company has elected to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of initial applicationThe Company applied the definition of a lease under ASU 2016-02 Leases to contracts effective for periods on or after November 1, 2019.

 

The Company has elected to apply the practical expedient to exclude initial direct costs such as annual operating costs from the measurement of the right-of-use asset at the date of initial application.

 

The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term.

 

On adoption of the new standard on November 1, 2019, the Company recognized right-of-use assets of $83,549, and a lease liability of $83,549 (Notes 6 and 7).

 

When measuring lease liabilities for leases classified as operating leases, the Company discounted lease payments using its incremental borrowing rate at November 1, 2019 of approximately 7%.

 

		$
Operating lease commitment disclosed as of October 31, 2019			139,234
Estimated variable lease payments not included in lease obligations			(51,768	)
Discounted using the incremental borrowing rate at November 1, 2019			(3,917	)
Lease obligations recognized as at November 1, 2019			83,549

 

Compensation – Share-based compensation

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which aligns the measurement and classification guidance for share-based payments to nonemployees with that for employees, with certain exceptions. It expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in the entity’s own operations and supersedes the guidance in ASC 505-50. The ASU retains the existing cost attribution guidance, which requires entities to recognize compensation cost for nonemployee awards in the same period and in the same manner (i.e. capitalize or expense) they would if they paid cash for the goods or services, but it moves the guidance to ASC 718. Effective November 1, 2019, the Company adopted the new standard, which did not have any material adjustments to the consolidated financial statements.

 

New Accounting Standards Not Yet Adopted

 

Fair Value Measurements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” which adds the disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain alternatives apply. Effective November 1, 2020, the Company will adopt the new standard. The adoption of this ASU is not expected to have any material adjustments to the consolidated financial statements.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

5. Property, Plant and Equipment

 

		Computer equipment				Office furniture				Leasehold improvements				Pilot furnace				Total
		$				$				$				$				$
Cost
As at October 31, 2018			6,921				-				-				-				6,921
Additions during the year			22,416				33,263				5,795				27,631				89,105
Write off of equipment			(6,845	)			-				-				-				(6,845	)
Foreign curreny translation			140				321				55				266				782
As at October 31, 2019			22,632				33,584				5,850				27,897				89,963
Additions during the year			9,852				5,672				1,810				838				18,172
Foreign curreny translation			(166	)			(340	)			(50	)			(322	)			(878	)
As at October 31, 2020			32,318				38,916				7,610				28,413				107,257
Accumulated depreciation
As at October 31, 2018			2,303				-				-				-				2,303
Write off of equipment			(3,257	)			-				-				-				(3,257	)
Additions during the year			4,133				1,663				1,931				-				7,727
Foreign curreny translation			5				16				19				-				40
As at October 31, 2019			3,184				1,679				1,950				-				6,813
Additions during the year			11,412				6,598				2,861				-				20,871
Foreign curreny translation			81				49				7				-				137
As at October 31, 2020			14,677				8,326				4,818				-				27,821
Net book value
As at October 31, 2018			4,618				-				-				-				4,618
As at October 31, 2019			19,448				31,905				3,900				27,897				83,150
As at October 31, 2020			17,641				30,590				2,792				28,413				79,436

 

6. Right-of-Use Assets

 

As at October 31, 2020, the right-of-use assets are office leases for the Company’s corporate offices in Vancouver, British Columbia and Nevada, USA, and its pilot plant located in Burnaby, British Columbia which terminate on March 31, 2021, May 31, 2021 and September 30, 2023, respectively.

 

		Vancouver Office				Nevada Office				Pilot Plant Premise				Total
		$				$				$				$
Balance, October 31, 2019			-				-				-				-
Initial adoption of ASU 2016-02 (Note 4)			60,418				23,131				-				83,549
Additions			-				-				354,263				354,263
Depreciation			(41,708	)			(14,287	)			(9,841	)			(65,836	)
Foreign currency translation			(1,150	)			(423	)			3,584				2,011
Balance, October 31, 2020			17,560				8,421				348,006				373,987

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

7. Lease Liabilities

 

Lease liabilities are recorded as follows:

 

		Vancouver Office				Nevada Office				Pilot Plant Premise				Total
		$				$				$				$
Initial recognition of lease liability (Note 4)			60,418				23,131				-				83,549
Additions			-				-				354,263				354,263
Payment of lease liability			(43,627	)			(14,990	)			(10,831	)			(69,448	)
Interest expense on lease liability			2,477				1,005				3,551				7,033
Foreign exchange effect			(1,145	)			3,065				3,610				5,530
Total			18,123				12,211				350,593				380,927
Non-current			-				-				237,218				237,218
Current			18,123				12,211				113,375				143,709

 

8. Mineral Property Costs and Exploration and Evaluation Assets

 

		Beaverdell Property				Silverado Property				Tami Mosi Property				Total
		$				$				$				$
Balance, October 31, 2018 and 2019			1				1				93,452				93,454
Sale of mineral property			(1	)			-				-				(1	)
Balance, October 31, 2020			-				1				93,452				93,453

 

a) Beaverdell Property, Greenwood Mining Division, British Columbia, Canada

 

The Beaverdell property is located 3 kilometers southeast of Beaverdell, British Columbia, and was owned 100% by the Company. The carrying value of the property was $1.

 

During the year ended October 31, 2020, the Company sold its 100% interest in and to the mineral property for aggregate proceeds of $37,157 to be paid in two equal tranches: (i) upon signing of the sale agreement (received); and, (ii) on or before April 7, 2020 (received). As a result, the Company recognized a gain on sale of $37,156.

 

b) Silverado Property, Nevada, United States

 

The Silverado property is located in the Pinto mining district of Nevada, consists of 3 patented mining claims totaling approximately 120 hectares, and is a 100% owned by the Company. The carrying value of the property is $1.

 

c) Tami Mosi Property Nevada, United States

 

The Tami Mosi property is located approximately 8 miles southeast of Ely, Nevada, consists of 81 unpatented mining leases, is 100% owned by the Company, and is subject to a 2% net smelter royalty in favor of the originating vendors.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

9. Related Party Transactions

 

During the year ended October 31, 2020, the Company had eight executives, with an aggregate annualized salary of approximately $1,389,126 per year, as follows: Executive Chairman, President & Chief Executive Officer, Chief Technical Officer, Chief Financial Officer, Senior Vice President of Corporate Affairs, Senior Vice President of Strategy, Vice President of Operations and Corporate Secretary.

 

During the year ended October 31, 2020, the Company incurred salaries, management and consulting fees and rent payments totaling $1,785,032 (2019 - $1,507,697) to directors, officers and related companies with directors in common.

 

During the year ended October 31, 2020, the Company recorded share-based payments of $300,211 (2019 - $926,558) for options granted to directors and officers of the Company.

 

As at October 31, 2020, the balance owing to related parties is $843,990 (2019 - $639,492) and is unsecured, non-interest bearing. A total of $767,401 has no stated terms of repayment, with the remainder of $76,588 subject to a payment schedule, as set out in Note 10 below. In addition, the Company owes a director and officer an amount $60,567 by way of a promissory note (Note 11).

 

10. Contingent Liabilities

 

[i] On September 29, 2020, James Sever filed a Notice of Civil Claim against the Company in the Supreme Court of British Columbia (the “Sever Claim”). The Sever Claim alleges that Mr. Sever had an employment and/or other similar contractual relationship with the Company, and that the Company breached such contractual relationship by way of constructive dismissal or similar conduct. The Sever Claim seeks damages in excess of $2,500,000, certain equity compensation, prejudgment garnishment, costs, interest and other non-monetary relief. On July 27, 2021, the Company filed a response to the Sever Claim, which included the following, among other things: (a) that the Company was never properly served with the Sever Claim; (b) that the Company had never had any form of employment, independent or consulting relationship or agreement with Sever; (c) that the Company had no debts, liabilities or obligations to Sever; (d) that to the extent that Sever had some form of employment, independent or consulting or similar relationship or agreement as alleged in the Sever Claim, such contract or relationship, if one existed, was never with the Company and was with some other corporate entity.

 

The Company intends to vigorously defend against the Sever Claim, and believes that the Sever Claim is without merit. As the Company cannot predict the outcome of the Sever Claim, no provision has been recognized as there is no present obligation and the probability of an outcome cannot be determined.

 

[ii] On December 30, 2020, the Company entered into a settlement agreement with Frank Halliday, a former director and officer of the Company, whereby the Company has agreed to pay Mr. Halliday termination pay in the amount of CAD$102,001 (USD equivalent $76,588) via installment payments commencing in January 2021 until October 2021. At October 31, 2020, the Company had recorded a provision for the settlement amount.

 

[iii] On December 31, 2020, GEM Yield Bahamas Limited (“GEM”) served the Company with a Notice of Intention to Arbitrate (the “New York Arbitration Notice”) before the American Arbitration Association in New York, (the “GEM New York Arbitration”). The New York Arbitration Notice alleges the Company breached a Share Subscription Agreement dated November 15, 2019 entered into between the Company and GEM (the “GEM Agreement”), among other things, claiming damages of CAD$4.2 million (USD equivalent $3.3 million). On January 19, 2021, the Company moved to stay the GEM New York Arbitration claiming the GEM Agreement was not valid. On March 19, 2021, the Court ruled that there was an arbitration clause but it was up to the arbitrator to determine if the arbitration clause was valid. Therefore, the New York State action was closed. GEM filed an arbitration, and in June 2021, the Company filed a Statement of Answer denying the existence of any binding agreement between the Company and GEM. The Company intends to vigorously defend itself and believes the allegations against the Company in the GEM New York Arbitration lack merit. As the Company cannot predict the outcome of this arbitration proceeding, no provision has been recognized in respect to the GEM New York Arbitration as there is no present obligation and the probability of an outcome cannot be determined.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

[iv] On February 9, 2021, GEM instituted another arbitration against the Company before the International Centre for Dispute Resolution in Montreal Canada (the “GEM Montreal Arbitration”) and joined GEM’s affiliate, GEM Global Yield LLC SC (“GEM Global Yield” together with GEM, the “GEM Parties”). The Statement of Claim filed by the GEM Parties alleges the Company breached a Share Subscription Agreement dated November 15, 2019 and promissory note, among other things, claiming damages of CAD$4.9 million (USD equivalent $3.85 million), in addition to costs and expenses. The Company and the GEM Parties are in the process of selecting an arbitrator in this matter, and following such appointment, the Company will file a Statement of Answer. The Company intends to vigorously defend itself in the GEM Montreal Arbitration and believes the allegations lack merit. As the Company cannot predict the outcome of this arbitration proceeding, no provision has been recognized in respect to the GEM Montreal Arbitration as there is no present obligation and the probability of an outcome cannot be determined.

 

11. Convertible and Promissory Notes

 

Convertible Note

 

On July 27, 2020, the Company closed a non-brokered private placement of an unsecured convertible note in the principal amount of CAD$150,000 (USD equivalent $112,124, the “Convertible Debenture”). The Convertible Debenture bears interest at 12% per annum and is due on July 27, 2021. The Convertible Debenture is convertible into common shares of the Company at the greater of CAD$0.15 per share and the market price on the date of the conversion notice. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares.

 

The Convertible Debenture was determined to be a hybrid financial instrument comprised of the debt host liability and an embedded derivative liability, as under the conversion feature the number of shares that will or may be issued to settle the Convertible Debenture may vary.

 

On issuance date of the Convertible Debenture, the fair value of the debt host liability was determined to be $87,083 and the embedded derivative liability was valued at $25,041, using the Black-Scholes Option Pricing Model and based on certain risks and assumptions, as set out below.

 

		October 31, 2020
		$
Value of debt host liability			87,083
Accretion and interest expense			8,751
Foreign currency translation			484
Value of convertible debenture, end of year			96,318
Fair value of embedded derivative liability			25,041
Fair value adjustment			(4,979	)
Foreign currency translation			61
Fair value of derivative liability, end of year			20,123

 

The inputs used to fair value the embedded derivative using the Black Scholes Option Pricing Model at are as follows:

 

		October 31, 2020				July 27, 2020
Risk free rate of interest			0.26	%			0.28	%
Expected life in years			0.74 year				1 year
Conversion exercise price			CAD$0.15				CAD$0.15
Underlying share price of the Company			CAD$0.13				CAD$0.11
Expected volatility			82.54	%			103.43	%
Expected dividend rate			Nil				Nil

 

The debt host liability of the Convertible Debenture will be amortized at cost, with the embedded derivative liability measured at fair value through profit and loss.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

Promissory Note

 

During the year ended October 31, 2019, the Company received a loan of CAD$150,000 (USD equivalent $112,895) from a related party. The loan was unsecured, bears interest at 18% and is due on demand. During the year ended October 31, 2020, the loan was increased by an additional CAD$60,000 (USD equivalent $44,588), to CAD$210,000 (USD equivalent $157,483), and is due on September 24, 2021. During fiscal 2020, the Company accrued interest of $16,655 (2019 - $1,693) and made repayments of principal and interest totaling $101,066 (2019 - $18,000). As of October 31, 2020, the outstanding balance was $60,567 (2019 - $102,014). Subsequent to October 31, 2020, the Company repaid the entire balance including interest accrued.

 

12. Provision for Flow Through Share Issuances

 

The Company has recorded a provision in the amount of $216,924 (2019 - $219,529) for tax and related obligations relating to flow through share issuances from prior years.

 

13. Share Capital

 

i) Authorized capital

 

The authorized share capital consists of 1,000,000,000 common voting shares at par value of CAD$0.001.

 

ii) Issued shares

 

2020:

 

On December 20, 2019, the Company exercised its right to call, subject to acceleration provisions, all outstanding common share purchase warrants set to expire between May 7, 2020 and May 13, 2021. The expiry date was amended to January 19, 2020. This expiry date was then extended to February 19, 2020. As of February 19, 2020, any unexercised warrants were extinguished. In all, 35,472,661 warrants at an average price of CAD$0.08 were exercised and 24,794,484 expired unexercised. A further 4,864,000 warrants were also exercised during the year at CAD$0.05 per share.

 

On January 17, 2020, the Company closed a non-brokered private placement consisting of 3,643,791 units at a price of CAD$0.15 per unit for gross proceeds of CAD$546,569 (USD equivalent $416,719), of which CAD$52,922 (USD equivalent $39,722) was recorded as advance share subscriptions received prior to October 31, 2019. Each unit consists of one common share and one common share purchase warrant exercisable at a price of CAD$0.21 for a period of one year. The share purchase warrants are subject to an expiry acceleration provision, upon thirty days’ written notice, should the price of the Company’s common shares exceed CAD$0.30 for at least ten consecutive trading days. Finder’s fees of $41,275 were paid or accrued in connection with the placement.

 

On May 26, 2020, the Company issued a total of 500,000 common shares on the exercise of stock options for gross proceeds of CAD$37,000 (USD equivalent $26,401) and re-classified $19,775 from equity reserves to share capital.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

On September 10, 2020, the Company announced a non-brokered private placement of up to 53,846,154 units priced at CAD$0.13 per unit to raise gross proceeds of up to CAD$7,000,000. Each unit is comprised of one common share and one common share purchase warrant exercisable at CAD$0.19 per share for a period of one year. At October 31, 2020, the Company had received advance share subscriptions of CAD$747,392 (USD equivalent $596,872). The non-brokered private placement was closed subsequent to October, 31, 2020 (see Note 19(a)).

 

2019:

 

On November 30, 2018, the Company closed the second tranche of non-brokered private placement, originally announced on September 14, 2018, comprised of 7,699,760 units for gross proceeds of CAD$384,988 (USD equivalent $289,443). Each unit consisted of one common share at a price of CAD$0.05 and one common share purchase warrant exercisable into one common share for a period of two years at a price of CAD$0.08. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceed CAD$0.10 per share for at least ten consecutive trading days. The Company paid cash finder’s fees of $18,097 and issued 145,960 shares at a price of CAD$0.05 in connection with the second tranche.

 

During the year ended October 31, 2019, the Company issued a total of 150,000 shares to Lodestar Management Group, LLC. (“Lodestar”) at a price of CAD$0.05 for services provided.

 

On January 23, 2019, the Company closed a non-brokered private placement comprised of 6,348,435 units at a price of CAD$0.05 for gross proceeds of CAD$317,422 (USD equivalent $237,805). Each unit consisted of one common share and one share purchase warrant exercisable into one common share for a period of two years at a price of CAD$0.08. The warrants were subject to an acceleration clause whereby the Company had the right, upon provision of thirty days’ written notice, to require a holder to exercise the warrants should the closing price of the Company’s common shares exceed CAD$0.10 per share for at least ten consecutive trading days. In connection with the closing, the Company paid cash finder’s fees totaling $5,530, issued 597,001 shares priced at CAD$0.05 and issued 40,000 broker warrants with the same terms as the financing warrants, which were fair valued at $851.

 

On March 29, 2019, the Company closed a non-brokered private placement for gross proceeds up to CAD$587,523 (USD equivalent $439,664) comprising of 11,750,464 units at a price of $0.05 per unit. Each unit consists of one common share at a price of CAD$0.05 and one common share purchase warrant exercisable into one common share for a period of two years at a price of CAD$0.08. An acceleration clause is included with the warrants such that the Company has the right, on thirty days’ written notice, to require a holder to exercise the warrants so long as the closing trading price of the Company’s common shares on the Company’s principal trading market exceeds CAD$0.10 per share for at least ten consecutive trading days at any time prior to the date of the Call Notice. The Company paid finders fees totaling $28,262 in cash, and issued 218,287 shares at a price of CAD$0.05 in connection to this closing.

 

On May 13, 2019, the Company closed a non-brokered private placement for gross proceeds of CAD$1,735,630 (USD equivalent $1,289,053) comprised of 34,712,595 units at a price of CAD$0.05 per unit. Each unit consists of one common share at a price of CAD$0.05 and one common share purchase warrant exercisable into one common share for a period of two years at a price of CAD$0.08. An acceleration clause is included with the warrants such that the Company has the right, on thirty days’ written notice, to require a holder to exercise the warrants so long as the closing trading price of the Company’s common shares on the Company’s principal trading market exceeds CAD$0.10 per share for at least ten consecutive trading days at any time prior to the date of the Call Notice. The warrants will terminate on the date that is thirty days from the date of the Call Notice in the event that the holder has not exercised the warrants in accordance with the terms of the Call Notice by such date. In connection with this financing the Company paid a finder’s fees of $94,216 in cash.

 

On September 6, 2019, the TSX-V approved the debt settlement of CAD$57,500 (USD equivalent $43,647) to a non-arm’s length party through the issuance of 328,571 common shares at a price of CAD$0.175.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

During the year ended October 31, 2019, 1,100,000 options at a price of CAD$0.05 and 15,055,344 warrants at an average price of CAD$0.07 were exercised.

 

iii) Warrants

 

A summary of the changes in the Company’s share purchase warrants during the year ended October 31, 2020 follows:

 

Expiry date		Exercise Price CAD$				Weighted Average Life (years)				October 31, 2019				Granted				Exercised				Expired/ Cancelled				October 31, 2020
February 21, 2022			0.05				2.31				1,505,200				-				-				-				1,505,200
March 27, 2022			0.05				2.41				3,426,025				-				(1,944,000	)			-				1,482,025
May 9, 2022			0.05				2.52				5,088,626				-				(2,720,000	)			-				2,368,626
August 14, 2022			0.05				2.79				1,310,000				-				(200,000	)			-				1,110,000
January 22, 2021**			0.21								-				3,643,791				-				-				3,643,791
May 7, 2020*			0.07				0.52				3,100,000				-				(3,000,000	)			(100,000	)			-
October 4, 2020*			0.08				0.93				5,016,000				-				(3,425,000	)			(1,591,000	)			-
November 30, 2020*			0.08				1.08				6,169,926				-				(3,091,383	)			(3,078,543	)			-
January 23, 2021*			0.08				1.23				6,388,435				-				(3,409,160	)			(2,979,275	)			-
March 29, 2021*			0.08				1.41				8,188,046				-				(4,496,710	)			(3,691,336	)			-
May 13, 2021*			0.08				1.53				31,404,738				-				(18,050,408	)			(13,354,330	)			-
TOTAL											71,596,996				3,643,791				(40,336,661	)			(24,794,484	)			10,109,642
Weighted average exercise price (CAD)										$	0.07			$	0.21			$	0.08			$	0.08			$	0.11

 

* On December 20, 2019, the Company exercised its right to call, subject to acceleration provisions, all outstanding warrants set to expire between May 7, 2020 and May 13, 2021. The expiry was amended to January 19, 2020. This expiry date was then extended to February 19, 2020. Any unexercised warrants were voided and of no value after February 19, 2020.

 

** Subsequent to October 31, 2020, the Company amended the expiry date of 3,643,791 warrants, extending the expiry date to August 31, 2021 (see Note 19 (d)).

 

A summary of the changes in the Company’s share purchase warrants during the year ended October 31, 2019 follows:

 

Expiry date		Exercise Price CAD$				Weighted Average Life (years)				October 31, 2018				Granted				Exercised				Expired/ Cancelled				October 31, 2019
December 22, 2018			0.05				-				1,640,000				-				-				(1,640,000	)			-
February 21, 2022			0.05				2.31				2,005,200				-				(500,000	)			-				1,505,200
March 27, 2022			0.05				2.41				4,205,000				-				(778,975	)			-				3,426,025
May 9, 2022			0.05				2.52				7,104,886				-				(2,016,260	)			-				5,088,626
August 14, 2022			0.05				2.79				1,470,000				-				(160,000	)			-				1,310,000
May 7, 2020			0.07				0.52				3,100,000				-				-				-				3,100,000
October 4, 2020			0.08				0.93				8,216,000				-				(3,200,000	)			-				5,016,000
November 30, 2020			0.08				1.08				-				7,699,760				(1,529,834	)			-				6,169,926
January 31, 2021			0.08				1.23				-				6,388,435				-				-				6,388,435
March 29, 2021			0.08				1.41				-				11,750,464				(3,562,418	)			-				8,188,046
May 13, 2021			0.08				1.53				-				34,712,595				(3,307,857	)			-				31,404,738
TOTAL											27,741,086				60,551,254				(15,055,344	)			(1,640,000	)			71,596,996
Weighted average exercise price (CAD)										$	0.06			$	0.08			$	0.07			$	0.05			$	0.07

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

Assumptions used for the fair market valuation of broker’s warrants in Note 13 (ii) were as follows:

 

		2019
Risk free rate of interest			1.82	%
Expected life of warrants			2 years
Exercise price of warrants			CAD$0.08
Expected annualized volatility			187	%
Expected dividend rate			Nil

 

iv) Share-based payments

 

The Company has adopted an incentive stock option plan under the rules of the TSX-V pursuant to which it is authorized to grant stock options to executive officers, directors, employees and consultants, enabling them to acquire up to 20% of the total shares outstanding of the Company. Under the stock option plan, the option exercise price of any option granted shall not be less than the discounted market price of the Company’s common shares. For the purposes of the stock option plan, the discounted market price is calculated in accordance with the policies of the TSX-V at the time of the grant of the options. Stock options granted are subject to a maximum term of 5 years. All options granted shall vest immediately, except for those options granted to persons performing investor relations activities for the Company. Pursuant to the policies of the TSX-V, shares issued upon the exercise of options are restricted from trading during the 4-month period subsequent to the exercise of options. At October 31, 2020, the number of options available to be granted was 36,263,905 (2019 – 26,157,815).

 

A summary of the changes in the Company’s stock options during the year ended October 31, 2020 follows:

 

Expiry date		Exercise Price CAD$				Weighted Average Life (years)				Number Exercisable October 31, 2019				Granted				Exercised				Expired/ Cancelled				Number Exercisable October 31, 2020
June 3, 2020			0.05				-				550,000				-				-				(550,000	)			-
February 11, 2021			0.05				0.53				1,300,000				-				-				(500,000	)			800,000
August 16, 2021			0.05				1.04				1,200,000				-				-				(600,000	)			600,000
March 27, 2022			0.05				1.65				2,000,000				-				-				(250,000	)			1,750,000
August 26, 2022			0.13								-				500,000				-				-				500,000
April 19, 2023			0.05				2.72				800,000				-				-				-				800,000
August 12, 2023			0.05				3.03				3,780,000				-				(100,000	)			(560,000	)			3,120,000
December 5, 2023			0.05				3.35				9,600,000				-				-				(2,600,000	)			7,000,000
May 8, 2024			0.08				-				400,000				-				(400,000	)			-				-
May 22, 2024			0.12				3.81				10,000,000				-				-				(2,050,000	)			7,950,000
November 4, 2024			0.15				4.27				-				700,000				-				-				700,000
November 25, 2024			0.16				4.32				-				900,000				-				-				900,000
March 27, 2025			0.11				4.66				-				300,000				-				-				300,000
April 24, 2025			0.12				4.73				-				4,200,000				-				(200,000	)			4,000,000
TOTAL											29,630,000				6,600,000				(500,000	)			(7,310,000	)			28,420,000
Weighted average exercise price (CAD)										$	0.07			$	0.13			$	0.07			$	0.07			$	0.09

 

During the year ended October 31, 2020, the Company recorded share-based compensation totaling $666,259 (2019 - $1,155,454) in relation to the grant of stock options, which was expensed in operations.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

A summary of the changes in the Company’s stock options during the year ended October 31, 2019 follows:

 

Expiry date		Exercise Price CAD$				Weighted Average Life (years)				Number Exercisable October 31, 2018				Granted				Exercised				Expired/ Cancelled				Number Exercisable October 31, 2019
January 9, 2019			0.11				-				5,700,000				-								(5,700,000	)			-
May 24, 2019			0.05				-				300,000				-								(300,000	)			-
May 29, 2019			0.08				-				800,000				-								(800,000	)			-
June 3, 2020			0.05				0.84				2,250,000				-				(200,000	)			(1,500,000	)			550,000
February 11, 2021			0.05				1.54				1,600,000				-				(300,000	)			-				1,300,000
August 16, 2021			0.05				2.04				2,000,000				-				(300,000	)			(500,000	)			1,200,000
March 27, 2022			0.05				2.66				3,487,000				-								(1,487,000	)			2,000,000
May 1, 2022			0.05				2.75				1,100,000				-				(300,000	)			(800,000	)			-
August 12, 2023			0.05				4.04				4,010,000				-				-				(230,000	)			3,780,000
April 19, 2023			0.05				3.72				1,100,000				-								(300,000	)			800,000
December 5, 2023			0.05				4.35				-				9,600,000								-				9,600,000
May 8, 2024			0.08				-				400,000				-				-								400,000
May 22, 2024			0.12				4.81								10,000,000												10,000,000
TOTAL											22,747,000				19,600,000				(1,100,000	)			(11,617,000	)			29,630,000
Weighted average exercise price (CAD)										$	0.07			$	0.09			$	0.05			$	0.08			$	0.07

 

The fair value of stock options was estimated on the measurement date using the Black-Scholes Option Pricing Model. The assumptions used to calculate the fair value were as follows:

 

			2020				2019
Risk free rate of interest			0.43 - 1.51	%			1.46% - 2.18	%
Expected life of options			5 years				5 years
Exercise price of options			CAD$0.11 - $0.16				CAD$ 0.05 - $0.12
Expected annualized volatility			120.13% - 188.46	%			188.57% - 245.97	%
Expected dividend rate			Nil				Nil

 

v) Share-based payments reserve

 

The share-based payments reserve is used to recognize the fair value of share options granted to employees, including key management personnel, as part of their remuneration, or the fair value of broker warrants granted on financings. When options or warrants are subsequently exercised, the fair value of such options or warrants in share-based payments reserve is credited to share capital. Warrants attached to units as part of a unit placement as assigned a nil value.

 

vi) Obligations to issue shares

 

During the year ended October 31, 2020, the Company received advance share subscriptions in the amount of $596,872 (2019 - $39,722) in respect of a non-brokered private placement announced during the year, the first tranche of which closed subsequent to October 31, 2020 (see Note 19(a)).

 

vii) Dilutive common shares

 

For the year ended October 31, 2020, potentially dilutive common shares (relating to warrants and options outstanding) totaling 38,529,642 (2019 – 101,226,996) were not included in the computation of loss per share as the effect would be anti-dilutive.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

14. Commitments

 

[i] On January 1, 2016, the Company signed a service agreement with Lodestar, a US corporate logistics company, which was extended on January 1, 2017 and 2018 under the same terms. Lodestar provides advisory, consulting, negotiation and other management services relating to corporate management, administrative and/or operational activities of the Company. The term of the contract is for one year and is renewable. The Company has agreed to compensate Lodestar in the amount of CAD$2,500 (USD equivalent $1,877) per month by arrangement of the issuance of shares. The number of shares issued will be based on the share price on the day of issuance that is not lower than the CAD$0.05 per share minimum requirement and will not exceed CAD$2,500 in value. The shares will be issued on the last working day of each month for a period of twelve months. The Company issued 150,000 shares at a price of CAD$0.05 during the year ended October 31, 2019. There were no shares issued to Lodestar during the year ended October 31, 2020.

 

[ii] The Company had a sublease agreement for office space in Canada with a lease term from April 1, 2019 to March 31, 2021. Monthly rent is CAD$9,345 (USD equivalent $7,017). The sublease agreement has been subsequently renewed with a lease term which expires on March 31, 2023. In addition, the Company has an office lease in the USA with a lease term from May 15, 2019 to May 31, 2021 and monthly rent of $1,293. During the year ended October 31, 2020, the Company entered into a lease agreement for a commercial pilot plant space in Canada with a lease term from October 1, 2020 to September 30, 2023 at a monthly rent of CAD$20,715 (USD equivalent $15,554) (Notes 6 and 7).

 

[iii] During the year ended October 31, 2019, the Company signed a letter of intent for the potential purchase of a former smelter site in the state of Washington, USA. The Company was granted access to the site to perform certain due diligence activities in furtherance of the proposed acquisition. The acquisition did not complete and the Company is renegotiating the letter of intent. During the year ended October 31, 2019, the Company incurred $387,996 in connection with this investigation and another $14,937 during the year ended October 31, 2020.

 

[iv] On November 19, 2019, the Company signed a three-year capital commitment with New York-based GEM Global Yield whereby GEM Global Yield will make available $150 million for the Company to use at its discretion, subject to certain terms, in its pursuit to commercialize production of high-grade magnesium metal. The Company will pay fees equal to 2% of the facility amount, payable from proceeds of the first few draw-downs, in cash or shares and issue 33 million warrants with an exercise price of CAD$0.26 in connection with this share subscription facility. Any draw down on such funding is subject to regulatory approval. As at October 31, 2020, the Company had not received regulatory approval of this agreement and no funds had been drawn-down. Subsequent to October 31, 2020, the Company received notices from the GEM Parties of their intention to arbitrate the GEM Agreement (Notes 10[iii] and 10[iv]).

 

15. Financial Instruments and Financial Risk Management

 

Financial instruments		Measurement Method		Associated Risk		Fair Value at October 31, 2020
						$
Cash and cash equivalents		Held-for-trading		Credit and currency			39,571
Accounts payable		Amortized cost		Currency			1,079,104
Due to related parties		Amortized cost		Currency			843,990
Promissory note		Amortized cost		Credit and currency			60,567
Convertible debenture		Amortized cost		Credit and currency			96,318
Derivative liability		FVTPL		Credit and currency			20,123

 

a) Fair value

 

The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of current financial instruments approximates their carrying values as long as they are short term in nature or bear interest at market rates.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

b) Fair value hierarchy

 

Financial instruments that are held at fair value are categorized based on a valuation hierarchy which is determined by the valuation methodology utilized:

 

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

As at October 31, 2020 and 2019, the fair value of cash and cash equivalents held by the Company was based on Level 1 of the fair value hierarchy. There were no transfers between the levels during the year.

 

The fair value of the conversion feature in the convertible note is considered a Level 3 valuation. The inputs used in determining the fair value of the embedded derivative are disclosed in Note 11.

 

c) Financial risk management

 

The Company’s board of directors has the overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in response to the Company’s activities. Management regularly monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.

 

In the normal course of operations, the Company is exposed to various risks such interest rate, foreign exchange, credit and liquidity risks. To manage these risks, management determines what activities must be undertaken to minimize potential exposure to risks. The objectives of the Company in managing risks are as follows:

 

●	Maintaining sound financial condition:
●	Financing operations; and
●	Ensuring liquidity to all operations.

 

In order to satisfy these objectives, the Company has adopted the following policies:

 

●	Prepare budget documents at prevailing market rates to ensure clear corporate alignment to performance management and achievement of targets;
●	Recognize and observe the extent of operating risk within the business; and
●	Identify the magnitude of the impact of market risk factors on the overall risk of the business and take advantage of natural risk reductions that arise from these relationships.

 

There have been no changes in risks that have arisen or how the Company manages those risks during the year.

 

i) Interest rate risk

 

The Company’s interest rate risk arises primarily from the interest received on cash and cash equivalents, which is invested on a short-term basis to enable adequate liquidity for payment of operational and capital expenditures.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

ii) Foreign currency risk

 

The Company is exposed to foreign currency risk on fluctuations related to cash and cash equivalents, reclamation deposits and accounts payable and accruals that are denominated in US dollars. As at the period end, net liabilities denominated in US dollars were nominal. Sensitivity to a plus or minus 10% change in the foreign exchange rate would affect net loss and comprehensive loss by an immaterial amount with all other variables remaining constant.

 

iii) Commodity price risk

 

The value of the Company’s exploration and evaluation assets are dependent on the price of magnesium and the outlook for this mineral. Market prices for these metals historically have fluctuated widely and are affected by numerous factors outside the Company’s control, including but not limited to, levels of worldwide production, short-term changes in supply and demand, industrial and retail demand, as well as certain other factors related specifically to magnesium. If magnesium prices decline for a prolonged period below the cost of production, it may not be economically feasible to continue towards production.

 

iv) Credit risk

 

Credit risk is the risk of loss if counterparties do not fulfill their contractual obligations and arises principally from trade receivables. The Company’s credit risk is primarily attributable to cash and cash equivalents and amounts receivable. The Company limits its exposure to credit risk on cash and cash equivalents as these financial instruments are held with major Canadian and international banks. Amounts receivable consist primarily of GST due from the Federal Government of Canada. Management believes the credit risk concentration with respect to amounts receivable is remote. The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents the Company’s maximum exposure to credit risk.

 

v) Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages liquidity risk by maintaining cash and cash equivalents. Liquidity requirements are managed based on expected cash flows to ensure there is capital to meet short-term and long-term obligations. As disclosed in Note 1, the ability of the Company to continue as a going concern is dependent on many factors. The Company’s cash is primarily invested in bank accounts. The Company anticipates that its cash on hand, together with expected funds raised from private placements and on exercise of warrants and options, will provide sufficient financial resources to carry out its operations through the 2021 fiscal year, including the continued exploration of its mineral assets. However, additional funding will be required as the Company has a working capital deficiency at October 31, 2020. There can be no assurance that the Company will be able to raise the funds necessary to continue future operations. Liquidity risk has been assessed as high.

 

16. Capital Management

 

The Company classifies the components of shareholders’ equity as capital, which at October 31, 2020, was a deficit of $2,079,903 (2019 – a deficit of $1,269,030). When managing capital, the Company’s objective is to ensure the entity continues as a going concern and advance stakeholders interests. Management adjusts the capital structure as necessary in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish qualitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The properties in which the Company currently has an interest are in the exploration stage; as such, the Company is dependent upon external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is appropriate. There were no changes in the Company’s approach to capital management during the period. The Company is not subject to any externally imposed capital requirements.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

17. Segmented Information

 

The Company operates in one segment – the exploration for and development of mineral property interests. Geographic information for the Company’s mineral property and other assets is as follows:

 

		October 31, 2020				October 31, 2019
		$				$
Mineral Properties
Canada			-				1
United States			93,453				93,453
			93,453				93,454
Other Assets
Canada			613,251				219,202
United States			2,059				128
			615,310				219,330
Total Assets			708,763				312,784

 

18. Income Tax

 

Significant items resulting in the difference between the Company’s income tax rate and the federal statutory rate are as follows:

 

		2020				2019
		$				$
Loss for the year			(4,672,605	)			(4,967,886	)
Effective statutory rate			31.21	%			30.48	%
Expected income tax recovery at statutory rate			(1,458,320	)			(1,514,212	)
Net adjustment for deductible and non-deductible amounts			250,196				714,729
Foreign exchange effect			175,597				-
Valuation allowance			1,383,721				799,483
Deferred income tax provision (recovery)			-				-

 

The Company’s deferred tax assets and liabilities are as follows:

 

		2020				2019
		$				$
Non-capital loss carry-forwards			2,600,561				1,544,353
Share issuance costs			11,056				-
Lease liability			103,789				-
Property and equipment			(123,561	)			-
Valuation allowance			(2,591,845	)			(1,544,353	)
Deferred income tax asset (liability)			-				-

 

The Company has approximately $5,054,000 net operating losses in the US and $2,062,000 in Canada that, under certain circumstances, can be used to reduce the taxable income of future years. These losses expire at various dates through 2041.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

19. Subsequent Events

 

Subsequent to October 31, 2020, the Company:

 

a)	closed five tranches of a non-brokered private placement announced on September 10, 2020, and issued an aggregate of 25,787,255 units priced at CAD$0.13 to raise gross proceeds of CAD$3,352,343 (USD equivalent $2,627,677). Each unit consists of one common share and one share purchase warrant entitling the holder thereof to acquire a further common share at a price of CAD$0.19 for a period of one year from the date of closing of the respective financing tranche;
b)	approved the partial settlement of up to CAD$25,000 (USD equivalent $18,772) of outstanding debt owed to a supplier, subject to regulatory approval, through the issuance of common shares of the Company;
c)	repaid a short-term loan of CAD$25,000 (USD equivalent $19,085) received from a related party that was unsecured, with no fixed repayment date and bore no interest;
d)	extended the expiry date of 3,643,791 share purchase warrants priced at CAD$0.21 from January 22, 2021 to August 31, 2021, subject to acceleration if the closing price of the Company’s shares exceeds CAD$0.30 per share for at least 10 consecutive trading days;
e)	granted an aggregate 15,650,000 stock options to directors, officers, employees and consultants at a price of CAD$0.13 per share, of which 9,500,000 were granted for a period of five years and 6,150,000 were granted for a period of two years. In addition, an aggregate 1,600,000 stock options at an average price of CAD$0.09 per share expired unexercised;
f)	On March 12, 2021, the Company issued a total of 100,000 common shares on the exercise of stock options at a price of CAD$0.05 for gross proceeds of CAD$5,000 (USD equivalent $4,002).
g)	On April 22, 2021, the Company received advance subscription on a non-brokered private placement of an unsecured convertible note in the principal amount of CAD$100,000 (USD equivalent $80,000). The note bears interest at 12% per annum and is due on the date that is one year following the closing date. The note is convertible into common shares of the Company at the price of CAD$0.12 and will have warrants exercisable for a period of two years at CAD$0.20. Any accrued but unpaid interest will be payable on the earlier of the maturity date and the date of conversion in cash or common shares. The Company received final approval of the TSX Venture Exchange on July 15, 2021.
h)	On April 26, 2021, the Company issued a total of 400,000 common shares on the exercise of common share purchase warrants at a price of CAD$0.05 for gross proceeds of CAD$20,000 (USD equivalent $16,113).
i)	On May 28, 2021, the Company closed the first tranche of a non-brokered private placement previously announced on May 5, 2021, issuing 5,223,420 units at a price of CAD$0.13 per unit for gross proceeds of CAD$679,044 (USD equivalent $561,843). On June 17, 2021, the Company closed the second and final tranche of the non-brokered private placement consisting of 17,853,506 units at a price of CAD$0.13 per unit for gross proceeds of CAD$2,320,956 (USD equivalent $1,880,687). Each unit consists of one common share and one common share purchase warrant entitling the holder thereof to acquire a further common share at a price of CAD$0.19 for a period of one year from the date of closing of the respective financing tranche.
j)	On June 7, 2021, the Company received final approval from the TSX-V for an agreement with Industrial Surplus Supplies Ltd. (“ISL”), pursuant to which ISL will build a prototype internally heated testing lab furnace for the testing of a magnesium production process. In consideration of the services provided, the Company issued 1,538,461 common shares at a price of CAD$0.13 with a total fair value of CAD$200,000 (USD equivalent $162,800).

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

k)	On June 10, 2021, the Company issued a total of 200,000 common shares on the exercise of stock options at a price of CAD$0.05 for gross proceeds of CAD$10,000 (USD equivalent $8,269).
l)	On June 15, 2021, the Company closed a non-brokered private placement of an unsecured convertible note in the principal amount of $1,500,000 (the “June 2021 Convertible Debenture”). The June 2021 Convertible Debenture bears interest at 12% per annum and matures on December 10, 2022. The June 2021 Convertible Debenture is convertible into 15,000,000 units, where each unit consists of (i) one share of the Company’ common stock, (ii) one-half of one Class A common stock purchase warrant, with each whole warrant being exercisable at a price of $0.13 until June 10, 2026, and (iii) one-half of one Class B common stock purchase warrant, with each whole warrant being exercisable at a price of $0.19 until June 10, 2026 (collectively, the “Class A and B Warrants”). In addition, the conversion price for accrued interest is the greater of (i) $0.10 and (ii) the minimum conversion price permitted by the TSX-V at the time of conversion.
	Under the terms of the June 10, 2021 Securities Purchase Agreement the Company entered into as part of the offering of the June 2021 Convertible Debenture (the “Securities Purchase Agreement”), the Company agreed to use commercially reasonable efforts to file a registration statement with the Securities and Exchange Commission by August 14, 2021, covering the public resale of the shares of common stock underlying such debenture and, upon its conversion, the Class A and B Warrants issuable upon such conversion (the “Underlying Shares”), and to use its best efforts to cause the registration statement to be declared effective on October 13, 2021.
	In addition to certain covenants contained in the Securities Purchase Agreement, the terms of the June 2021 Convertible Debenture contain certain negative covenants by the Company, including, among others, sell or offer to sell any securities with non-fixed or floating price features, issue any common stock or common stock equivalents at a price lower than the Conversion Price herein then in effect, or issue any equity or debt instruments with anti-dilution provisions.
	In the event the Company issues or sells any common stock or common stock equivalents with terms that the purchaser holding the outstanding June 2021 Convertible Debenture (the “Convertible Debenture Holder”) or the Class A and B Warrants reasonably believes are more favorable to such holder than the terms of the June 2021 Convertible Debenture or the Class A and B Warrants, then upon notice to the Company by such holder within five trading days after notice to such holder by the Company, the Company will use commercially reasonable efforts to obtain the approval of the TSX-V and any additional required regulatory approval to amend the terms of the June 2021 Convertible Debenture or the Class A and B Warrants as required, as the case may be, so as to give such holder the benefit of such more favorable terms or conditions.
	The conversion price of the June 2021 Convertible Debenture and the exercise price of the Class A and B Warrants are subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events, including merger or consolidation of the Company or in a “Fundamental Transaction” as defined in the June 2021 Convertible Debenture.
	The Company has granted the holders certain rights of first refusal on its future offerings for as long as the June 2021 Convertible Debenture or the Class A and B Warrants are outstanding.
	The Company may prepay and satisfy the June 2021 Convertible Debenture so long as an event of default has not occurred, upon 20 days’ prior written notice received by the Company to the holder, by paying 125% of the amounts owed on the June 2021 Convertible Debenture, including all principal, interest and other fees. The holder of this debenture may, however, convert all or a portion of the debenture during the 20 day notice period.

 

 

WESTERN MAGNESIUM CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS October 31, 2020 and 2019 Expressed in US Dollars, except where otherwise indicated and except for per share amounts

 

 

m)	On June 30, 2021, the Company issued 54,901 common shares on the exercise of common share purchase warrants at a price of CAD$0.05 per share for gross proceeds of CAD$2,745 (USD equivalent $2,215) and 20,000 common shares on the exercise of common share purchase warrants at a price of CAD$0.19 per share for gross proceeds of CAD$3,800 (USD equivalent $3,066).
n)	On July 16, 2021, the Company closed a non-brokered private placement and issued 4,350,000 units at a price of CAD$0.20 per unit for gross proceeds of CAD$870,000 (USD equivalent $690,860). Each unit consists of one common share and one common share purchase warrant entitling the holder thereof to acquire a further common share at a price of CAD$0.30 for a period of one year from the date of closing.
o)	On July 19, 2021, the Company issued a total of 50,000 common shares on the exercise of common share purchase warrants at a price of CAD$0.19 per share for gross proceeds of CAD$9,500 (USD equivalent $7,446).

 

 

EXHIBIT INDEX

 

Exhibit No.		Description of Exhibit
3.1(i) #		Certificate of Domestication of Nevada Clean Magnesium Inc. and Certificate of Incorporation of Western Magnesium Corporation dated as of May 9, 2019
3.1(ii) #		Bylaws, as amended on April 22, 2021
4.1*		Convertible Debenture Due December 10, 2022, Principal Amount $1,500,000
4.2#		Form of Warrant Certificate.
10.1+#		Form of Incentive Stock Option Agreement.
10.2+#		2017 Stock Option Plan, adopted on August 8, 2017.
10.3+#		Executive Employment Agreement between James Sever and Western Magnesium Corporation (formerly, Nevada Clean Magnesium Inc.) dated April 30, 2019.
10.4+#		Executive Employment Agreement between Edward Lee and Western Magnesium Corporation (formerly, Nevada Clean Magnesium Inc.) dated as of May 3, 2019.
10.5+#		Executive Employment Agreement between Sam Ataya and Western Magnesium Corporation (formerly, Nevada Clean Magnesium Inc.) dated as of May 3, 2019.
10.6#		Letter Agreement regarding Short Term Promissory Note in favor of Sam Ataya dated September 24, 2019.
10.7+#		Executive Employment Agreement between Rabih Ataya and Western Magnesium Canada Corporation dated as of November 1, 2019.
10.8#		Share Subscription Agreement between Western Magnesium Corporation, GEM Yield Bahamas Limited, GEM Global Yield LLC SCS and the Share Lenders dated November 2019.
10.9+#		Executive Employment Agreement between Paul Sauvé and Western Magnesium Canada Corporation dated as of March 23, 2020.
10.10+#		Employment Agreement between Karim Alameddine and Western Magnesium Canada Corporation dated as of April 28, 2020.
10.11#		Amendment to Short-Term Promissory Note issued by Western Magnesium Corporation in favor of Sam Ataya dated April 30, 2020.
10.12+#		Executive Employment Agreement between Lisa Maxwell and Western Magnesium Canada Corporation dated as of December 1, 2020.
10.13+#		Employee Agreement between Andrea Chan and Western Magnesium Canada Corporation dated as of March 15, 2021.
10.14#		Form of Private Placement Subscription Agreement (Units).
10.15#		Form of Private Placement Subscription Agreement (Convertible Notes).
10.16*		Securities Purchase Agreement between Western Magnesium Corporation and an investor dated June 10, 2021.
10.17+#		2021 Equity Incentive Plan, adopted on June 11, 2021.
10.18+		Employment Agreement between Western Magnesium Corporation and Michael E. Rutkowski dated August 16, 2021.
21.1#		List of Subsidiaries of Western Magnesium Corporation

 

*	Certain confidential information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
+	Designates management contract or compensatory plan or arrangement.
#	Previously filed.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	WESTERN MAGNESIUM CORPORATION
		/s/ Sam Ataya
	By:	Sam Ataya
	Title:	Chief Executive Officer
Date: October 12, 2021

 

 

EXHIBIT INDEX

 

Exhibit No.		Description of Exhibit
3.1(i) #		Certificate of Domestication of Nevada Clean Magnesium Inc. and Certificate of Incorporation of Western Magnesium Corporation dated as of May 9, 2019
3.1(ii) #		Bylaws, as amended on April 22, 2021
4.1*		Convertible Debenture Due December 10, 2022, Principal Amount $1,500,000
4.2#		Form of Warrant Certificate.
10.1+#		Form of Incentive Stock Option Agreement.
10.2+#		2017 Stock Option Plan, adopted on August 8, 2017.
10.3+#		Executive Employment Agreement between James Sever and Western Magnesium Corporation (formerly, Nevada Clean Magnesium Inc.) dated April 30, 2019.
10.4+#		Executive Employment Agreement between Edward Lee and Western Magnesium Corporation (formerly, Nevada Clean Magnesium Inc.) dated as of May 3, 2019.
10.5+#		Executive Employment Agreement between Sam Ataya and Western Magnesium Corporation (formerly, Nevada Clean Magnesium Inc.) dated as of May 3, 2019.
10.6#		Letter Agreement regarding Short Term Promissory Note in favor of Sam Ataya dated September 24, 2019.
10.7+#		Executive Employment Agreement between Rabih Ataya and Western Magnesium Canada Corporation dated as of November 1, 2019.
10.8#		Share Subscription Agreement between Western Magnesium Corporation, GEM Yield Bahamas Limited, GEM Global Yield LLC SCS and the Share Lenders dated November 2019.
10.9+#		Executive Employment Agreement between Paul Sauvé and Western Magnesium Canada Corporation dated as of March 23, 2020.
10.10+#		Employment Agreement between Karim Alameddine and Western Magnesium Canada Corporation dated as of April 28, 2020.
10.11#		Amendment to Short-Term Promissory Note issued by Western Magnesium Corporation in favor of Sam Ataya dated April 30, 2020.
10.12+#		Executive Employment Agreement between Lisa Maxwell and Western Magnesium Canada Corporation dated as of December 1, 2020.
10.13+#		Employee Agreement between Andrea Chan and Western Magnesium Canada Corporation dated as of March 15, 2021.
10.14#		Form of Private Placement Subscription Agreement (Units).
10.15#		Form of Private Placement Subscription Agreement (Convertible Notes).
10.16*		Securities Purchase Agreement between Western Magnesium Corporation and an investor dated June 10, 2021.
10.17+#		2021 Equity Incentive Plan, adopted on June 11, 2021.
10.18+		Employment Agreement between Western Magnesium Corporation and Michael E. Rutkowski dated August 16, 2021.
21.1#		List of Subsidiaries of Western Magnesium Corporation

 

*	Certain confidential information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
+	Designates management contract or compensatory plan or arrangement.
#	Previously filed.

 

 

Exhibit 4.1

 

CERTAIN CONFIDENTIAL INFORMATION (MARKED BY BRACKETS AS “[***]”) HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.

 

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE OCTOBER 11, 2021.

 

WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL OCTOBER 11, 2021.

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

	Original Issue Date: June 10, 2021
Principal Amount: $1,500,000

 

Original Conversion Price (subject to adjustment herein): $0.10

 

CONVERTIBLE DEBENTURE

DUE December 10, 2022

 

THIS CONVERTIBLE DEBENTURE (this “Debenture”) is issued Debenture by WESTERN MAGNESIUM CORPORATION, a corporation incorporated under the laws of the State of Delaware, (the “Borrower”), having its principal place of business at 580 Hornby Street, Suite 900, British Columbia, V6C 3B6, Canada (the “Debenture”).

 

FOR VALUE RECEIVED, Borrower promises to pay to ALPHA CAPITAL ANSTALT, or its registered assigns (the “Holder”), with an address at: [***], email: [***], or shall have paid pursuant to the terms hereunder, the principal sum of $1,500,000 on December 10, 2022, (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid or such later date if extended by the Holder as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof.

 

 

This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Applicable Law” shall mean any law, rule or regulation of any governmental authority or jurisdiction applicable to any party to this Agreement, as the case may be.

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) Borrower or any Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) Borrower or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) Borrower or any Subsidiary thereof makes a general assignment for the benefit of creditors, (f) Borrower or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) Borrower or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Change of Control Transaction” means, other than by means of conversion or exercise of this Debenture and the Securities issued together with this Debenture, the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in NI 45-106) of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of in excess of 50% of the voting securities of Borrower, (b) Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction, (c) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the Principal Amount and accrued interest on this Debenture in accordance with the terms hereof.

“GAAP” means United States generally accepted accounting principles.

 

“IFRS” means international reporting financial standards.

 

“Indebtedness” means (x) any liabilities for borrowed money, (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Borrower’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with IFRS and GAAP.

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded, (y) due, or (z) paid in full, whichever is highest, or (ii) 125% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“Original Issue Date” means the date of the first issuance of this Debenture, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

 

“Permitted Indebtedness” means (a) any liabilities for borrowed money not in excess of $250,000 in the aggregate, (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto) not affecting more than $250,000 in the aggregate, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (c) the present value of any lease payments not in excess of $250,000 due under leases required to be capitalized in accordance with IFRS; (d) any industrial equipment leases up to an aggregate $500,000 and (e) indebtedness for the direct purposes of building a plant to produce magnesium metal.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have been established in accordance with IFRS, (b) Liens imposed by law which were incurred in the ordinary course of Borrower’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of Borrower and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, and (c) Liens in connection with Permitted Indebtedness under clauses (a), (b) and (e) thereunder, and Liens incurred in connection with Permitted Indebtedness under clauses (c) or (d) thereunder, provided that such Liens are not secured by assets of Borrower or its Subsidiaries other than the assets so acquired or leased.

 

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of June 10, 2021 among Borrower and the original Holder, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the TSX Venture Exchange, the NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any successors to any of the foregoing).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (Toronto time) to 4:02 p.m. (Toronto time)), (b) if any of the NASDAQ markets or exchanges is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to Borrower, the fees and expenses of which shall be paid by Borrower.

 

“Warrant Certificates” means a certificate for Class A Warrants and a certificate for Class B Warrants to be issued upon conversion of this Debenture.

 

Section 2. General.

 

a) Interest in Cash or in Kind. Holder shall be entitled to receive, and Borrower shall pay, cumulative interest on the outstanding principal amount of this Debenture at the annual rate of twelve percent (12%) (as subject to increase as set forth in this Debenture) from the Original Issue Date through the Maturity Date. Interest shall be payable on the Maturity Date or when all amounts outstanding in connection with this Debenture shall be paid or shall otherwise be due and payable.

 

b) Payment Grace Period. Other than as set forth herein, the Borrower shall not have any grace period to pay any monetary amounts due under this Debenture.

 

c) Conversion Privileges. The Conversion Rights set forth in Section 4 shall remain in full force and effect immediately from the date hereof and until the Debenture is paid in full regardless of the occurrence of an Event of Default. This Debenture shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Section 4 hereof.

 

 

d) Application of Payments. Interest, if any, on this Debenture shall be calculated on the basis of a 360-day year and the actual number of days elapsed. Payments made in connection with this Debenture shall be applied first to amounts due hereunder other than principal and interest, thereafter to interest and finally to principal.

 

e) Manner and Place of Payment. Principal and interest, if any, on this Debenture and other payments in connection with this Debenture shall be payable at the Holder’s offices as designated above in lawful money of the United States of America in immediately available funds without set-off, deduction or counterclaim. Upon assignment of the interest of Holder in this Debenture, Borrower shall instead make its payment pursuant to the assignee’s instructions upon receipt of written notice thereof. Except as set forth herein, this Debenture may not be prepaid or mandatorily converted without the consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations (with a minimum denomination of $1,000 and in multiples of $1,000), as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and Applicable Law.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to Borrower of this Debenture, Borrower and any agent of Borrower may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither Borrower nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture and, upon receipt of TSX Venture Exchange approval, accrued interest, shall be convertible, in whole or in part, into shares of Common Stock issued at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to Borrower a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. If TSX Venture Exchange approval is required in order to convert accrued interest into shares of Common Stock, then the Conversion Date shall be the date which is 3 Business Days from the date such TSX Venture Exchange approval has been provided. For clarity, the Holder may not specify a Conversion Date prior to the date that such Notice of Conversion would be deemed to have been delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to Borrower unless the entire principal amount of this Debenture has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and Borrower shall maintain records showing the principal amount(s) converted and the date of such conversion(s). Borrower may deliver an objection to any Notice of Conversion within two (2) Trading Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

 

b) Conversion Price. The conversion price for the principal in connection with voluntary conversions by the Holder shall be $0.10, subject to adjustment herein (the “Conversion Price”). The conversion price for accrued interest (the “Conversion Price for Accrued Interest”) shall be the greater of (i) $0.10 and (ii) the minimum conversion price permitted by the TSX Venture Exchange at the time of conversion (should the Borrower’s Common Stock then be listed on such exchange).

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount and Accrued Interest. The number of Conversion Shares issuable upon a conversion of all or part of the outstanding principal amount hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount as of the Conversion Date to be converted by (y) the Conversion Price. The number of Conversion Shares issuable upon a conversion of all or part of the accrued interest hereunder shall be determined by the quotient obtained by dividing (x) the outstanding accrued interest as of the Conversion Date to be converted by (y) the Conversion Price for Accrued Interest.

 

ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), Borrower shall deliver, or cause to be delivered, to the Holder (i) a certificate or certificates representing the Conversion Shares which, on or after the one year anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement and under any Applicable Law) and which shall represent the number of Conversion Shares being acquired upon the conversion of this Debenture; (ii) a Class A Warrant Certificate for fifty percent (50%) of the conversion shares being issued on such conversion; and (iii) a Class B Warrant Certificate for fifty percent (50%) of the conversion shares being issued on such conversion. On or after the one-year anniversary of the Original Issue Date, Borrower shall use its best efforts to deliver any certificate or certificates required to be delivered by Borrower under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. In the event the Borrower registers its common stock with the United States Securities and Exchange Commission (the “SEC”), the one-year period in this Section 4(c)(ii) shall be reduced to six months.

 

iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event Borrower shall promptly return to the Holder any original Debenture delivered to Borrower and the Holder shall promptly return to Borrower the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

 

iv. Obligation Absolute. Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to Borrower or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by Borrower of any such action Borrower may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, Borrower may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and Borrower posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, Borrower shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If Borrower fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages being to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof for Borrower’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder or Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then Borrower shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if Borrower had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, Borrower shall be required to pay the Holder $1,000. The Holder shall provide Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of Borrower, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

 

 

vi. Reservation of Shares Issuable Upon Conversion. Borrower covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture on such principal amount. Borrower covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, Borrower shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or Conversion Price for Accrued Interest, as applicable, or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, Borrower shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and Borrower shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower that such tax has been paid. Borrower shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

 

d) Holder’s Conversion Limitations. Borrower shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with the rules and policies of the TSX Venture Exchange. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to Borrower each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and Borrower shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with the rules of the TSX Venture Exchange. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) Borrower’s most recent periodic or annual report filed with the TSX Venture Exchange, as the case may be, (ii) a more recent public announcement by Borrower, or (iii) a more recent written notice by Borrower or Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, Borrower shall within three Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of Borrower, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to Borrower, may increase the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase will not be effective until the 61^st day after such notice is delivered to Borrower. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

 

Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If Borrower, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of the Debenture), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of Borrower) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time Borrower grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

c) Pro Rata Distributions. During such time as this Debenture is outstanding, if Borrower shall declare or make any dividend whether or not permitted, or makes any other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

 

d) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) Borrower, directly or indirectly, in one or more related transactions effects any merger or consolidation of Borrower with or into another Person, (ii) Borrower, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) Borrower, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) Borrower, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of Borrower, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. Borrower shall cause any successor entity in a Fundamental Transaction in which Borrower is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of Borrower under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to or contemporaneously with such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to or contemporaneously with the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of Borrower and shall assume all of the obligations of Borrower under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as Borrower herein. Alternatively, the Holder may demand the Company to redeem its Debenture at a rate equal to 125% of the principal and interest due thereon, to be paid in full contemporaneously with consummation of the Fundamental Transaction.

 

 

e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued and outstanding.

 

f) Notice to Allow Conversion by Holder. If (A) Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale or transfer of all or substantially all of the assets of Borrower, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding Borrower or any of the Subsidiaries, Borrower shall simultaneously make public disclosure of such notice in accordance with applicable securities laws. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 6. Negative Covenants. As long as any principal amount of this Debenture remains outstanding, unless the Holder shall have otherwise given prior written consent, Borrower shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially adversely affects any rights of the Holder (notwithstanding the foregoing, the Holder acknowledges and agrees that the Borrower shall be entitled to proceed with the amendments to the charter documents as shall be set out in the Borrower’s proxy materials for its shareholder meeting to be held in 2021 as publicly disclosed no less than five Trading Days before the issue date of this Note);

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents;

 

e) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than the Debentures if on a pro-rata basis), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness, in any case unless such Indebtedness or interest is due and payable in accordance with the initial terms of such debt prior to any default thereunder;

 

f) declare or make any dividend or other distribution of its assets or rights to acquire its assets to holders of shares of Common Stock, preferred stock, or any other equity security by way of return of capital or otherwise including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction;

 

g) sell or offer to sell any securities with non-fixed or floating price features, issue any Common Stock or Common Stock Equivalents at a price lower than the conversion price herein then in effect, or issue any equity or debt instruments with anti-dilution provisions; or

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 7. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal or interest, if any, amount of this Debenture or (B) liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under clause (B) above, is not cured within five Trading Days after Borrower has become or should have become aware of such default;

 

ii. Borrower shall fail to observe or perform any other covenant or agreement contained in this Debenture (other than a breach by Borrower of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (viii) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder to Borrower and (B) 10 Trading Days after Borrower has become or should have become aware of such failure;

 

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which Borrower or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. Borrower or any Subsidiary shall be subject to a Bankruptcy Event;

 

vi. Borrower or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. Borrower shall have completed any Change of Control Transaction or Fundamental Transaction without giving Holder at least ten Trading Days prior written notice;

 

viii. Upon the earlier of the Borrower registering its common stock with the SEC or one year from the Issue Date, the Borrower does not meet the current public information requirements under Rule 144;

 

ix. Borrower shall fail for any reason to deliver certificates to a Holder prior to the third Trading Day after a Conversion Date pursuant to Section 4(c) or Borrower shall provide at any time notice to the Holder, including by way of public announcement, of Borrower’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

 

x. any judgment or order is rendered against Borrower, any subsidiary or any of their respective property or other assets for the payment of money in excess of $150,000, and such judgment or order shall remain unvacated, unbonded or unstayed for a period of 60 calendar days;

 

xi. other than as a result of a Fundamental Transaction, any dissolution, liquidation or winding up by Borrower or a material Subsidiary of a substantial portion of their business;

 

 

xii. other than as a result of a Fundamental Transaction, cessation of operations by Borrower or a material Subsidiary;

 

xiii. an event resulting in the Common Stock no longer being listed or quoted on a Trading Market, or notification from a Trading Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for twenty (20) days following such notification;

 

xiv. the SEC, TSX Venture Exchange, Canadian Securities Commission or judicial stop trade order or suspension from the Borrower’s Principal Trading Market or the OTCQB, which remains in effect for no more than five (5) consecutive Trading Days or twenty (20) days in any calendar year;

 

xv. the Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to the Holder;

 

xvi. a failure by Borrower to notify Holder of any material event of which Borrower is obligated to notify Holder pursuant to the terms of this Debenture or any other Transaction Document;

 

xvii. a default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of an event of default under any such other agreement to which Borrower and Holder are parties which is not cured after any required notice and/or cure period;

 

xviii. any material provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the Borrower, or the validity or enforceability thereof shall be contested by Borrower, or a proceeding shall be commenced by Borrower or any governmental authority having jurisdiction over Borrower or Holder, seeking to establish the invalidity or unenforceability thereof, or Borrower shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document;

 

xix. the failure by Borrower or any material Subsidiary to maintain any material intellectual property rights, personal, real property, equipment, leases or other assets which are necessary to conduct its business (whether now or in the future) and such breach is not cured with twenty (20) days after written notice to the Borrower from the Holder;

 

xx. the restatement after the date hereof of any financial statements filed by the Borrower under any Applicable Law for any date or period from two years prior to the Original Issue Date and until this Debenture is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statements, have constituted a Material Adverse Effect. For the avoidance of doubt, any restatement related to new accounting pronouncements shall not constitute a default under this Section; or

 

xxi. the occurrence of an Event of Default as defined in and under any other debt instrument issued by Borrower to Holder or any Other Holder.

 

 

b) Remedies Upon Event of Default, Fundamental Transaction and Change of Control Transaction. If any Event of Default or a Fundamental Transaction or a Change of Control Transaction occurs, the outstanding principal amount of this Debenture, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Additionally, upon an Event of Default, the Exercise Price of the Warrants shall be reduced to $0.10 per share of Common Stock and the Borrower shall not file any registration statement unless all the Holder’s Underlying Shares have been previously registered for resale with the SEC. Commencing on the Maturity Date and also five (5) Trading Days after the occurrence of any Event of Default interest on this Debenture shall accrue at an interest rate equal to the lesser of 20% per annum or the maximum rate permitted under Applicable Law until paid. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by Borrower. In connection with such acceleration described herein, the Holder need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under Applicable Law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 7(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 8. Prepayment. Provided an Event of Default has not occurred, upon 20 days’ prior written notice received by the Holder, the Borrower may prepay and satisfy this Debenture by paying 125% of the amounts owed on this Debenture, including all principal, interest and other fees. Provided however, during the 20-day period after receipt of the notice the Holder may convert all or a portion of this Debenture.

 

Section 9. Miscellaneous.

 

a) Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Trading Day during normal business hours where such notice is to be received), or the first Trading Day following such delivery (if delivered other than on a Trading Day during normal business hours where such notice is to be received) or (b) on the second Trading Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to Borrower, to: Western Magnesium Corporation, 580 Hornby Street, Suite 900, British Columbia, V6C 3B6, Canada, Attn: Sam Ataya, Chief Executive Officer, email: [email protected], with a copy by email only to: Gowling WLG (Canada) LLP, Attention: Brett Kagetsu, email: [email protected], and (ii) if to the Holder, to: the address and email address indicated on the front page of this Debenture, with an additional copy by email only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, email: [email protected].

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of Borrower. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein pursuant to the Purchase Agreement.

 

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to Borrower, including an indemnity and surety in amount and form satisfactory to the Borrower in its sole discretion.

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by Applicable Law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by Applicable Law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding. This Debenture shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Debenture, whether or not such other document or agreement was delivered together herewith or was executed apart from this Debenture.

 

e) Waiver. Any waiver by Borrower or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of Borrower or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by Borrower or the Holder must be in writing.

 

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

 

g) Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the Applicable Law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under Applicable Law. Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive Borrower from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

h) Next Trading Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Trading Day, such payment shall be made on the next succeeding Trading Day.

 

i) Headings; Dollar Amounts. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof. Unless otherwise specified herein, all dollar amounts are in US$.

 

j) Amendment. Unless otherwise provided for hereunder, this Debenture may not be modified or amended or the provisions hereof waived without the written consent of Borrower and the Holder.

 

k) Facsimile Signature. In the event that the Borrower’s signature is delivered by facsimile transmission, PDF, electronic signature or other similar electronic means, such signature shall create a valid and binding obligation of the Borrower with the same force and effect as if such signature page were an original thereof.

 

*********************

 

(Signature Pages Follow)

 

 

IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its name by an authorized officer as of the 10^th day of June, 2021.

 

	WESTERN MAGNESIUM CORPORATION
	By:	/s/ Sam Ataya
	Name:	Sam Ataya
	Title:	Executive President and CEO
WITNESS:
/s/ Karim Alameddine
Karim Alameddine, Corporate Secretary

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Convertible Debenture Due December 10, 2022 of Western Magnesium Corporation, a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of Borrower according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by Borrower in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to Borrower that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the Applicable Law in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

 

	Date to Effect Conversion: ____________________________
	Principal Amount of Debenture to be Converted: $__________________
	Applicable Conversion Price: $__________________   Interest Amount to be Converted: $__________________________   Applicable Conversion Price for Accrued Interest: $___________________________   Number of shares of Common Stock to be issued: _______________
	Signature: _________________________________________
	Name: ____________________________________________
	Address for Delivery of Common Stock Certificates: _____________
	_____________________________________________________
	_____________________________________________________
	Or
	DWAC Instructions: _________________________________
	Broker No:_____________
	Account No: _______________

 

 

Exhibit 10.16

 

CERTAIN CONFIDENTIAL INFORMATION (MARKED BY BRACKETS AS “[***]”) HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.

 

WESTERN MAGNESIUM CORP.

 

SECURITIES PURCHASE AGREEMENT

 

(Convertible Debenture)

 

THE Convertible Debenture BEING OFFERED FOR SALE MAY BE PURCHASED BY RESIDENTS OF THE UNITED STATES PURSUANT TO AVAILABLE EXEMPTIONS UNDER APPLICABLE SECURITIES LEGISLATION.

 

INSTRUCTIONS

 

1.	Complete and sign the Execution Pages of the Securities Purchase Agreement.
2.	Complete and sign Schedule A attached to the Securities Purchase Agreement (Information Sheet).
3.	Complete and sign Appendix A to Schedule A attached to the Securities Purchase Agreement (the TSX Venture Exchange Form 4C – Corporate Placee Registration Form) if you are a non-individual purchaser (including a corporation or a partnership) and hold, or will hold upon completion of the Offering, more than 5% of the issued and outstanding Common Stock of the Company on either an Undiluted or Diluted(1) basis (unless you have previously filed this form with the TSX Venture Exchange and represent and warrant that there has been no change to any of the information in the previously filed form up to the date of the Securities Purchase Agreement)
4.	Complete Schedule B attached to the Securities Purchase Agreement (Registration and Delivery Instructions), if required.
5.	Complete and sign the Schedule C attached to the Securities Purchase Agreement (Outside of Canada Purchaser Certificate).
6.	If you or the beneficial purchaser for whom you are contracting hereunder are a U.S. Person, you must complete and sign Schedule D attached to the Securities Purchase Agreement (Certification of U.S. Purchaser) and Appendix A (Certificate of U.S. Person) attached thereto.

 

Payment Instructions:

 

Please refer to the payment instructions set forth in Exhibit C hereto.

 

¹ “Undiluted” means the total number of Common Stock held by a beneficial holder on Closing of the Offering (including any Common Stock purchased under the Offering); and “Diluted” means the undiluted figure for a beneficial holder plus any Common Stock which would be issued to that beneficial holder on Closing if all Warrants and Convertible Debentures issued to such beneficial holder under the Offering were exercised or converted, as the case may be, on Closing.

 

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of June 10, 2021, between Western Magnesium Corp., a Delaware corporation, and includes any successor company thereto (the “Company”), and the purchaser identified on the signature pages hereto (each, including its successors and permitted assigns, the “Purchaser”).

 

WHEREAS, the Company and the Purchaser desire to enter into this Agreement, pursuant to which the Purchaser is to be granted the right to acquire securities of the Company as set forth herein and

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to British Columbia Instrument 72-503 Distribution of Securities Outside British Columbia and Section 4(a)(2) of the Securities Act, and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement (the “Offering”).

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Convertible Debenture (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Applicable Law” shall mean any law, rule or regulation of any governmental authority or jurisdiction applicable to any party to this Agreement, as the case may be.

 

“BCSC” means the British Columbia Securities Commission.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or a provincial legal holiday in the Province of British Columbia or any day on which banking institutions in the State of New York or the Province of British Columbia are required by law or other governmental action to close.

 

“Buy-In” shall have the meaning ascribed to such term in Section 4.1(h).

 

“Closing” means the delivery and sale of the Convertible Debenture and payment of the aggregate Subscription Amount pursuant to Section 2.1.

 

 

“Closing Date” means the Business Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser’s obligation to pay the Subscription Amount at the Closing, and (ii) the Company’s obligations to deliver the Securities to be issued and sold at the Closing, in each case, have been satisfied or waived, but in no event later than the Termination Date unless agreed to by the parties hereto in writing.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the shares of common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Anthony L.G., PLLC, United States corporate counsel to the Company.

 

“Convertible Debenture” means the 12% unsecured convertible debenture issued at par in the principal amount of $1,500,000 pursuant to this Agreement.

 

“Convertible Debenture Certificate” means the convertible debenture certificate governing the terms of the Convertible Debenture, in the form attached as Exhibit A hereto.

 

“Conversion Price” shall have the meaning ascribed to such term in the Convertible Debenture Certificate.

 

“Conversion Shares” means the Common Stock issued and issuable upon conversion of the Convertible Debenture issued and issuable in lieu of the cash payment of interest on the Convertible Debenture in accordance with the terms of the Convertible Debenture.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith.

 

“Disqualification Event” shall have the meaning ascribed to such term in Section 3.1 (mm).

 

“Effective Date” means the earliest of the date that (a) (i) all of the Underlying Shares have been sold pursuant to Rule 144, or (ii) may be sold by the holders thereof pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, and (b) Company Counsel has delivered to the Transfer Agent and holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to an effective Registration Statement or the exemption described in (a)(ii) above, which opinion shall be in form and substance reasonably acceptable to such holders.

 

“Equity Line of Credit” shall have the meaning ascribed to such term in Section 4.13.

 

 

“Event of Default” shall have the meaning ascribed thereto in the Convertible Debenture.

 

“Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) Common Stock and options to officers, directors, or employees of the Company, prior to and after the Closing Date up to the amounts and on the terms set forth in their respective option agreements and in accordance with the rules and policies of the TSX Venture Exchange, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder (subject to adjustment for forward and reverse stock splits and the like that occur after the date hereof) and/or other securities exercisable or exchangeable for or convertible into Common Stock issued and outstanding on the date of this Agreement, provided that such securities and any term thereof have not been amended since the date of this Agreement to increase the number of such securities or to decrease the issue price, exercise price, exchange price or conversion price of such securities, and described in the Public Reports filed not later than ten (10) days before the Closing Date, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall be intended to provide to the Company substantial additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) securities issuable pursuant to, and in accordance with the terms and conditions set forth in the Stock Option Plan as are consistent with past practices and approved by a majority of the disinterested directors of the Company, not in excess of the amounts permitted by the Stock Option Plan, and (e) securities issued or issuable pursuant to this Agreement, the Convertible Debenture or the Warrants, or upon exercise or conversion of any such securities.

 

“Exercise Price” shall have the meaning ascribed to such term in the Warrant Certificate for the Class A Warrants or Class B Warrants, as applicable.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“G&M” shall mean Grushko & Mittman, P.C., legal counsel to the Purchaser.

 

“IFRS” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(z).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“Legal Opinion” shall have the meaning ascribed to such term in Section 2.2(a)(ii).

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(d).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, pre-emptive right or other restriction.

 

 

“Listing Default” shall have the meaning ascribed to such term in Section 4.11(c).

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.16.

 

“Money Laundering Laws” shall have the meaning ascribed to such term in Section 3.1(gg).

 

“NI 45-102” means National Instrument 45-102 - Resale of Securities of the Canadian Securities Administrators.

 

“OFAC” shall have the meaning ascribed to such term in Section 3.1(ii).

 

“Outside of Canada Purchaser Certificate” means the Outside of Canada Purchaser Certificate attached hereto as Schedule C.

 

“Person” means an individual or company, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Regulation S” means Regulation S, as amended, as promulgated under the Securities Act.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Required Minimum” means, as of any date, the maximum aggregate number of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Warrant Shares issuable upon exercise in full of all Warrants or Conversion Shares issuable upon conversion in full of the Convertible Debenture, ignoring any conversion or exercise limits set forth therein, and assuming that any unconverted portion of the Convertible Debenture will be held until the maturity date of the Convertible Debenture.

 

“Securities” means the Convertible Debenture, Warrants and Underlying Shares.

 

“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

 

“Securities Act – British Columbia” means the Securities Act, R.S.B.C. 1996, c. 418, as amended, and the rules and regulations promulgated thereunder.

 

“Short Sales” means “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable Common Stock).

 

“Stock Option Plan” means the stock option plan referred to in the Company’s Consolidated Financial Statements for the years ended October 31, 2020 and October 31, 2019 and the Western Magnesium Corporation 2021 Equity Incentive Plan referred to in the Company’s Notice of Annual and Special Meeting and Management Information Circular dated as of April 20, 2021.

 

“Subscription Amount” means the aggregate amount to be paid for the Convertible Debenture purchased hereunder on the Closing Date as specified below the “Name of Purchaser” on the signature page of this Agreement and next to the heading “Convertible Debenture principal amount”, in US dollars and in immediately available funds.

 

“Subsidiary” means with respect to any entity at any date, any direct or indirect Company, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity of which (A) more than 30% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity, or (B) is under the actual control of the Company.

 

“Termination Date” shall have the meaning ascribed to such term in Section 2.1.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the TSX Venture Exchange, NYSE American, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any successors to any of the foregoing). As of the Closing Date, the TSX Venture Exchange is the Trading Market.

 

“Transaction Documents” means this Agreement, the Convertible Debenture Certificate and the Warrant Certificates, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Computershare Investor Services Inc., and any successor transfer agent of the Company.

 

“Underlying Shares” means the Conversion Shares and the Warrant Shares.

 

“U.S. Person” means a “U.S. person” as that term is defined in Rule 902(k) of Regulation S;

 

 

“Unlegended Shares” shall have the meaning ascribed to such term in Section 4.1(d).

 

“Variable Priced Equity Linked Instruments” shall have the meaning ascribed to such term in Section 4.13.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the principal Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (Toronto time) to 4:02 p.m. (Toronto time)), (b) if any of the NASDAQ markets or exchanges is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchaser and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“Warrant Certificate” means the certificate governing the terms of the Warrants, in the form attached as Exhibit B hereto.

 

“Warrant Shares” means the Common Stock issuable upon exercise of the Warrants.

 

“Warrants” means, collectively, the Class A Common Stock purchase warrants and Class B Common Stock purchase warrants delivered to the Purchaser upon conversion of the Convertible Debenture in accordance with the terms of the Convertible Debenture.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase, a Convertible Debenture in the aggregate principal amount of $1,500,000 (the “Closing”). The Purchaser shall deliver to the Company the Subscription Amount, and the Company shall deliver to the Purchaser the Convertible Debenture Certificate, and the Company and the Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of G&M or such other location as the parties shall mutually agree. Notwithstanding anything herein to the contrary, the Closing Date shall occur on or before June 30, 2021 (the “Termination Date”). If the Closing is not held on or before the Termination Date, the Company shall cause (i) all subscription documents executed by the Purchaser to be returned to the Purchaser, and (ii) the Subscription Amount to be returned, without interest or deduction, to the Purchaser.

 

 

2.2 Deliveries.

 

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser the following:

 

(i) this Agreement duly executed by the Company with the schedules, exhibits or appendices thereto, as applicable, current as of the Closing Date;

 

(ii) a legal opinion of Company Counsel acceptable to the Purchaser;

 

(iii) the Convertible Debenture Certificate with a principal amount as set forth on the signature page hereto, registered in such name as the Purchaser may direct;

 

(iv) a certificate of the Chief Executive Officer (as defined in the Exchange Act) of the Company, dated as of the Closing Date, in which such officer shall certify that, to the best of his knowledge, the conditions set forth in Section 2.3(b) have been fulfilled; and

 

(v) Officer’s certificate containing (i) copies of the text of the resolutions by which the corporate action on the part of the Company necessary to approve this Agreement and the other Transaction Documents and the transactions and actions contemplated hereby and thereby, which shall be accompanied by a certificate of its corporate secretary dated as of the Closing Date certifying to the Purchaser that such resolutions were duly adopted and have not been amended or rescinded, and (ii) an incumbency certificate dated as of the Closing Date executed on behalf of Company by its corporate secretary or one of its assistant corporate secretaries certifying the office of each officer of Company executing this Agreement, or any other agreement, certificate or other instrument executed pursuant hereto.

 

(b) On or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i) this Agreement duly executed by the Purchaser;

 

(ii) the Subscription Amount by wire transfer or as otherwise agreed upon by the Parties, to the Company; and

 

(iii) all documents that the Purchaser is required to execute and deliver under Applicable Laws and the rules and policies of the TSX Venture Exchange, including the forms set out in Schedules A to D attached hereto, as applicable, to the Company as the issue and sale of the Securities by the Company to the Purchaser will not be qualified by a prospectus or registration statement.

 

2.3 Closing Conditions.

 

(a) The obligations of the Company hereunder to effect the Closing are subject to the following conditions being met:

 

 

(i) the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) on the Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement;

 

(iv) the issue and sale of the Convertible Debenture being exempt from the requirement to file a prospectus or registration statement and the requirement to deliver an offering memorandum under Applicable Laws relating to the offer and sale of the Convertible Debenture, or the Company having received such orders, consents or approvals as may be required to permit such sale without the requirement to file a prospectus or registration statement or deliver an offering memorandum; and

 

(v) all necessary regulatory approvals being obtained prior to the Closing Date.

 

(b) The obligations of the Purchaser hereunder to effect the Closing, unless waived by the Purchaser, are subject to the following conditions being met:

 

(i) the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) no Event of Default (as defined in the Transaction Documents) shall have occurred under the Transaction Documents;

 

(iv) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(v) all necessary regulatory approvals being obtained prior to the Closing Date;

 

(vi) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(vii) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the TSX Venture Exchange, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall the Company have issued any variable rate securities, issued any equity or debt securities at a price lower than the purchase price of the Convertible Debenture hereunder or conversion price thereof, or have issued any securities with anti dilution features, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made herein to which it refers and any other representation only to the extent such Disclosure Schedule reasonably relates thereto without a requirement of a cross-reference, the Company hereby makes the following representations and warranties to the Purchaser as of the date hereof and the Closing Date unless as of a specific date therein in which case they shall be accurate as of such date:

 

(a) Subsidiaries. All of the Subsidiaries and the Company’s ownership interests therein are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of pre-emptive and similar rights to subscribe for or purchase securities. If the Company has no Subsidiaries relevant to any component of this Agreement as of a relevant time, then such reference shall not be applicable at such time.

 

(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and capacity to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign Company or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document, or (iv) the occurrence of a Disqualification Event (any of (i), (ii), (iii) or (iv), a “Material Adverse Effect”) and, no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c) Authorization; Enforcement. The Company has the requisite corporate power and capacity to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by Applicable Law.

 

 

(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration, adjustment, exchange, reset, exercise or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt, equity or other instrument (evidencing Company or Subsidiary equity, debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected.

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court, or any federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) the receipt of approval from TSX Venture Exchange; and (iii) the filing of the required forms with the BCSC, the OTCQB, and the Commission (if any) and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens imposed by the Company. As of the Closing Date, the Company will have reserved its capital stock such number of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

(g) Capitalization. The capitalization of the Company is as set forth in Schedule 3.1(g). The Company has not issued any Common Stock since June 1, 2021 other than pursuant to the exercise of employee stock options under the Stock Option Plan, the issuance of Common Stock to employees pursuant to the Stock Option Plan and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report available at OTCQB, SEDAR, or as set forth on Schedule 3.1(g). No Person has any right of first refusal, pre-emptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as disclosed on Schedule 3.1(g), there are no outstanding options, employee or incentive stock option plans, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g), the issuance and sale of the Securities will not obligate the Company to issue Common Stock or other securities to any Person (other than the Purchaser) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in material compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any pre-emptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 

(h) Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act - British Columbia, the TSX Venture Exchange, the OTCQB, and the Securities Act and the Exchange Act (if applicable) (collectively, “Public Reports”), for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) on a timely basis or has received a valid extension of such time of filing and has filed any such Public Reports prior to the expiration of any such extension. As of their respective dates, the Public Reports complied in all material respects with the requirements of the Securities Act, the Securities Act - British Columbia and the Exchange Act, as applicable, and none of the Public Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Public Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission, BCSC or TSX Venture Exchange with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with international financial reporting standards applied on a consistent basis during the periods involved (“IFRS”) and in accordance with United States generally accepted accounting principles (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by IFRS and GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be in compliance with all its reporting requirements under the Securities Act and Exchange Act.

 

(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the Public Reports, except as specifically disclosed in a subsequent Public Report filed prior to the date hereof or on Schedule 3.1(i): (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to IFRS or disclosed in public filings made with and available on SEDAR or at the OTC Markets Group, Inc., or TSX Venture Exchange, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate except pursuant to the existing Stock Option Plan as set forth on Schedule 3.1(i). The Company does not have pending before any Canadian or U.S. regulatory agency or Trading Market any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under Applicable Law at the time this representation is made or deemed made that has not been publicly disclosed at least two Trading Days prior to the date that this representation is made.

 

 

(j) Litigation. Except as disclosed in Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Except as set forth in the Public Reports, neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. Except as set forth in the Public Reports, there has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by any Canadian or U.S. regulatory agency or Trading Market involving the Company or any current or former director or officer of the Company. No Canadian or U.S. regulatory agency or Trading Market issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary.

 

(k) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or the Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of the Subsidiaries is a party to a collective bargaining agreement, and the Company and the Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of the Subsidiaries to any liability with respect to any of the foregoing matters. The Company and the Subsidiaries are in compliance with all Canadian and U.S. federal, provincial, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

 

(l) Compliance. To the Company’s knowledge, neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Public Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property (if any) owned by them and good and marketable title in all personal property (including domain names) owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made in accordance with IFRS and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(o) Intellectual Property. All of the Company’s and Subsidiary’s Intellectual Property Rights are described in the Public Reports.

 

(i) The term “Intellectual Property Rights” means:

 

	1.	the name of the Company and each Subsidiary, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications of the Company and each Subsidiary (collectively, “Marks”);
	2.	all patents and patent applications of the Company and each Subsidiary (collectively, “Patents”);
	3.	all copyrights in both published works and unpublished works of the Company and each Subsidiary (collectively, “Copyrights”); and
	4.	all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets”); owned, used, or licensed by the Company and each Subsidiary as licensee or licensor.

 

 

(ii) Agreements. There are no outstanding and, to Company’s knowledge, no threatened disputes or disagreements with respect to any agreements relating to any Intellectual Property Rights to which the Company is a party or by which the Company is bound.

 

(iii) Know-How Necessary for the Business. The Intellectual Property Rights are all those necessary for the operation of the Company’s businesses as it is currently conducted or as represented, in writing, to the Purchaser to be conducted. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Rights, free and clear of all Liens, and adverse claims, and has the right to use all of the Intellectual Property Rights. To the Company’s knowledge, no employee of the Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than of the Company.

 

(iv) Patents. The Company owns no Patents and has no patents pending. The Company and the Subsidiaries have, or have rights to use, all Patents necessary or required for use in connection with their respective businesses as described in the Public Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Patents has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the Public Reports, a written notice of a claim or otherwise has any knowledge that the Patents violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Patents are enforceable and there is no existing infringement by another Person of any of the Patents. The Company and the Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(v) Trademarks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all Liens and other adverse claims. All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. No Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Company’s knowledge, no such action is threatened with respect to any of the Marks. To the Company’s knowledge: (1) there is no potentially interfering trademark or trademark application of any third party, and (2) no Mark is infringed or has been challenged or threatened in any way. To the Company’s knowledge, none of the Marks used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any third party.

 

 

(vi) Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Liens and other adverse claims. All the Copyrights have been registered and are currently in compliance with formal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of the Closing. No Copyright is infringed or, to the Company’s knowledge, has been challenged or threatened in any way. To the Company’s knowledge, none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. All works encompassed by the Copyrights have been marked with the proper copyright notice.

 

(vii) Trade Secrets. With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets. The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Company’s knowledge, have not been used, divulged, or appropriated either for the benefit of any Person (other the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

 

(p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(q) Transactions With Affiliates and Employees. Except as set forth in the Public Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $50,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company or any Subsidiary, and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company except as disclosed in the Public Reports.

 

(r) Compliance; Internal Accounting Controls. The Company is in material compliance with any and all applicable requirements of Securities Laws and filing and disclosure obligations with the principal Trading Market that are effective as of the date hereof, and as of the Closing Date. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and GAAP and to maintain asset accountability, and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

 

(s) Certain Fees. No brokerage, finder’s fees, commissions or due diligence fees are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchaser shall have no obligation with respect to any such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 3.1(s) that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(u) Registration Rights. No Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary, except for the Purchaser and as set forth in the Public Reports.

 

(v) Reporting Company/Shell Company. The Company has no reason to believe that it will not in the year following the Closing Date continue to be in compliance with all listing and reporting requirements applicable to the Company as of the Closing Date. As of the Closing Date, the Company is not a “shell company” (as defined in Rule 405 of the Securities Act) and has never been a “shell company”.

 

(w) Application of Takeover Protections. The Company and the Board of Directors will have taken as of the Closing Date all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) and the laws of the British Columbia that are or could become applicable to the Purchaser as a result of the Purchaser and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchaser’s ownership of the Securities.

 

(x) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Purchaser or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchaser will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company and the Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, when taken together as a whole, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

 

(y) No Integrated Offering. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering of the Securities to be integrated with prior offerings by the Company for purposes of: (i) the Securities Act which would require the registration of any such securities under the Securities Act, (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated, or (iii) any other Applicable Law. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(z) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, and the Company’s good faith estimate of the fair market value of its assets, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(z) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money, (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with IFRS and GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and the Subsidiaries each (i) has made or filed all United States and Canadian federal, provincial, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

 

(bb) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.

 

(cc) Accountants and Lawyers. The Company’s audit firm is disclosed in the Public Records. To the knowledge and belief of the Company, such accounting firm is a participating audit firm with the Canadian Public Accountability Board. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

(dd) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by the Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchaser’s purchase of the Securities. The Company further represents to the Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(ee) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) the Purchaser has not been asked by the Company to agree, nor has the Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by the Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) the Purchaser, and counter-parties in “derivative” transactions to which the Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) the Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) the Purchaser may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

 

(ff) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.

 

(gg) Money Laundering. The operations of the Company and the Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the U.S. Currency and Foreign Transactions Reporting Act of 1970, as amended, and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

 

(hh) Stock Option Plan. To the knowledge of the Company, other than as disclosed in the Public Filings, each stock option granted by the Company under the Stock Option Plan was granted (i) in accordance with the terms of such Stock Option Plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under IFRS, GAAP and Applicable Law. No stock option granted under the Stock Option Plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or the Subsidiaries or their financial results or prospects.

 

(ii) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(jj) Private Placement. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

(kk) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchaser and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(ll) Indebtedness and Seniority. As of the date hereof, all Indebtedness and Liens of the Company and the principal terms thereof are set forth on Schedule 3.1(ll). Except as set forth on Schedule 3.1(ll), as of the Closing Date, no Indebtedness or other equity of the Company is or will be senior to the Convertible Debenture in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

 

(mm) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchaser a copy of any disclosures provided thereunder.

 

(nn) Manufacturing Regulatory Matters. The Company and the Subsidiaries have complied in all material respects with all statutes and regulations related to the research, manufacture and sale of its products to the extent applicable to the Company’s and the Subsidiaries’ activities. Items manufactured or under investigation by the Company and the Subsidiaries comply with all applicable manufacturing practices regulations and other requirements established by government regulators in the jurisdictions in which the Company or the Subsidiaries manufacture their products. Except as disclosed in the Public Reports, the Company is not and the Subsidiaries are not the subject of any investigation by any competent authority with respect to the development, testing, manufacturing and distribution of their products, nor has any investigation, prosecution, or other enforcement action been threatened by any regulatory agency. Except as disclosed in the Public Reports, neither the Company nor any of the Subsidiaries has received from any regulatory agency any letter or other document asserting that the Company or any Subsidiary has violated any statute or regulation enforced by that agency with respect to the development, testing, manufacturing and distribution of their products. To the Company’s knowledge, research conducted by or for the Company and the Subsidiaries has complied in all material respects with all applicable legal requirements.

 

(oo) Other Covered Persons. The Company is not aware of any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Regulation D Securities.

 

(pp) No Outstanding Variable Priced Equity Linked Instruments. As of the Closing Date, the Company will not have outstanding nor issuable any Variable Priced Equity Linked Instruments, nor any debt or equity with anti-dilution, ratchet or reset rights.

 

(qq) Listing and Maintenance Requirements. The Common Stock is listed on the TSX Venture Exchange under the symbol WMG.V and on the OTCQB under the symbol MLYF. The Company has not received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.

 

 

(rr) Environmental and Safety Laws.

 

(i) The Company is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. The Company has no basis to expect, nor has it or any other Person for whose conduct it is or may be held to be responsible received, any actual or threatened order, notice, or other communication from (i) any governmental body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any facilities, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or threatened obligation to undertake or bear the cost of any environmental, health, and safety liabilities with respect to any of the facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has had an interest, or with respect to any property or facility at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, or processed by the Company, or any other Person for whose conduct it is or may be held responsible, or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received.

 

(ii) There are no pending or, to the knowledge of the Company, threatened claims, encumbrances, or other restrictions of any nature, resulting from any environmental, health, and safety liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the facilities or any other properties and assets (whether real, personal, or mixed) in which the Company has or had an interest.

 

(iii) The Company has no knowledge of any basis to expect, nor has it or any other Person for whose conduct it is or may be held responsible, received, any citation, directive, inquiry, notice, order, summons, warning, or other communication that relates to Hazardous Materials, or any alleged or actual violation or failure to comply with any Environmental Law, or of any alleged or actual obligation to undertake or bear the cost of any environmental, health, and safety liabilities with respect to any of the facilities or any other properties or assets (whether real, personal, or mixed) in which the Company had an interest, or with respect to any property or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by the Company, or any other Person for whose conduct it is or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled, or received.

 

(iv) Neither the Company nor any other Person for whose conduct it is or may be held responsible, had any environmental, health, and safety liabilities with respect to the facilities or, to the knowledge of the Company, with respect to any other properties and assets (whether real, personal, or mixed) in which the Company (or any predecessor), has or had an interest, or at any property geologically or hydrologically adjoining the facilities or any such other property or assets.

 

(v) Neither the Company nor any other Person for whose conduct it is or may be held responsible, or to the knowledge of the Company, any other Person, has permitted or conducted, or is aware of, any hazardous activity conducted with respect to the facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has or had an interest except in full compliance with all applicable Environmental Laws.

 

(vi) There has been no release of any Hazardous Materials at or from the facilities or at any other locations where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by the facilities, or from or by any other properties and assets (whether real, personal, or mixed) in which the Company has or had an interest, or to the knowledge of the Company any geologically or hydrologically adjoining property, whether by the Company, or any other Person that has had a Material Adverse Effect.

 

 

(vii) For the purpose of this Section, Hazardous Material shall mean (i) materials which are listed or otherwise defined as “hazardous” or “toxic” under any applicable federal, local or stated and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of the hazardous wastes, or other activities involving hazardous substances, including building materials or (b) petroleum products or nuclear materials.

 

(viii) For the purpose of this Section 3.1(rr), “Environmental Law” shall have the following meaning:

 

(1) advising appropriate authorities, employees, and the public intended or actual releases of pollutants or hazardous substances or material, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the environment;

 

(2) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the environment;

 

(3) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of waste that are generated;

 

(4) assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the environment when used or disposed of;

 

(5) protecting resources, species or ecological amenities;

 

(6) reducing to acceptable levels the risk inherent in the transportation of hazardous substances, pollutants, oil or other potentially harmful substances;

 

(7) cleaning up pollutants that have been released, preventing the threat of release or paying the costs of such clean up or prevention; or

 

(8) making responsible parties pay private parties, or groups of them, for damages done to their health or to the environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets.

 

(ss) Survival. The foregoing representations and warranties shall survive the Closing and continue in full force and effect for the benefit of the Purchaser for a period of six years following the Closing.

  

 

3.2 Representations and Warranties of the Purchaser. The Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a) Organization; Authority. The Purchaser, if an individual, is of the full age of majority in his or her jurisdiction of residence and is legally competent to execute, deliver and be bound by the terms of this Agreement, to subscribe for the Convertible Debenture contemplated herein and to observe and perform his or her covenants and obligations hereunder, OR if an entity, is duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by Applicable Law.

 

(b) Understandings or Arrangements. The Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account, not for the benefit of any other Person (within the meaning of Applicable Laws) and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to act jointly or in concert in connection with the Offering to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting the Purchaser’s right to sell the Securities pursuant to any registration statement or otherwise in compliance with applicable federal and state securities laws). The Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c) Purchaser Status. At the time the Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants or converts the Convertible Debenture it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. The Purchaser is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. The Purchaser has provided the information in the Accredited Investor Questionnaire attached hereto as Schedule C (the “Investor Questionnaire”). The information set forth on the signature pages hereto and the Investor Questionnaire regarding the Purchaser is true and complete in all respects. Except as disclosed in the Investor Questionnaire, the Purchaser has had no position, office or other material relationship within the past three years with the Company or Persons (as defined below) known to the Purchaser to be affiliates of the Company, and is not a member of the Financial Industry Regulatory Authority or an “associated person” (as such term is defined under the FINRA Membership and Registration Rules Section 1011).

 

 

(d) Canadian Private Placement Provision. The Purchaser’s ability to transfer the Convertible Debenture, Warrants and Underlying Shares is limited by, among other things, the Canadian securities laws and the policies of the TSX Venture Exchange. In particular, the Purchaser acknowledges having been informed that the Convertible Debenture and Warrants, and any Underlying Shares issued upon exercise of the Warrants or conversion of the Convertible Debenture, are subject to resale restrictions under NI 45-102 and may not be sold or otherwise disposed of in Canada for a period of four months from the date of distribution of the Convertible Debenture, unless a statutory exemption is available or a discretionary order is obtained from the BCSC allowing the earlier resale thereof, and may be subject to additional resale restrictions if such sale or other disposition would be a “control distribution”, as that term is defined in NI 45-102. If the Purchaser is not resident in Canada, additional resale restrictions may apply under other Applicable Law. In addition, the policies of the TSX Venture Exchange may require that the Shares, Warrants and any Underlying Shares issued upon exercise of the Warrants or upon conversion of the Convertible Debenture, not be sold or otherwise disposed of for a period of not less than four months from the Closing Date. The Purchaser is resident or, if not an individual, has its head office, in the jurisdiction set out on the Purchaser signature page of this Agreement. Such address was not created and is not used solely for the purpose of acquiring the Convertible Debenture. The Purchaser has completed and delivered the Outside of Canada Purchaser Certificate attached as Schedule C hereto, makes the representations, warranties and covenants therein and confirms the truth and accuracy of all statements in such schedule as of the date of this Agreement and as of the Closing Date.

 

(e) Experience of the Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, is aware of the characteristics of the Convertible Debenture and Warrants and has so evaluated and understands the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(f) Information on Company. The Purchaser has been furnished with or has had access to the SEDAR website to the Company’s filings made with the applicable Canadian or U.S. regulatory agency or Trading Market through the tenth business day preceding the Closing Date in which the Purchaser purchases Securities hereunder. The Purchaser is not deemed to have any knowledge of any information not included in the Public Reports unless such information is delivered in the manner described in the next sentence. In addition, the Purchaser may have received in writing from the Company such other information concerning its operations, financial condition and other matters as the Purchaser has requested, identified thereon as OTHER WRITTEN INFORMATION (such other information is collectively, the “Other Written Information”), and considered all factors the Purchaser deems material in deciding on the advisability of investing in the Securities. The Purchaser was afforded (i) the opportunity to ask such questions as the Purchaser deemed necessary of, and to receive answers from, representatives of the Company concerning the merits and risks of acquiring the Securities; (ii) the right of access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable the Purchaser to evaluate the Securities; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to acquiring the Securities.

 

(g) Communication of Offer. The Purchaser is not purchasing the Securities as a result of any “general solicitation” or “general advertising,” as such terms are defined in Regulation D, which includes, but is not limited to, any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or on the internet or broadcast over television, radio or the internet or presented at any seminar or any other general solicitation or general advertisement.

 

 

(h) No Governmental Review. The Purchaser understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the Offering.

 

(i) No Conflicts. The execution, delivery and performance of this Agreement and performance under the other Transaction Documents and the consummation by the Purchaser of the transactions contemplated hereby and thereby or relating hereto or thereto do not and will not (i) result in a violation of the Purchaser’s charter documents, bylaws or other organizational documents, if applicable, (ii) conflict with nor constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which the Purchaser is a party, nor (iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on the Purchaser). The Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or perform under the other Transaction Documents nor to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, the Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

 

(j) Pre-Existing Relationships. The Purchaser represents and warrants that: (i) the Purchaser is not investing in the Offering in connection with or as a result of any registration statement filed with any Canadian or U.S. regulatory agency or Trading Market by the Company and (ii) no Securities were offered or sold to it by means of any form of general solicitation or general advertising, and in connection therewith, the Purchaser did not (A) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor conference whose attendees were invited by any general solicitation or general advertising; or (C) observe any website or filing of the Company with any U.S. or Canadian regulatory agency or Trading Market in which any offering of securities by the Company was described and as a result learned of any offering of securities by the Company.

 

(k) Prospectus Exemptions. The issue and sale of the Securities by the Company to the Purchaser is conditional upon such sale being exempt from the requirements as to the filing of a prospectus or registration statement and as to the preparation of an offering memorandum or similar document contained in any statute, regulation, instrument, rule or policy applicable to the sale of the Securities or upon the issue of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or registration statement or delivering an offering memorandum or similar document.

 

The Purchaser acknowledges and agrees that:

 

(i) it has been independently advised as to or are aware of the restrictions with respect to trading in, and the restricted period or statutory hold period applicable to, the Securities imposed by the Securities Laws of the jurisdiction in which you reside or to which you are subject and by the policies of the TSX Venture Exchange, that a suitable legend or legends will be placed on the certificates representing the Convertible Debenture and Warrants and, if necessary, the Conversion Shares underlying the Convertible Debenture and Warrants to reflect the applicable restricted period and statutory hold period to which the Convertible Debenture and Warrants and, if applicable, the Underlying Shares are subject;

 

 

(ii) it has not received or been provided with a prospectus, registration statement, offering memorandum (within the meaning of the Applicable Law) or any document purporting to describe the business and affairs of the Company which has been prepared for review by prospective purchasers to assist in making an investment decision in respect of the Securities; and that its decision to enter into this Agreement and to purchase the Securities from the Company is based entirely upon publicly available information concerning the Company (other than the representations and warranties made by the Company in this Agreement), and not upon any other verbal or written representation as to fact or otherwise made by or on behalf of the Company;

 

(iii) there are risks associated with the purchase of the Securities, including, but not limited to, the risk factors described in the Public Reports and the Purchaser may lose his, her or its entire investment;

 

(iv) it acknowledges that it has had such opportunity as it has deemed adequate to conduct all due diligence investigations regarding the business, financial position, condition and prospects of the Company as is necessary to permit it to evaluate the merits and risks of its investment in the Securities;

 

(v) the Purchaser is solely responsible for obtaining such tax, investment, legal and other professional advice as it considers appropriate in connection with the execution, delivery and performance by it of this Agreement and the transactions contemplated hereunder (including the resale and transfer restrictions referred to herein), and, without limiting the generality of the foregoing, the Company’s counsel is acting solely as counsel to the Company and not as counsel to the Purchaser;

 

(vi) as a consequence of the sale being exempt from the prospectus requirements of the Applicable Law:

 

(1) certain protections, rights and remedies provided by the Applicable Law, including statutory rights of rescission and certain statutory remedies against an issuer, underwriters, auditors, directors and officers that are available to investors who acquire securities offered by a prospectus, will not be available to it;

 

(2) the common law may not provide investors with an adequate remedy in the event that they suffer investment losses in connection with securities acquired in a private placement;

 

(3) it may not receive information that would otherwise be required to be given under the Applicable Law; and

 

(4) there is no government or other insurance covering the Securities;

 

(vii) no Person has made any written or oral representation to it:

 

(1) that any Person will resell or repurchase the Convertible Debenture, Warrants or Underlying Shares; or

 

 

(2) as to the future price or value of the Underlying Shares; and

 

(l) The Purchaser has not become aware of any advertisement in printed media of general and regular paid circulation (or other printed public media), radio, television or telecommunications, or other form of advertisement (including the electronic display such as the Internet) with respect to the distribution of the Convertible Debenture and Warrants.

 

(m) The funds representing the aggregate Purchase Price in respect of the Securities which will be advanced by the Purchaser to the Company hereunder will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (for the purposes of this paragraph the “PCMLTFA”) and you acknowledge that the Company may in the future be required by law to disclose the name of the Purchaser and other information relating to this Agreement and the subscription hereunder, on a confidential basis, pursuant to the PCMLTFA. To the best of your knowledge (a) none of the subscription funds provided by the Purchaser (i) have been or will be derived directly or indirectly from or related to any activity that is deemed criminal under the laws of Canada, the United States of America, or any other jurisdiction, or (ii) are being tendered on behalf of a person or entity who has not been identified to you and, (b) you will promptly notify the Company if you discover that any of such representations cease to be true, and to provide the Company with appropriate information in connection therewith.

 

(n) You, on your own behalf and, if applicable, on behalf of each beneficial purchaser for whom you are contracting hereunder, acknowledge and consent to the fact that the Company is collecting your personal information (as that term is defined under applicable privacy legislation, including, without limitation, the Personal Information Protection and Electronic Documents Act (Canada) and any other applicable similar, replacement or supplemental provincial or federal legislation or laws in effect from time to time), and, if applicable, that of each beneficial purchaser for whom you are contracting hereunder, for the purpose of completing this Agreement. You, on your own behalf and, if applicable, on behalf of each beneficial purchaser for whom you are contracting hereunder, acknowledge and consent to the Company retaining such personal information for as long as permitted or required by law or business practices. You, on your own behalf and, if applicable, on behalf of each beneficial purchaser for whom you are contracting hereunder, further acknowledge and consent to the fact that the Company may be required by applicable Securities Laws, the rules and policies of any stock exchange or the rules of the Investment Industry Regulatory Organization of Canada to provide regulatory authorities with any personal information provided under this Agreement. You represent and warrant, as applicable, that you have the authority to provide the consents and acknowledgements set out in this paragraph on behalf of each beneficial purchaser for whom you are contracting hereunder. In addition to the foregoing, you agree and acknowledge that the Company, as the case may be, may use and disclose your personal information, or that of each beneficial purchaser for whom you are contracting hereunder, as follows:

 

	(i)	for internal use with respect to managing the relationships between and contractual obligations of the Company, and you or any beneficial purchaser for whom you are contracting hereunder;
	(ii)	for use and disclosure for income tax related purposes, including, without limitation, where required by law, disclosure to Canada Revenue Agency;
	(iii)	for disclosure to stock exchanges and securities regulatory authorities and other regulatory bodies with jurisdiction with respect to approval or acceptance for filing of the Offering, reports of trades and similar stock exchange or regulatory filings including, without limiting the generality of the foregoing, disclosure to the TSX Venture Exchange pursuant to the Form 4B Private Placement Notice Form to be filed by the Company in respect of the Offering and the collection, use and disclosure thereof by the TSX Venture Exchange for the purposes described in Exhibit I or as otherwise identified by the TSX Venture Exchange from time to time;

 

 

	(iv)	for disclosure to a governmental or other authority to which the disclosure is required by court order or subpoena compelling such disclosure and where there is no reasonable alternative to such disclosure;
	(v)	for disclosure to professional advisers of the Company in connection with the performance of their professional services;
	(vi)	for disclosure to any person where such disclosure is necessary for legitimate business reasons and is made with your prior written consent;
	(vii)	for disclosure to a court determining the rights of the parties under this Agreement; or
	(viii)	for use and disclosure as otherwise required or permitted by law; and

 

(o) Survival. The foregoing representations and warranties shall survive the Closing and continue in full force and effect for the benefit of the Company for a period of six years following the Closing.

 

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) Disposition of Securities. The Securities may only be disposed of in compliance with provincial, state and federal securities laws in Canada or the United States, as the case may be. In connection with any transfer of Securities (other than pursuant to an effective registration statement or NI 45-102, or to an Affiliate of the Purchaser or in connection with a pledge as contemplated in Section 4.1(b)), the Company may require the transferor thereof to provide to the Company, at the Company’s expense, an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of the Purchaser under this Agreement and the other Transaction Documents.

 

 

(b) Legend.

 

(i) Canadian Provisions. The Purchaser acknowledges that a legend will be endorsed on the certificates representing the Convertible Debenture and, if any Warrants are exercised or if the Convertible Debenture is converted prior to the expiry of the statutory or any applicable TSX Venture Exchange imposed resale restrictions, a legend will be endorsed on the certificates representing the Warrants and the Underlying Shares, to the effect that the securities represented thereby are subject to a hold period and may not be traded until the expiry thereof except as permitted by Applicable Law and the policies of the TSX Venture Exchange. In particular, the Purchaser acknowledges that the certificates representing the Convertible Debenture and, if any Warrants are exercised or if the Convertible Debenture is converted prior to the expiry of the statutory or any applicable TSX Venture Exchange imposed resale restrictions, the certificates representing the Warrants and the Underlying Shares shall bear a legend or legends substantially in the following form and with the information completed: “UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE DISTRIBUTION DATE].” and, (a) if the Purchaser is: (i) a director, officer or “Promoter” (as defined in the Policies of the TSX Venture Exchange) of the Company; or (ii) a “Person” (as defined in the Policies of the TSX Venture Exchange) holding securities carrying more than 10% of the voting rights attached to the Company’s securities both immediately before and after the Offering, and who has elected or appointed or has the right to elect or appoint one or more directors or “senior officers” (as defined in the Policies of the TSX Venture Exchange) of the Company, or (b) if the FT Shares are issued at a price that is at a discount of more than 10% to the “Market Price” (as defined in the Policies of the TSX Venture Exchange): “WITHOUT PRIOR WRITTEN APPROVAL OF TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE [for the Convertible Debenture and Warrant certificates add, AND ANY SECURITIES ISSUED ON THE EXERCISE OR CONVERSION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE,] MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL [INSERT THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE DISTRIBUTION DATE].”

 

(ii) U.S. Provisions. The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

 

(c) Pledge. The Company acknowledges and agrees that the Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, the Purchaser may transfer pledge or secure Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and, to our knowledge, no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

 

(d) Legend Removal. Certificates evidencing the Underlying Shares shall not contain any legend (“Unlegended Shares”) (including the legends set forth in Section 4.1(b) hereof): (i) stipulated in NI 45-102 as of the date which falls four months and one day from the date of issuance of the Convertible Debenture; (ii) required under the Securities Act while a registration statement covering the resale of such security is effective under the Securities Act, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of any agency or Trading Market with regard to Applicable Law). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder. If the Convertible Debenture is converted or any portion of the Warrants are exercised (i) on or after such day which falls four months and one day from the date of issuance of the Convertible Debenture, then such Underlying Shares shall be issued free of all Canadian legends; or (ii) at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all United States legends. The Company agrees that following such time as all such legends are no longer required under this Section 4.1(d), it will, no later than five (5) Trading Days following the delivery by the Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such fifth Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to the Purchaser a certificate representing such shares that is free from all restrictive and other legends (however, the Company shall use reasonable best efforts to deliver such shares within two (2) Trading Days). The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall, if possible, be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by the Purchaser.

 

 

(e) Legend Removal Default. In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the highest of the actual purchase price or VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(d), $10 per Trading Day for each Trading Day after the Legend Removal Date (increasing to $20 per Trading Day after the fifth Trading Day) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

(f) DWAC. In lieu of delivering physical certificates representing the Unlegended Shares, upon request of the Purchaser, and so long as the certificates therefor do not bear a legend and the Purchaser is not obligated to return such certificate for the placement of a legend thereon, the Company shall cause its transfer agent to electronically transmit the Unlegended Shares by crediting the account of Purchaser’s prime broker with the Depository Trust Company through its Deposit Withdrawal At Custodian system, provided that the Common Stock is DTC eligible and the Company’s transfer agent participates in the Deposit Withdrawal at Custodian system. Such delivery must be made on or before the Legend Removal Date.

 

(g) Injunction. In the event the Purchaser shall request delivery of Unlegended Shares as described in this Section 4.1 and the Company is required to deliver such Unlegended Shares, the Company may not refuse to deliver Unlegended Shares based on any claim that the Purchaser or anyone associated or affiliated with the Purchaser has not complied with the Purchaser’s obligations under the Transaction Documents, or for any other reason, unless an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such Unlegended Shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of the Purchaser in the amount of the greatest of (i) 120% of the amount of the aggregate purchase price of the Underlying Shares to be subject to the injunction or temporary restraining order, or (ii) the VWAP of the Common Stock on the trading day before the issue date of the injunction multiplied by the number of Unlegended Shares to be subject to the injunction shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to the Purchaser to the extent the Purchaser obtains judgment in the Purchaser’s favor.

 

(h) Buy-In. In addition to any other rights available to Purchaser, if the Company fails to deliver Unlegended Shares to the Purchaser as required pursuant to this Agreement and after the Legend Removal Date the Purchaser, or a broker on the Purchaser’s behalf, purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Purchaser of the Common Stock which the Purchaser was entitled to receive in unlegended form from the Company (a “Buy-In”), then the Company shall promptly pay in cash to the Purchaser (in addition to any remedies available to or elected by the Purchaser) the amount, if any, by which (A) the Purchaser’s total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (B) the aggregate purchase price of the Common Stock delivered to the Company for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per annum accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Purchaser purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of Shares delivered to the Company for reissuance as Unlegended Shares, the Company shall be required to pay the Purchaser $1,000, plus interest, if any. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In.

 

 

(i) Plan of Distribution. The Purchaser agrees with the Company that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against the Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

4.3 Furnishing of Information; Public Information.

 

(a) As long as the Convertible Debenture or Warrants are outstanding, the Company covenants to file all current and periodic reports required to be filed in conjunction with all Applicable Law and the TSX Venture Exchange.

 

(b) At any time commencing on the Closing Date and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(2) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or subparagraph (a) above (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to the Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate principal amount of Notes and accrued interest thereon and purchase price of Warrant Shares held by the Purchaser on the day of a Public Information Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction or to effectuate such other transaction unless shareholder approval is obtained before the earlier of the closing of such subsequent transaction or effectuation of such other transaction.

 

 

4.5 Conversion and Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Convertible Debenture Certificate set forth the totality of the procedures required of the Purchaser in order to exercise the Warrants or convert the Convertible Debenture. No additional legal opinion, other information or instructions shall be required of the Purchaser to exercise the Warrants or convert the Convertible Debenture. The Company shall honor exercises of the Warrants and conversions of the Convertible Debenture and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6 Securities Laws Disclosure; Publicity. The Company shall, by 9:30 a.m. (New York City time) on the Trading Day of the Closing Date, issue a press release. From and after the issuance of the press release, the Company represents to the Purchaser that it shall have publicly disclosed all material, non-public information delivered to the Purchaser by the Company or any of the Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company and the Purchaser shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and neither the Company nor the Purchaser shall issue any press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of the Purchaser, or without the prior consent of the Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Purchaser, or include the name of the Purchaser in any filing with any Canadian or U.S. regulatory agency or Trading Market unless the name of the Purchaser is already included in the body of the Transaction Documents, without the prior written consent of the Purchaser.

 

4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchaser.

 

4.8 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide the Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto the Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.9 Use of Proceeds. The Company shall use the net proceeds from the sale of the Offering hereunder substantially for the purposes set forth on Schedule 4.9 hereto and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s Indebtedness except as disclosed on Schedule 4.9, (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations and any analogous Canadian laws.

 

 

4.10 Indemnification of Purchaser. Subject to the provisions of this Section 4.10, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of its material representations, warranties or covenants under the Transaction Documents. The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

4.11 Reservation and Listing of Securities.

 

(a) The Company shall maintain a reserve from its duly authorized Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents, but not less than the Required Minimum.

 

(b) If, on any date, the number of authorized but unissued (and otherwise unreserved) Common Stock is less than the Required Minimum on such date, then the Board of Directors shall amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 60^th day after such date.

 

 

(c) The Company shall prior to the Closing, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchaser evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. The Company will take all action necessary to continue the listing or quotation and trading of its Common Stock on a Trading Market until the later of (i) at least five years after the Closing Date, and (ii) for so long as the Convertible Debenture or Warrants are outstanding, and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market at least until five years after the Closing Date and for so long as the Convertible Debenture and Warrants are outstanding. In the event the aforedescribed listing is not continuously maintained for five years after the Closing Date and for so long as the Convertible Debenture or Warrants are outstanding (a “Listing Default”), then in addition to any other rights the Purchasers may have hereunder or under Applicable Law, on the first day of a Listing Default and on each monthly anniversary of each such Listing Default date (if the applicable Listing Default shall not have been cured by such date) until the applicable Listing Default is cured, the Company shall pay to the Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate outstanding Convertible Debenture principal and accrued interest, conversion price of Conversion Shares and purchase price of Warrant Shares held by such Purchaser or which may be acquired upon exercise of Warrants on the day of a Listing Default and on every thirtieth day (pro-rated for periods less than thirty days) thereafter until the date such Listing Default is cured. If the Company fails to pay any liquidated damages pursuant to this Section in a timely manner, the Company will pay interest thereon at a rate of 1.5% per month (pro-rated for partial months) to the Purchaser.

 

4.12 Filings. The Company agrees to timely all reports required under Applicable Securities Laws. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of the Purchaser.

 

The Purchaser further acknowledges and expressly consents to:

 

(a) the disclosure of Personal Information by the Company to the TSX Venture Exchange pursuant to the TSX Venture Exchange Form 4B entitled Private Placement Notice Form and other applicable regulatory authorities, as required; and

 

(b) the collection, use and disclosure of Personal Information by the TSX Venture Exchange for such purposes described in Appendix 6B (a copy of which is attached as Schedule F) or as otherwise may be identified by the TSX Venture Exchange, from time to time.

 

 

The information provided by the Purchaser identifying among other things, the name, address, telephone number and email address of the Purchaser, the number of Convertible Debenture being purchased hereunder, the Subscription Amount, and the exemption that the Purchaser is relying on in purchasing the Purchased Securities will be disclosed to the Canadian securities regulatory authorities, and such information is being indirectly collected by the Canadian securities regulatory authorities under the authority granted to it under Canadian securities legislation. This information is being collected for the purposes of the administration and enforcement of Canadian securities legislation. The Purchaser hereby authorizes the indirect collection of such information by the Canadian securities regulatory authorities. In the event the Purchaser has any questions with respect to the indirect collection of such information, the Purchaser should contact the BCSC as follows:

 

British Columbia Securities Commission
P.O. Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, British Columbia V7Y 1L2
Inquiries: (604) 899-6854
Toll free in Canada: 1-800-373-6393
Facsimile: (604) 899-6581
Email: [email protected]
Public official contact: FOI Inquiries

 

4.13 Subsequent Equity Sales.

 

(a) Variable Priced. From the date hereof until such time as the Convertible Debenture or Warrants are no longer outstanding, the Company will not, without the consent of the Purchaser, or have or allow to be outstanding, nor enter into any Equity Line of Credit or similar agreement, issue or agree to issue floating or Variable Priced Equity Linked Instruments, nor any of the foregoing or equity with price reset rights (subject to adjustment for stock splits, distributions, dividends, recapitalizations and the like) (collectively, a “Variable Rate Transaction”) which is not in place as of the date hereof. For purposes hereof, “Equity Line of Credit” shall include any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula, and “Variable Priced Equity Linked Instruments” shall include: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional Common Stock or Common Stock Equivalents or any of the foregoing at a price that can be reduced either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Common Stock since date of initial issuance, or upon the issuance of any debt, equity or Common Stock Equivalent, and (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required or has the option to (or any investor in such transaction has the option to require the Company to) make such amortization payments in Common Stock which are valued at a price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security (whether or not such payments in stock are subject to certain equity conditions). For purposes of determining the total consideration for a convertible instrument (including a right to purchase equity of the Company) issued, subject to an original issue or similar discount or which principal amount is directly or indirectly increased after issuance, the consideration will be deemed to be the actual net cash amount received by the Company in consideration of the original issuance of such convertible instrument. For so long as the Convertible Debenture is outstanding, the Company will not amend the terms of any securities or Common Stock Equivalents or of any agreement outstanding or in effect as of the date of this Agreement pursuant to which same were or may be acquired, nor issue any Common Stock or Common Stock Equivalents, without the consent of the Purchaser, if such issuance or the result of such amendment would be at an effective price per share of Common Stock less than the higher of the Conversion Price or Exercise Price in effect at the time of such issuance or amendment or result in the issuance of a greater amount of securities than prior to such amendment. The restrictions and limitations in this Section 4.13 shall apply whether or not the Purchaser exercises its rights pursuant to Section 4.23 of this Agreement.

 

 

(b) Lower Priced. From the date hereof until such time as the Convertible Debenture or Warrants are no longer outstanding, the Company will not, without either (i) the consent of the Purchaser, or (ii) (A) having prepaid the Convertible Debenture pursuant to the terms thereof, or (B) having first lowered the Conversion Price of the Convertible Debenture to such lower price with having obtained the necessary regulatory approval, issue any Common Stock or Common Stock Equivalents with a conversion or exercise price lower than the Conversion Price and Exercise Price then in effect.

 

4.14 Certain Transactions and Confidentiality. The Purchaser covenants that neither it, nor any Affiliate acting on the Purchaser’s behalf or pursuant to any understanding with the Purchaser will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to a press release as described in Section 4.6. The Purchaser covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to a press release as described in Section 4.6, the Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) the Purchaser is not making any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to a press release as described in Section 4.6, (ii) the Purchaser shall not be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with Applicable Law from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to a press release, and (iii) the Purchaser shall not have any duty of confidentiality to the Company or the Subsidiaries after the filing of the press release. Notwithstanding the foregoing, if the Purchaser is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of the Purchaser’s assets wherein the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of the Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

4.15 Registration Rights.

 

(a) The Company shall use commercially reasonable efforts to file a registration statement under the Securities Act covering all of the Underlying Shares on or before the 60th day after the Closing Date and have such Registration Statement declared effective on or before the 120th day after the Closing Date.

 

 

(b) If at any time after the Closing Date there is not an effective registration statement covering all of the Underlying Shares and the Company proposes to file any registration statement under the Securities Act with respect to the Common Stock (a “Registration Statement”), by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the Purchaser as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to Purchaser in such notice the opportunity to register the sale of such number of Underlying Shares (the “Registrable Securities”) as Purchaser may request in writing within five (5) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. If Purchaser proposes to distribute its Registrable Securities through a Piggy-Back Registration that involves an underwriter or underwriters, then it shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration.

 

(c) If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriter advises the Company and the Purchaser (if Purchaser has elected to include Registrable Securities in such Piggyback Registration) in writing that in its reasonable and good faith opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration or takedown would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration (i) first, the shares of Common Stock that the Company proposes to sell; (ii) second, the shares of Common Stock requested to be included therein by Purchaser; and (iii) third, the shares of Common Stock requested to be included therein by holders of Common Stock other than Purchaser, allocated among such holders in such manner as they may agree.

 

(d) Purchaser may elect to withdraw such Purchaser’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by Purchaser of Registrable Securities in connection with such Piggy-Back Registration as provided herein.

 

(e) The Company shall notify Purchaser at any time when a prospectus relating to such Purchaser’s Registrable Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of Purchaser, the Company shall also prepare, file and furnish to Purchaser a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to Purchaser, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Purchaser shall not offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment. The Company covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to the Registration Statement and shall sell the Registrable Securities only in accordance with a method of distribution described in the Registration Statement.

 

 

(f) The Company may request that Purchaser furnish the Company such information with respect to Purchaser and Purchaser’s proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the Commission in connection therewith, and such Purchaser shall furnish the Company with such information.

 

(g) All fees and expenses incident to the performance of or compliance with this Section 4.15 shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which Purchaser of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of Purchaser.

 

 

(h) The Company and its successors and assigns shall indemnify and hold harmless Purchaser, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of Purchaser, each individual or entity who controls Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and the officers, directors, members, Agreement, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding Purchaser furnished to the Company by such party for use therein. The Company shall notify Purchaser promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. If the indemnification herein is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in herein was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence.

 

(i) Upon an Event of Default the rights hereunder shall become demand registration rights and the Purchaser may demand a resale registration statement covering all the Underlying Shares be filed, and the Company shall thereafter the Company shall file with the Commission a Registration Statement on Form S-1, or any other form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the resale by the Purchaser of all of the Registrable Securities, and the Company shall use its commercially reasonable efforts to cause such Registration Statement to be declared effective and to keep such Registration Statement effective for a period of twelve months (12) months or for such shorter period ending on the earlier to occur of (x) the sale of all Registrable Securities and (y) the availability of Rule 144 for the Holder to sell all of the Registrable Securities without volume limitations within a 90 day period and public information requirements (the “Effectiveness Period”); provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section, or keep such registration effective pursuant to the terms hereunder, in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or as a dealer in securities under the securities laws of such jurisdiction or to execute a general consent to service of process in effecting such registration, qualification or compliance, in each case where it has not already done so. Notwithstanding the foregoing, in the event that the staff (the “Staff”) of the Commission should limit the number of Registrable Securities that may be sold pursuant to the Registration Statement, the Company may remove from the Registration Statement such number of Registrable Securities as specified by the Commission on behalf of all of the holders of Registrable Securities on a pro-rata basis within 30 days after the date of such demand and be declared effective no later than 60 days thereafter, and the Company shall utilize its commercially reasonable efforts to complete the same. The provisions of this Section 4.15 applicable to a Piggyback Registration, including Section 4.15(h), shall apply to a demand registration pursuant to this Section 4.15(i) to the extent applicable.

 

 

4.16 Purchaser’s Exercise Limitations. The Company shall not effect any exercise of the rights granted in this Agreement, and the Purchaser shall not have the right to exercise any portion of such rights granted in this Agreement to the extent that after giving effect to such exercise, the Purchaser (together with the Purchaser’s Affiliates, and any other Persons acting as a group together with the Purchaser or any of the Purchaser’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined in the Convertible Debenture), applied in the manner set forth in the Convertible Debenture. In such event the right by Purchaser to benefit from such rights or receive shares in excess of the Beneficial Ownership Limitation shall be held in abeyance until such times as such excess shares shall not exceed the Beneficial Ownership Limitation.

 

4.17 Maintenance of Property/Insurance. The Company shall keep all of its property, which is necessary or useful to the conduct of its business, in good working order and condition, ordinary wear and tear excepted and insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary for the businesses of the Company and Subsidiary. From and after the Closing Date and for so long as any Securities are held by the Purchaser, the Company will maintain directors and officers insurance coverage at least equal to the aggregate Subscription Amount.

 

4.18 Preservation of Corporate Existence. The Company and each Subsidiary shall preserve and maintain its corporate existence, rights, privileges and franchises in the jurisdiction of its incorporation, and qualify and remain qualified, as a foreign Company in each jurisdiction in which such qualification is necessary in view of its business or operations and where the failure to qualify or remain qualified might reasonably have a Material Adverse Effect upon the financial condition, business or operations of the Company taken as a whole.

 

4.19 DTC Program. At all times that Convertible Debenture or Warrants are outstanding, the Company shall employ as the transfer agent for its Common Stock and Underlying Shares a participant in the Depository Trust Company Automated Securities Transfer Program and, if possible, cause the Common Stock and Underlying Shares to be transferable pursuant to such program.

 

4.20 Reimbursement. If the Purchaser becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by the Purchaser to or with any current stockholder), solely as a result of the Purchaser’s acquisition of the Securities under this Agreement, the Company will reimburse the Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchaser who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchaser and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchaser and any such Affiliate and any such Person. The Company also agrees that neither the Purchaser nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement.

 

 

4.21 Most Favored Nation Provision. For as long as the Convertible Debenture or Warrants are outstanding, in the event that the Company issues or sells any Common Stock or Common Stock Equivalents with terms that the Purchaser then holding outstanding Convertible Debenture or Warrants reasonably believes are more favorable to such investors than are the terms of the Convertible Debenture or the Warrants (the “MFN Securities”), upon notice to the Company by the Purchaser within five (5) Trading Days after notice to the Purchaser by the Company of such issuance or sale, the Company will use commercially reasonable efforts to obtain the approval of the TSX Venture Exchange and any additional required regulatory approval to amend the terms of the Convertible Debenture or Warrants as required, as the case may be, of the Purchaser only so as to give the Purchaser the benefit of such more favorable terms or conditions. If the Company fails to obtain such regulatory approvals and the approval of the TSX Venture Exchange, then absent such approval the Company is forbidden to issue the MFN Securities. This Section 4.21 shall not apply with respect to an Exempt Issuance. The Company shall provide the Purchaser with notice of any such issuance or sale not later than ten (10) Trading Days before such issuance or sale.

 

4.22 Notice of Disqualification Events. The Company will notify the Purchaser in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person not otherwise disclosed herein or in the Public Reports.

 

4.23 Participation in Future Financing.

 

(a) From the date hereof until the date that the Convertible Debenture or Warrants are outstanding, upon any issuance by the Company or any of the Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

 

(b) At least ten (10) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to the Purchaser a written notice of its intention to effect a Subsequent Financing with terms (“Subsequent Financing Notice”). The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

(c) The Purchaser, if participating in such Subsequent Financing, must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the tenth (10^th) day after the Purchaser has received the Subsequent Financing Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and representing and warranting that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from the Purchaser as of such tenth (10^th) day, the Purchaser shall be deemed to have notified the Company that it does not elect to participate and the Company may thereafter complete such Subsequent Financing without any participation by the Purchaser.

 

(d) The Company and the Purchaser agree that if the Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby the Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of the Purchaser.

 

 

(e) Notwithstanding anything to the contrary in this Section 4.4.23 and unless otherwise agreed to by the Purchaser, the Company shall either confirm in writing to the Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that the Purchaser will not be in possession of any material, non-public information, by the tenth (10^th) Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10^th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by the Purchaser, such transaction shall be deemed to have been abandoned and the Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of the Subsidiaries.

 

4.24 Duration of Undertakings. Unless otherwise stated in this Article IV, all of the Company’s undertakings, obligations and responsibilities set forth in Article IV of this Agreement shall remain in effect for so long as any Securities remain outstanding.

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by either Party by written notice to the other Party, if the Closing has not been consummated on or before June 30, 2021; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party.

 

5.2 Fees and Expenses. At the Closing, the Company has agreed to pay G&M for the legal fees in connection with the Closing in the amount of U.S. $20,000. Except as expressly set forth in the Transaction Documents, each party shall be responsible for and pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall reimburse the Purchaser for all expenses incurred in connection with UCC, lien, judgment, tax and similar searches, if any, conducted in connection with the Offering. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by the Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: Western Magnesium Corp., Suite 900 - 580 Hornby Street, British Columbia, Canada V6C 3B6, Attn: Sam Ataya, Chief Executive Officer, email: [email protected], with a copy by email only to: Gowling WLG (Canada) LLP, Suite 2300, 550 Burrard Street, Vancouver, British Columbia, Canada V6C 2B5, Attn: Brett A. Kagetsu, email: [email protected], and (ii) if to the Purchaser, to: the address and email address indicated on the signature pages hereto, with an additional copy by email only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, email: [email protected].

 

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser, or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.6 Headings; Dollar Amounts. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. All dollar amounts are in US dollars, unless otherwise specified herein.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger). Following the Closing, the Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the Purchaser.

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

 

5.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.11 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.12 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may, at any time prior to the Company’s performance of such obligations, rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of the Convertible Debenture or exercise of a Warrant, the Purchaser shall be required to return any Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to the Purchaser of the aggregate Conversion Price or Exercise Price, as applicable, paid to the Company for such Underlying Shares, and the restoration of the Purchaser’s right to acquire such shares pursuant to the Convertible Debenture or Warrant, as applicable (including, issuance of a replacement Convertible Debenture Certificate or Warrant Certificate, respectively, evidencing such restored right).

 

5.13 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.14 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

 

5.15 Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.16 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by the Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under Applicable Law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the Closing Date thereof forward, unless such application is precluded by Applicable Law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Purchaser’s election.

 

5.17 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

5.18 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.19 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.20 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

5.21 Equitable Adjustment. Trading volume amounts, price/volume amounts, the amount of Warrants, the Conversion Price, Exercise Prices and similar figures in the Transaction Documents shall be equitably adjusted (but without duplication) to offset the effect of stock splits, similar events and as otherwise described in this Agreement, the Convertible Debenture and Warrants.

 

(Signature Pages Follow)

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

WESTERN MAGNESIUM CORP.

Address for Notice:   Suite 900 - 580 Hornby Street Vancouver, British Columbia Canada V6C 3B6 Attention: Sam Ataya Email: [email protected]

 

By:	/s/ Sam Ataya
Name:	Sam Ataya
Title:	President and Chief Executive Officer

 

With a copy to (which shall not constitute notice):   Gowling WLG (Canada) LLP Suite 2300, 550 Burrard Street Vancouver, British Columbia Canada V6C 2B5 Email: [email protected]   And to:   Anthony L.G., PLLC 625 N. Flagler Drive, Suite 600 West Palm Beach, FL USA 33401 Email: [email protected]

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

[PURCHASER SIGNATURE PAGE TO WESTERN MAGNESIUM CORP.

SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date indicated above.

 

Name of Purchaser: ALPHA CAPITAL ANSTALT

 

Signature of Authorized Signatory of Purchaser: [***]

 

Name of Authorized Signatory: [***]

 

Title of Authorized Signatory: Director

 

Email Address of Authorized Signatory: [***]

 

Telephone Number of Authorized Signatory: [***]

 

Residential or Head Office Address of the Purchaser:

 

[***]

 

Address for Notice to Purchaser:

 

[***]

 

Convertible Debenture principal amount:

US$1,500,000

 

 

SCHEDULE		TITLE
Exhibit A		Form of Convertible Debenture Certificate
Exhibit B		Form of Warrant Certificate
Exhibit C		Payment Instructions
Schedule A		Information Sheet
Appendix A to Schedule A		TSX Venture Exchange Form 4C – Corporate Placee Registration Form
Schedule B		Registration and Delivery Instructions
Schedule C		Outside of Canada Purchaser Certificate
Schedule D		Certification of U.S. Purchaser
Schedule E		TSX Venture Exchange Appendix 6B Acknowledgement – Personal Information
Schedule 3.1(a)		Subsidiaries
Schedule 3.1(g)		Capitalization
Schedule 3.1(i)		Material Changes; Undisclosed Events, Liabilities or Developments
Schedule 3.1(z)		Solvency
Schedule 3.1(ll)		Indebtedness and Seniority
Schedule 4.9		Use of Proceeds

 

 

Exhibit A
Form of Convertible Debenture Certificate

 

[attach]

 

 

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE OCTOBER 11, 2021.

 

WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL OCTOBER 11, 2021.

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: June 10, 2021

 

Principal Amount: $1,500,000

 

Original Conversion Price (subject to adjustment herein): $0.10

 

CONVERTIBLE DEBENTURE

DUE December 10, 2022

 

THIS CONVERTIBLE DEBENTURE (this “Debenture”) is issued Debenture by WESTERN MAGNESIUM CORPORATION, a corporation incorporated under the laws of the State of Delaware, (the “Borrower”), having its principal place of business at 580 Hornby Street, Suite 900, British Columbia, V6C 3B6, Canada (the “Debenture”).

 

FOR VALUE RECEIVED, Borrower promises to pay to ALPHA CAPITAL ANSTALT, or its registered assigns (the “Holder”), with an address at: [***], email: [***], or shall have paid pursuant to the terms hereunder, the principal sum of $1,500,000 on December 10, 2022, (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid or such later date if extended by the Holder as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof.

 

 

This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Applicable Law” shall mean any law, rule or regulation of any governmental authority or jurisdiction applicable to any party to this Agreement, as the case may be.

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) Borrower or any Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) Borrower or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) Borrower or any Subsidiary thereof makes a general assignment for the benefit of creditors, (f) Borrower or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) Borrower or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Change of Control Transaction” means, other than by means of conversion or exercise of this Debenture and the Securities issued together with this Debenture, the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in NI 45-106) of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of in excess of 50% of the voting securities of Borrower, (b) Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction, (c) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the Principal Amount and accrued interest on this Debenture in accordance with the terms hereof.

 

“GAAP” means United States generally accepted accounting principles.

 

“IFRS” means international reporting financial standards.

 

 

“Indebtedness” means (x) any liabilities for borrowed money, (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Borrower’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with IFRS and GAAP.

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded, (y) due, or (z) paid in full, whichever is highest, or (ii) 125% of the outstanding principal amount of this Debenture plus (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“Original Issue Date” means the date of the first issuance of this Debenture, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

 

“Permitted Indebtedness” means (a) any liabilities for borrowed money not in excess of $250,000 in the aggregate, (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto) not affecting more than $250,000 in the aggregate, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (c) the present value of any lease payments not in excess of $250,000 due under leases required to be capitalized in accordance with IFRS; (d) any industrial equipment leases up to an aggregate $500,000 and (e) indebtedness for the direct purposes of building a plant to produce magnesium metal.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have been established in accordance with IFRS, (b) Liens imposed by law which were incurred in the ordinary course of Borrower’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of Borrower and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, and (c) Liens in connection with Permitted Indebtedness under clauses (a), (b) and (e) thereunder, and Liens incurred in connection with Permitted Indebtedness under clauses (c) or (d) thereunder, provided that such Liens are not secured by assets of Borrower or its Subsidiaries other than the assets so acquired or leased.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of June 10, 2021 among Borrower and the original Holder, as amended, modified or supplemented from time to time in accordance with its terms.

 

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the TSX Venture Exchange, the NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any successors to any of the foregoing).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (Toronto time) to 4:02 p.m. (Toronto time)), (b) if any of the NASDAQ markets or exchanges is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to Borrower, the fees and expenses of which shall be paid by Borrower.

 

“Warrant Certificates” means a certificate for Class A Warrants and a certificate for Class B Warrants to be issued upon conversion of this Debenture.

 

Section 2. General.

 

a) Interest in Cash or in Kind. Holder shall be entitled to receive, and Borrower shall pay, cumulative interest on the outstanding principal amount of this Debenture at the annual rate of twelve percent (12%) (as subject to increase as set forth in this Debenture) from the Original Issue Date through the Maturity Date. Interest shall be payable on the Maturity Date or when all amounts outstanding in connection with this Debenture shall be paid or shall otherwise be due and payable.

 

b) Payment Grace Period. Other than as set forth herein, the Borrower shall not have any grace period to pay any monetary amounts due under this Debenture.

 

c) Conversion Privileges. The Conversion Rights set forth in Section 4 shall remain in full force and effect immediately from the date hereof and until the Debenture is paid in full regardless of the occurrence of an Event of Default. This Debenture shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Section 4 hereof.

 

d) Application of Payments. Interest, if any, on this Debenture shall be calculated on the basis of a 360-day year and the actual number of days elapsed. Payments made in connection with this Debenture shall be applied first to amounts due hereunder other than principal and interest, thereafter to interest and finally to principal.

 

 

e) Manner and Place of Payment. Principal and interest, if any, on this Debenture and other payments in connection with this Debenture shall be payable at the Holder’s offices as designated above in lawful money of the United States of America in immediately available funds without set-off, deduction or counterclaim. Upon assignment of the interest of Holder in this Debenture, Borrower shall instead make its payment pursuant to the assignee’s instructions upon receipt of written notice thereof. Except as set forth herein, this Debenture may not be prepaid or mandatorily converted without the consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations (with a minimum denomination of $1,000 and in multiples of $1,000), as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and Applicable Law.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to Borrower of this Debenture, Borrower and any agent of Borrower may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither Borrower nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture and, upon receipt of TSX Venture Exchange approval, accrued interest, shall be convertible, in whole or in part, into shares of Common Stock issued at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to Borrower a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. If TSX Venture Exchange approval is required in order to convert accrued interest into shares of Common Stock, then the Conversion Date shall be the date which is 3 Business Days from the date such TSX Venture Exchange approval has been provided. For clarity, the Holder may not specify a Conversion Date prior to the date that such Notice of Conversion would be deemed to have been delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to Borrower unless the entire principal amount of this Debenture has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and Borrower shall maintain records showing the principal amount(s) converted and the date of such conversion(s). Borrower may deliver an objection to any Notice of Conversion within two (2) Trading Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

 

b) Conversion Price. The conversion price for the principal in connection with voluntary conversions by the Holder shall be $0.10, subject to adjustment herein (the “Conversion Price”). The conversion price for accrued interest (the “Conversion Price for Accrued Interest”) shall be the greater of (i) $0.10 and (ii) the minimum conversion price permitted by the TSX Venture Exchange at the time of conversion (should the Borrower’s Common Stock then be listed on such exchange).

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount and Accrued Interest. The number of Conversion Shares issuable upon a conversion of all or part of the outstanding principal amount hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount as of the Conversion Date to be converted by (y) the Conversion Price. The number of Conversion Shares issuable upon a conversion of all or part of the accrued interest hereunder shall be determined by the quotient obtained by dividing (x) the outstanding accrued interest as of the Conversion Date to be converted by (y) the Conversion Price for Accrued Interest.

 

ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), Borrower shall deliver, or cause to be delivered, to the Holder (i) a certificate or certificates representing the Conversion Shares which, on or after the one year anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement and under any Applicable Law) and which shall represent the number of Conversion Shares being acquired upon the conversion of this Debenture; (ii) a Class A Warrant Certificate for fifty percent (50%) of the conversion shares being issued on such conversion; and (iii) a Class B Warrant Certificate for fifty percent (50%) of the conversion shares being issued on such conversion. On or after the one-year anniversary of the Original Issue Date, Borrower shall use its best efforts to deliver any certificate or certificates required to be delivered by Borrower under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. In the event the Borrower registers its common stock with the United States Securities and Exchange Commission (the “SEC”), the one-year period in this Section 4(c)(ii) shall be reduced to six months.

 

 

iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event Borrower shall promptly return to the Holder any original Debenture delivered to Borrower and the Holder shall promptly return to Borrower the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute. Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to Borrower or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by Borrower of any such action Borrower may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, Borrower may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and Borrower posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, Borrower shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If Borrower fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages being to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof for Borrower’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder or Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then Borrower shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if Borrower had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, Borrower shall be required to pay the Holder $1,000. The Holder shall provide Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of Borrower, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi. Reservation of Shares Issuable Upon Conversion. Borrower covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture on such principal amount. Borrower covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

 

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, Borrower shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or Conversion Price for Accrued Interest, as applicable, or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, Borrower shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and Borrower shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower that such tax has been paid. Borrower shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

 

d) Holder’s Conversion Limitations. Borrower shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with the rules and policies of the TSX Venture Exchange. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to Borrower each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and Borrower shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with the rules of the TSX Venture Exchange. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) Borrower’s most recent periodic or annual report filed with the TSX Venture Exchange, as the case may be, (ii) a more recent public announcement by Borrower, or (iii) a more recent written notice by Borrower or Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, Borrower shall within three Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of Borrower, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to Borrower, may increase the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase will not be effective until the 61^st day after such notice is delivered to Borrower. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

 

Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If Borrower, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of the Debenture), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of Borrower) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time Borrower grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

c) Pro Rata Distributions. During such time as this Debenture is outstanding, if Borrower shall declare or make any dividend whether or not permitted, or makes any other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

 

d) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) Borrower, directly or indirectly, in one or more related transactions effects any merger or consolidation of Borrower with or into another Person, (ii) Borrower, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) Borrower, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) Borrower, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of Borrower, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. Borrower shall cause any successor entity in a Fundamental Transaction in which Borrower is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of Borrower under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to or contemporaneously with such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to or contemporaneously with the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of Borrower and shall assume all of the obligations of Borrower under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as Borrower herein. Alternatively, the Holder may demand the Company to redeem its Debenture at a rate equal to 125% of the principal and interest due thereon, to be paid in full contemporaneously with consummation of the Fundamental Transaction.

 

 

e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued and outstanding.

 

f) Notice to Allow Conversion by Holder. If (A) Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale or transfer of all or substantially all of the assets of Borrower, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding Borrower or any of the Subsidiaries, Borrower shall simultaneously make public disclosure of such notice in accordance with applicable securities laws. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

Section 6. Negative Covenants. As long as any principal amount of this Debenture remains outstanding, unless the Holder shall have otherwise given prior written consent, Borrower shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially adversely affects any rights of the Holder (notwithstanding the foregoing, the Holder acknowledges and agrees that the Borrower shall be entitled to proceed with the amendments to the charter documents as shall be set out in the Borrower’s proxy materials for its shareholder meeting to be held in 2021 as publicly disclosed no less than five Trading Days before the issue date of this Note);

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents;

 

e) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than the Debentures if on a pro-rata basis), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness, in any case unless such Indebtedness or interest is due and payable in accordance with the initial terms of such debt prior to any default thereunder;

 

f) declare or make any dividend or other distribution of its assets or rights to acquire its assets to holders of shares of Common Stock, preferred stock, or any other equity security by way of return of capital or otherwise including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction;

 

g) sell or offer to sell any securities with non-fixed or floating price features, issue any Common Stock or Common Stock Equivalents at a price lower than the conversion price herein then in effect, or issue any equity or debt instruments with anti-dilution provisions; or

 

h) enter into any agreement with respect to any of the foregoing.

 

 

Section 7. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal or interest, if any, amount of this Debenture or (B) liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under clause (B) above, is not cured within five Trading Days after Borrower has become or should have become aware of such default;

 

ii. Borrower shall fail to observe or perform any other covenant or agreement contained in this Debenture (other than a breach by Borrower of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (viii) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder to Borrower and (B) 10 Trading Days after Borrower has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which Borrower or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. Borrower or any Subsidiary shall be subject to a Bankruptcy Event;

 

vi. Borrower or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

 

vii. Borrower shall have completed any Change of Control Transaction or Fundamental Transaction without giving Holder at least ten Trading Days prior written notice;

 

viii. Upon the earlier of the Borrower registering its common stock with the SEC or one year from the Issue Date, the Borrower does not meet the current public information requirements under Rule 144;

 

ix. Borrower shall fail for any reason to deliver certificates to a Holder prior to the third Trading Day after a Conversion Date pursuant to Section 4(c) or Borrower shall provide at any time notice to the Holder, including by way of public announcement, of Borrower’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

 

x. any judgment or order is rendered against Borrower, any subsidiary or any of their respective property or other assets for the payment of money in excess of $150,000, and such judgment or order shall remain unvacated, unbonded or unstayed for a period of 60 calendar days;

 

xi. other than as a result of a Fundamental Transaction, any dissolution, liquidation or winding up by Borrower or a material Subsidiary of a substantial portion of their business;

 

xii. other than as a result of a Fundamental Transaction, cessation of operations by Borrower or a material Subsidiary;

 

xiii. an event resulting in the Common Stock no longer being listed or quoted on a Trading Market, or notification from a Trading Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for twenty (20) days following such notification;

 

xiv. the SEC, TSX Venture Exchange, Canadian Securities Commission or judicial stop trade order or suspension from the Borrower’s Principal Trading Market or the OTCQB, which remains in effect for no more than five (5) consecutive Trading Days or twenty (20) days in any calendar year;

 

xv. the Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to the Holder;

 

xvi. a failure by Borrower to notify Holder of any material event of which Borrower is obligated to notify Holder pursuant to the terms of this Debenture or any other Transaction Document;

 

xvii. a default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of an event of default under any such other agreement to which Borrower and Holder are parties which is not cured after any required notice and/or cure period;

 

 

xviii. any material provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the Borrower, or the validity or enforceability thereof shall be contested by Borrower, or a proceeding shall be commenced by Borrower or any governmental authority having jurisdiction over Borrower or Holder, seeking to establish the invalidity or unenforceability thereof, or Borrower shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document;

 

xix. the failure by Borrower or any material Subsidiary to maintain any material intellectual property rights, personal, real property, equipment, leases or other assets which are necessary to conduct its business (whether now or in the future) and such breach is not cured with twenty (20) days after written notice to the Borrower from the Holder;

 

xx. the restatement after the date hereof of any financial statements filed by the Borrower under any Applicable Law for any date or period from two years prior to the Original Issue Date and until this Debenture is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statements, have constituted a Material Adverse Effect. For the avoidance of doubt, any restatement related to new accounting pronouncements shall not constitute a default under this Section; or

 

xxi. the occurrence of an Event of Default as defined in and under any other debt instrument issued by Borrower to Holder or any Other Holder.

 

b) Remedies Upon Event of Default, Fundamental Transaction and Change of Control Transaction. If any Event of Default or a Fundamental Transaction or a Change of Control Transaction occurs, the outstanding principal amount of this Debenture, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Additionally, upon an Event of Default, the Exercise Price of the Warrants shall be reduced to $0.10 per share of Common Stock and the Borrower shall not file any registration statement unless all the Holder’s Underlying Shares have been previously registered for resale with the SEC. Commencing on the Maturity Date and also five (5) Trading Days after the occurrence of any Event of Default interest on this Debenture shall accrue at an interest rate equal to the lesser of 20% per annum or the maximum rate permitted under Applicable Law until paid. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by Borrower. In connection with such acceleration described herein, the Holder need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under Applicable Law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 7(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

 

Section 8. Prepayment. Provided an Event of Default has not occurred, upon 20 days’ prior written notice received by the Holder, the Borrower may prepay and satisfy this Debenture by paying 125% of the amounts owed on this Debenture, including all principal, interest and other fees. Provided however, during the 20-day period after receipt of the notice the Holder may convert all or a portion of this Debenture.

 

Section 9. Miscellaneous.

 

a) Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Trading Day during normal business hours where such notice is to be received), or the first Trading Day following such delivery (if delivered other than on a Trading Day during normal business hours where such notice is to be received) or (b) on the second Trading Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to Borrower, to: Western Magnesium Corporation, 580 Hornby Street, Suite 900, British Columbia, V6C 3B6, Canada, Attn: Sam Ataya, Chief Executive Officer, email: [email protected], with a copy by email only to: Gowling WLG (Canada) LLP, Attention: Brett Kagetsu, email: [email protected], and (ii) if to the Holder, to: the address and email address indicated on the front page of this Debenture, with an additional copy by email only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, email: [email protected].

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of Borrower. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein pursuant to the Purchase Agreement.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to Borrower, including an indemnity and surety in amount and form satisfactory to the Borrower in its sole discretion.

 

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by Applicable Law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by Applicable Law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding. This Debenture shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Debenture, whether or not such other document or agreement was delivered together herewith or was executed apart from this Debenture.

 

e) Waiver. Any waiver by Borrower or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of Borrower or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by Borrower or the Holder must be in writing.

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

 

 

g) Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the Applicable Law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under Applicable Law. Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive Borrower from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

h) Next Trading Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Trading Day, such payment shall be made on the next succeeding Trading Day.

 

i) Headings; Dollar Amounts. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof. Unless otherwise specified herein, all dollar amounts are in US$.

 

j) Amendment. Unless otherwise provided for hereunder, this Debenture may not be modified or amended or the provisions hereof waived without the written consent of Borrower and the Holder.

 

k) Facsimile Signature. In the event that the Borrower’s signature is delivered by facsimile transmission, PDF, electronic signature or other similar electronic means, such signature shall create a valid and binding obligation of the Borrower with the same force and effect as if such signature page were an original thereof.

 

*********************

 

(Signature Pages Follow)

 

 

IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its name by an authorized officer as of the 10^th day of June, 2021.

 

CORPORATION		WESTERN MAGNESIUM CORPORATION
		By:
		Name:
		Title:
WITNESS:

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Convertible Debenture Due December 10, 2022 of Western Magnesium Corporation, a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of Borrower according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by Borrower in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to Borrower that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the Applicable Law in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

 

	Date to Effect Conversion: ____________________________
	Principal Amount of Debenture to be Converted: $__________________
	Applicable Conversion Price: $__________________   Interest Amount to be Converted: $_________________________   Applicable Conversion Price for Accrued Interest: $___________________________   Number of shares of Common Stock to be issued: ______________
	Signature: _________________________________________
	Name: ____________________________________________
	Address for Delivery of Common Stock Certificates: __________
	_____________________________________________________
	_____________________________________________________
	Or
	DWAC Instructions: _________________________________
	Broker No:_____________
	Account No: _______________

 

 

Exhibit B
Form of Warrant Certificate

 

[attach]

 

 

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE OCTOBER 11, 2021.

 

“WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY OR UNDERLYING THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL OCTOBER 11, 2021.

 

THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF A U.S. PERSON OR PERSON IN THE UNITED STATES UNLESS THIS WARRANT AND SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE SECURITIES ACT.

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

CLASS [A/B] COMMON STOCK PURCHASE WARRANT

 

WESTERN MAGNESIUM Corporation

 

Warrant Shares: ●	Issuance Date: ●, 2021
Warrant No: 2021-[A/B]	Termination Date: June 10, 2026

 

THIS CLASS [A/B] COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received [REQUIRES COMPLETION] (the “Holder”), with an address at: [REQUIRES COMPLETION], email: [REQUIRES COMPLETION],, or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on June 10, 2026 (the “Termination Date”) but not thereafter, to subscribe for and purchase from WESTERN MAGNESIUM CORPORATION, a corporation incorporated under the laws of Delaware (the “Company”), up to _________ shares of Common Stock (as subject to adjustment hereunder, the “Warrant Shares”).

 

 

These Warrants are issued subject to the terms and conditions appended hereto as Schedule “A”.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

	WESTERN MAGNESIUM Corporation
	By:
	Name:
	Title:

 

 

SCHEDULE A

 

WARRANT TERMS

 

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated June 10, 2021, among the Company and the Holder and the Convertible Debenture issued to the Holder contemporaneously with Purchase Agreement.

 

Section 2. Exercise.

 

a) Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within five (5) Trading Days (which for the purposes of this Warrant a “Trading Day” means, with respect to the TSX Venture Exchange (“TSXV”), a day on which the TSXV is open for the transaction of business and with respect to another exchange or an over-the-counter market means a day on which such exchange or market is open for the transaction of business) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or certified cheque, bank draft or money order in lawful money of Canada payable to or to the order of the Corporation unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within five (5) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within two (2) Trading Days of delivery of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price. The initial exercise price per Warrant Share shall be $0.[13/19], subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If as of the date of the delivery of a Notice of Exercise Form: (i) there is no effective registration statement (“Registration Statement”) under the Securities Act registering, or no current prospectus available for the resale of the Warrant Shares by the Holder; and (2) the VWAP (as defined below) of one share of Common Stock is greater than the Exercise Price in effect at such time, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

 

	(A) =	the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;
	(B) =	the Exercise Price of this Warrant, as adjusted hereunder; and
	(X) =	the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

Notwithstanding anything herein to the contrary, on the Termination Date, unless the Holder notifies the Company otherwise, if there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the principal Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. to 4:02 p.m., (b) if any of the NASDAQ markets or exchanges is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

d) Mechanics of Exercise.

 

i. Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise and Rule 144 under the Securities Act (“Rule 144”) is available, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Warrant Shares upon exercise of this Warrant the proportionate amount of $10 per Trading Day (increasing to $20 per Trading Day after the fifth (5^th) Trading Day) after the Warrant Share Delivery Date for each $1,000 of Exercise Price of Warrant Shares for which this Warrant is exercised which are not timely delivered. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

 

 

ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right, at any time prior to issuance of such Warrant Shares, to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.

 

vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

 

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Applicable Securities Laws, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Applicable Securities Laws and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Applicable Securities Laws. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent interim or annual financial statements filed with the British Columbia Securities Commission, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within three (3) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any such increase will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant or pursuant to any of the other Transaction Documents), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

 

b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

c) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(c)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Stock (not including any Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Common Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to or contemporaneously with such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Notwithstanding anything to the contrary contained herein, the Company shall not enter into a Fundamental Transaction unless the holders of Common Stock receive securities of an entity that is listed on a stock exchange in Canada or the United States, or cash, equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).

 

 

e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

f) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the shares of Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the shares of Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the shares of Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the shares of Common Stock is converted into other securities, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, to the extent that such information constitutes material non-public information (as determined in good faith by the Company) the Company shall follow the procedure described in Section 13 of the Subscription Agreement and shall deliver to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the shares of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the shares of Common Stock of record shall be entitled to exchange their shares of the shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the with the TSXV. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

g) Increase in Warrant Shares. In the event the Exercise Price is reduced for any reason, the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment.

 

Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the provisions of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

Section 5.Miscellaneous.

 

a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.

 

d) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, or unless exercised in a cashless exercise when Rule 144 is available, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by Applicable Securities Laws.

 

g) Non-waiver and Expenses; Dollar Amounts. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. Unless otherwise stated herein, all dollar amounts are in US$.

 

 

h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders of not less than a majority of the outstanding Warrants issued pursuant to the Purchase Agreement.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

 

NOTICE OF EXERCISE

 

TO:	WESTERN MAGNESIUM Corporation

 

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

[  ] in lawful money of the United States of America; or

 

[  ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

(4) After giving effect to this Notice of Exercise, the undersigned will not have exceeded the Beneficial Ownership Limitation.

 

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

_______________________________

 

_______________________________

 

_______________________________

 

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ______________________________________________________________________

 

Signature of Authorized Signatory of Investing Entity: ________________________________________________

 

Name of Authorized Signatory: __________________________________________________________________

 

Title of Authorized Signatory: ___________________________________________________________________

 

Date: ______________________________________________________________________________________

 

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)

 

WESTERN MAGNESIUM Corporation

 

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

Dated: ______________, _______

 

	Holder’s Signature:	_____________________________
	Holder’s Address:	_____________________________
		_____________________________

 

Signature Guaranteed: ___________________________________________

 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

 

TRANSFEREE ACKNOWLEDGMENT

 

In connection with this transfer (check one):

 

[  ]	The undersigned transferee hereby certifies that (i) it was not offered the Warrant while in the United States and did not execute this certificate while within the United States; (ii) it is not acquiring the Warrant represented by this Warrant Certificate by or on behalf of any person within the United States; and (iii) it has in all other respects complied with the terms of Regulation S of United States Securities Act of 1933, as amended (the “1933 Act”), or any successor rule or regulation of the United States Securities and Exchange Commission as presently in effect.
[  ]	The undersigned transferee is relying on an exemption from the registration requirements under the 1933 Act by virtue of being an “accredited investor” as defined in Rule 501(a) under the 1933 Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and without limiting the foregoing but for greater clarity, which satisfies the conditions of the U.S. Accredited Investor Certificate, a completed and duly executed copy of which is being delivered by the transferee to the Company;
[  ]	If requested by the Company, the undersigned transferee is delivering a written opinion of U.S. Counsel acceptable to the Company to the effect that this transfer of the Warrant has been registered under the 1933 Act or is exempt from registration thereunder.

 

(Signature of Transferee)

 

Date		Name of Transferee (please print)

 

The Warrant and the common shares issuable upon exercise of the Warrant shall only be transferable in accordance with applicable laws. The Warrant may only be exercised in the manner required by the certificate representing the Warrant and the Notice of Exercise Form attached thereto. Any common shares acquired pursuant to this Warrant shall be subject to applicable hold periods and any certificate representing such common shares will bear restrictive legends.

 

 

Exhibit C
Payment Instructions

 

The Purchaser will make payment arrangements for the Subscription Amount in a certified cheque, bank draft or wire transfer or other acceptable form of payment to the Company for the total aggregate Subscription Amount of the Convertible Debenture subscribed for, payable to “Western Magnesium Corporation” or such other person as the Company may advise the Purchaser. If you are sending a certified cheque or bank draft, please make the same payable to the Company and deliver to:

 

Western Magnesium Corporation
Suite 900 - 580 Hornby Street,
Vancouver, British Columbia
Canada V6C 3B6
Attention: Lisa Maxwell
T: 604 839-7985
E: [email protected]

 

If you are sending such funds by wire transfer, please note the following wire transfer instructions:

 

WIRE TRANSFER INSTRUCTIONS
Account in the name of:	Western Magnesium Corporation
Bank Name:	Bank of America, N.A., NY
Bank Address:	New York, United States
Bank Telephone:	1-888-852-5000
US Dollar Account Number:	1381-1045-1770
Transit Number:	N/A
Financial Institution Number:	N/A
Swift Code:	BOFAUS3N
ABA Routing:	026009593

 

 

SCHEDULE A

 

INFORMATION SHEET

 

Information to be completed by the Purchaser:

 

A.	Registration Form
The Purchaser, if not an individual, either [check appropriate box]:
[  ]	has previously filed with the TSX Venture Exchange a Form 4C, Corporate Placee Registration Form, represents and warrants that there has been no change to any of the information in the Corporate Placee Registration Form previously filed with the TSX Venture Exchange up to the date hereof; or
[  ]	hereby delivers a completed Form 4C, Corporate Placee Registration Form, in the form attached as Appendix A to this Schedule B to the Company for filing with the Exchange.
B.	Present Ownership of Securities
The Purchaser either [check appropriate box]:
[  ]	does not own, directly or indirectly, or exercise control or direction over, any Common Stock of the Company or securities convertible into Common Stock of the Company; or
[  ]	owns, directly or indirectly, or exercises control or direction over, ____________ outstanding common shares of the Company and convertible securities entitling the Purchaser to acquire additional common shares of the Company which, if converted, in the aggregate would represent ______________ common shares of the Company.
C.	Insider Status
The Purchaser either [check appropriate box]:
[  ]	is an “Insider” of the Company as defined in the policies of the Exchange:
	(a) a director or senior officer of the Company (or a subsidiary of the Company);
	(b) any Person who beneficially owns, directly or indirectly, voting securities of the Company or who exercises control or direction over voting securities of the Company or a combination of both carrying more than 10% of the voting rights attached to all voting securities of the Company for the time being outstanding, or
	(c) a director or senior officer of an Insider of the Company.
[  ]	is not an Insider of the Company.
D.	Member of “Pro Group”
The Purchaser either [check appropriate box]:
[  ]	is a Member of the “Pro Group” as defined in the Corporate Finance Manual of the Stock Exchange, as follows:
	(a)	subject to subparagraphs (b), (c) and (d), either individually or as a group:
		(i)	a “Member” (defined in Rule A.1.00 of the Rules and Trading Policies of the TSX Venture Exchange as a Company or individual (a “Person”) who has executed the Members’ Agreement, as amended from time to time, and is accepted as and becomes a member of the TSX Venture Exchange under the Exchange Requirements);
		(ii)	employees of the Member;
		(iii)	partners, officers or directors of the Member;
		(iv)	Affiliates of the Member; and
		(v)	Associates of any parties referred to in subparagraphs (i) through (iv);
	(b)	the TSX Venture Exchange may, in its discretion, include a Person or party in the Pro Group for the purposes of a particular calculation where the TSX Venture Exchange determines that the Person is not acting at arm’s length to the Member;
	(c)	the TSX Venture Exchange may, in its discretion, exclude a Person from the Pro Group for the purposes of a particular calculation where the TSX Venture Exchange determines that the person is acting at arm’s length of the Member;
	(d)	the TSX Venture Exchange may deem a person who would otherwise be included in the Pro Group pursuant to subparagraph (a) to be excluded from the Pro Group where the TSX Venture Exchange determines that:
		(i)	the Person is an affiliate or associate of the member acting at arm’s length of the Member;
		(ii)	the associate or affiliate has a separate corporate and reporting structure;
		(iii)	there are sufficient controls on information flowing between the Member and the associate or affiliate; and
		(iv)	the Member maintains a list of such excluded persons; or
[  ]	is not a member of the Pro Group.
E.	Registrant

The Purchaser either [check appropriate box]:
[  ]	is a “registrant” as such term is defined in the Securities Act (British Columbia); or
[  ]	is not a “registrant”.

 

 

APPENDIX A TO SCHEDULE A

 

 

FORM 4C

CORPORATE PLACEE REGISTRATION FORM

 

This Form will remain on file with the Exchange and must be completed if required under section 4(b) of Part II of Form 4B. The corporation, trust, portfolio manager or other entity (the “Placee”) need only file it on one time basis, and it will be referenced for all subsequent Private Placements in which it participates. If any of the information provided in this Form changes, the Placee must notify the Exchange prior to participating in further placements with Exchange listed Issuers. If as a result of the Private Placement, the Placee becomes an Insider of the Issuer, Insiders of the Placee are reminded that they must file a Personal Information Form (2A) or, if applicable, Declarations, with the Exchange.

 

1.	Placee Information:

 

(a)

Name: __________________________________________________________________________

 

(b)

Complete Address: ________________________________________________________________

 

(c)

Jurisdiction of Incorporation or Creation: _______________________________________________

 

2.

(a)

Is the Placee purchasing securities as a portfolio manager: (Yes/No)? __________________________

 

(b)

Is the Placee carrying on business as a portfolio manager outside of Canada: (Yes/No)? __________

 

3.	If the answer to 2(b) above was “Yes”, the undersigned certifies that:

 

(a)

it is purchasing securities of an Issuer on behalf of managed accounts for which it is making the investment decision to purchase the securities and has full discretion to purchase or sell securities for such accounts without requiring the client’s express consent to a transaction;

 

(b)

it carries on the business of managing the investment portfolios of clients through discretionary authority granted by those clients (a “portfolio manager” business) in ____________________ [jurisdiction], and it is permitted by law to carry on a portfolio manager business in that jurisdiction;

 

(c)

it was not created solely or primarily for the purpose of purchasing securities of the Issuer;

 

(d)

the total asset value of the investment portfolios it manages on behalf of clients is not less than CAD$20,000,000; and

 

(e)

it has no reasonable grounds to believe, that any of the directors, senior officers and other insiders of the Issuer, and the persons that carry on investor relations activities for the Issuer has a beneficial interest in any of the managed accounts for which it is purchasing.

 

 

Appendix A to Schedule A

 

4.	If the answer to 2(a). above was “No”, please provide the names and addresses of Control Persons of the Placee:

 

Name *		City		Province or State		Country

 

* If the Control Person is not an individual, provide the name of the individual that makes the investment decisions on behalf of the Control Person.

 

5.	Acknowledgement - Personal Information and Securities Laws

 

(a)

“Personal Information” means any information about an identifiable individual, and includes information contained in sections 1, 2 and 4, as applicable, of this Form.

 

The undersigned hereby acknowledges and agrees that it has obtained the express written consent of each individual to:

 

(i)

the disclosure of Personal Information by the undersigned to the Exchange (as defined in Appendix 6B) pursuant to this Form; and

 

(ii)

the collection, use and disclosure of Personal Information by the Exchange for the purposes described in Appendix 6B or as otherwise identified by the Exchange, from time to time.

 

(b)

The undersigned acknowledges that it is bound by the provisions of applicable Securities Law, including provisions concerning the filing of insider reports and reports of acquisitions.

 

Dated and certified (if applicable), acknowledged and agreed, at ________________________on ________________________

 

	(Name of Purchaser - please print)
	(Authorized Signature)
	(Official Capacity - please print)
	(Please print name of individual whose signature
	appears above)

 

THIS IS NOT A PUBLIC DOCUMENT

 

 

SCHEDULE B

 

REGISTRATION AND DELIVERY INSTRUCTIONS

 

Account Registration Information:    __________________________________________ (Name)    __________________________________________ (Account Reference, if applicable)   __________________________________________ (Address, including Postal Code)   __________________________________________

__________________________________________   __________________________________________   Delivery Instructions:   __________________________________________ (Name)    __________________________________________ (Account Reference, if applicable)   __________________________________________ (Address, including Postal Code)   __________________________________________    __________________________________________ (Telephone Number)   __________________________________________ (Contact Name)

 

 

SCHEDULE C

 

OUTSIDE OF CANADA PURCHASER CERTIFICATE
(Purchaser Resident in a Jurisdiction Outside of Canada)

 

TO:	Western Magnesium Corporation (the “Company”)

 

RE:	Private Placement (the “Offering”) of Convertible Debenture of the Company (the “Purchased Securities”)

 

The undersigned Purchaser represents, covenants and certifies to you that:

 

1.	the Purchaser (and if acting as agent for a disclosed principal, such disclosed principal) is not a resident of Canada or subject to applicable Canadian securities laws and the decision to purchase the Purchased Securities was taken in the Purchaser’s jurisdiction of residence;

 

2.

the issuance of Purchased Securities to the Purchaser (or its disclosed principal, if any) may be effected by the Company without the necessity of the filing of a registration statement, prospectus or any document with or obtaining any approval from or effecting any registration with any governmental entity or similar regulatory authority having jurisdiction over the Purchaser (or its disclosed principal, if any) and will not cause the Company to become subject to, or require it to comply with, any disclosure (including continuous disclosure reporting obligations), prospectus, filing or reporting requirements under any applicable laws of the Purchaser’s jurisdiction of residence;

 

3.

the Purchaser (and if acting as agent for a disclosed principal, such disclosed principal) is knowledgeable of, or has been independently advised as to, the application or jurisdiction of the securities laws of the Purchaser’s jurisdiction of residence which would apply to the purchase of the Purchased Securities;

 

4.

the Purchaser (and if acting as agent for a disclosed principal, such disclosed principal), is purchasing the Purchased Securities pursuant to exemptions from the prospectus and registration requirements (or their equivalent) under the applicable Securities Laws of the Purchaser’s jurisdiction of residence or, if such is not applicable, each is permitted to purchase the Purchased Securities under the applicable securities laws of the Purchaser’s jurisdiction of residence without the need to rely on an exemption;

 

5.

the Purchaser (and if acting as agent for a disclosed principal, such disclosed principal), will not sell, transfer or dispose of the Purchased Securities except in accordance with all applicable laws, including applicable securities laws of Canada and the United States, as applicable, and the Purchaser acknowledges that the Company shall have no obligation to register any such purported sale, transfer or disposition which violates applicable securities laws;

 

6.	the issuance of the Purchased Securities, and the Purchaser (and if the Purchaser is acting as agent for a disclosed principal, such disclosed principal) complies with the requirements of all applicable laws in the jurisdiction of its residence; and

 

7.

the Purchaser will provide such evidence of compliance with all such matters as the Company, or its counsel may request, including a certificate or opinion of local counsel from the Purchaser’s jurisdiction of residence which will confirm the matters in subsections 1 to 4 to the satisfaction of the Company, acting reasonably.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

SCHEDULE C - OUTSIDE OF CANADA

PURCHASER CERTIFICATE

 

The Purchaser acknowledges and agrees that the above representations and warranties will be true and correct both as of the execution of this certificate and as of the Closing of the purchase and sale of the Purchased Securities and that such representations and warranties will survive the completion of the purchase of the Purchased Securities. If any such representations shall not be true and accurate prior to the Closing Date, the undersigned shall give immediate written notice of such fact to the Company prior to the Closing Date.

 

Dated:  _________________________, 2021	Signed: ________________________________
_________________________________ Witness (If Purchaser is an Individual)	__________________________________________ Print the name of Purchaser

 

_________________________________ Print Name of Witness

__________________________________________ If Purchaser is not an Individual, print name and title of Authorized Signing Officer

 

 

SCHEDULE D

 

CERTIFICATION OF U.S. PURCHASER

 

TO:	WESTERN MAGNESIUM CORP. (the “Issuer”)

 

RE:	SUBSCRIPTION FOR SECURITIES OF THE ISSUER

 

Capitalized terms not specifically defined in this certification have the meaning ascribed to them in the Securities Purchase Agreement to which this Schedule D is attached. In the event of a conflict between the terms of this certification and such Securities Purchase Agreement, the terms of this certification shall prevail.

 

In addition to the covenants, representations and warranties contained in the Securities Purchase Agreement to which this Schedule E is attached, the undersigned Purchaser covenants, represents and warrants to the Issuer that:

 

(a)	It is (i) a U.S. Person or a person in the United States and (ii) authorized to consummate the purchase of the Purchased Securities.

 

(b)

The Issuer has provided to it the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and it has had access to such information concerning the Issuer as it has considered necessary or appropriate in connection with its investment decision to acquire the Purchased Securities, including access to the Issuer’s public filings available on the Internet at www.sedar.com, and that any answers to questions and any request for information have been complied with to the Purchaser’s satisfaction.

 

(c)

It is purchasing the Purchased Securities for its own account or for the account or benefit of one or more persons for whom it is exercising sole investment discretion (a “Beneficial Purchaser”), for investment purposes only and not with a view to resale or distribution and, in particular, neither it nor any Beneficial Purchaser for whose account it is purchasing the Purchased Securities has any intention to distribute either directly or indirectly any of the Securities in the United States or to U.S. Persons; provided, however, that this paragraph shall not restrict the Purchaser from selling or otherwise disposing of any of the Securities pursuant to registration thereof pursuant to the Securities Act and any applicable state securities laws or under an exemption from such registration requirements.

 

(d)

The address of the Purchaser set out on the execution pages of the Securities Purchase Agreement is the true and correct principal address of the Purchaser and can be relied on by the Issuer for the purposes of state blue-sky laws and the Purchaser has not been formed for the specific purpose of purchasing the Securities.

 

(e)

It understands (i) the Securities and any Warrant Shares issuable upon exercise of the Warrants have not been and will not be registered under the Securities Act or the securities laws of any state of the United States and will be “restricted securities”, as defined in Rule 144 under the Securities Act; (ii) the sale contemplated hereby is being made in reliance on an exemption from such registration requirements in reliance upon Rule 506(b) of Regulation D and/or section 4(a)(2) under the Securities Act; and (iii) subject to certain exceptions provided under the Securities Act, the Purchased Securities and the Warrant Shares may not be transferred or exercised in the United States or by or on behalf of a U.S. Person unless such Securities or the Warrant Shares, as applicable, are registered under the Securities Act and applicable state securities laws, or unless an exemption from such registration requirements is available.

 

(f)

it, and, if applicable, each Beneficial Purchaser for whose account it is purchasing the Securities, is an accredited investor as defined in Rule 501(a) of Regulation D under the Securities Act and satisfies one or more of the categories of an accredited investor, as indicated below (the Purchaser must initial “SUB” for the Purchaser, and “BP” for each Beneficial Purchaser, if any, on the appropriate line(s)):

 

 

SCHEDULE D - CERTIFICATION

OF U.S. PURCHASER

 

	1. Initials _______	A bank, as defined in Section 3(a)(2) of the Securities Act, whether acting in its individual or fiduciary capacity; or
	2. Initials _______	A savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; or
	3. Initials _______	A broker or dealer registered pursuant to Section 15 of the United States Securities Exchange Act of 1934; or
	4. Initials _______	An insurance company as defined in Section 2(13) of the Securities Act; or
	5. Initials _______	An investment company registered under the United States Investment Company Act of 1940; or
	6. Initials _______	A business development company as defined in Section 2(a)(48) of the United States Investment Company Act of 1940; or
	7. Initials _______	A small business investment company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the United States Small Business Investment Act of 1958; or
	8. Initials _______	A plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of US$5,000,000; or
	9. Initials _______	An employee benefit plan within the meaning of the United States Employee Retirement Income Security Act of 1974 in which the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or an employee benefit plan with total assets in excess of US$5,000,000 or, if a self-directed plan, with investment decisions made solely by persons who are Accredited Investors; or
	10. Initials _______	A private business development company as defined in Section 202(a)(22) of the United States Investment Advisers Act of 1940; or
	11. Initials _______	An organization described in Section 501(c)(3) of the United States Internal Revenue Code, a Company, a Massachusetts or similar business trust, or a partnership, not formed for the specific purpose of acquiring the Securities offered, with total assets in excess of US$5,000,000; or
	12. Initials _______	Any director or executive officer of the Issuer; or
	13. Initials _______	A natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of this purchase exceeds US$1,000,000; provided, however, that (i) person’s primary residence shall not be included as an asset; (ii) indebtedness that is secured by the person’s primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of the sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and (iii) indebtedness that is secured by the person’s primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability; or

 

 

SCHEDULE D - CERTIFICATION

OF U.S. PURCHASER

 

	14. Initials _______	A natural person who had an individual income in excess of US$200,000 in each of the two most recent years or joint income with that person’s spouse in excess of US$300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or
	15. Initials _______	A trust, with total assets in excess of US$5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Securities Act; or
	16. Initials _______	Any entity in which all of the equity owners meet the requirements of at least one of the above categories.

 

(g)

The Purchaser has not purchased the Purchased Securities as a result of any form of general solicitation or general advertising (as those terms are used in Rule 502(c) of Regulation D under the Securities Act), including advertisements, articles, notices or other communications published in any newspaper, magazine, the internet or similar media or broadcast over radio or television or the internet, or other form of telecommunications, including electronic display, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.

 

(h)	If the Purchaser decides to offer, sell or otherwise transfer any of the Purchased Securities or the Warrant Shares, it will not offer, sell or otherwise transfer any of such Securities directly or indirectly, unless:

 

	(i)	the sale is to the Issuer;
	(ii)	the sale is made outside the United States in a transaction meeting the requirements of Rule 904 of Regulation S under the Securities Act and in compliance with applicable local laws and regulations;

 

(iii)

if the sale is made in Canada, such sale occurs on or after such date which falls four (4) months from the Closing Date;

 

(iv)

the sale is made pursuant to the exemption from the registration requirements under the Securities Act provided by (a) Rule 144 or (b) Rule 144A thereunder, if available, and in accordance with any applicable state securities or “blue sky” laws; or

 

(v)

the securities are sold in a transaction that does not require registration under the Securities Act or any applicable state laws and regulations governing the offer and sale of securities,

 

and, in the case of each of (iv)(a) and (v) it has prior to such sale furnished to the Issuer an opinion of counsel reasonably satisfactory to the Issuer stating that such transaction is exempt from registration under applicable securities laws and that the legends referred to in paragraph (j) below may be removed.

 

(i)

It acknowledges that it has not purchased the Purchased Securities as a result of, and will not itself engage in, any “directed selling efforts” (as defined in Rule 902(c) of Regulation S under the Securities Act) in the United States in respect of the Purchased Securities which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of the Purchased Securities or the Warrant Shares.

 

(j)

The certificates representing the Purchased Securities issued hereunder and any Warrant Shares issued upon exercise of the Warrants, as well as all certificates issued in exchange for or in substitution of the foregoing, until such time as is no longer required under the applicable requirements of the Securities Act or applicable state securities laws, will bear, on the face of such certificate, the following legends:

 

 

SCHEDULE D - CERTIFICATION
OF U.S. PURCHASER

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF WESTERN MAGNESIUM CORP. (THE “COMPANY”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY; (B) OUTSIDE THE UNITED STATES, IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS; (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS; (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C) OR (D) ABOVE, THE SELLER FURNISHES TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY TO SUCH EFFECT.”

 

provided, that if the Common Shares are being sold outside the United States in compliance with the requirements of Rule 904 of Regulation S, the legends set forth above may be removed by providing an executed declaration to the registrar and transfer agent of the Company, in substantially the form set forth as Appendix A attached hereto (or in such other forms as the Company may prescribe from time to time) and, if requested by the Company or the transfer agent, an opinion of counsel of recognized standing in form and substance satisfactory to the Company and the transfer agent to the effect that such sale is being made in compliance with Rule 904 of Regulation S; and provided, further, that, if any Common Shares, are being sold otherwise than in accordance with Regulation S and other than to the Company, the legend may be removed by delivery to the registrar and transfer agent and the Company of an opinion of counsel, of recognized standing reasonably satisfactory to the Company, that such legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws. It understands and agrees that the Warrants may not be exercised in the United States or by or on behalf of a U.S. person or a person in the United States unless registered under the Securities Act and any applicable state securities laws or unless an exemption from such registration requirements is available and the holder has furnished an opinion of counsel of recognized standing in form and substance satisfactory to the Issuer to such effect, and that certificates representing the Warrants will bear a legend to the following effect in addition to the legend stated in clause (l) of this Certificate of U.S. Purchaser:

 

“THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C) IN COMPLIANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (1) RULE 144 THEREUNDER, IF AVAILABLE, OR (2) RULE 144A THEREUNDER, IF AVAILABLE, AND, IN BOTH CASES, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS AND, IN THE CASE OF (C)(1) AND (D) ABOVE, AFTER THE SELLER FURNISHES TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING OR SUCH OTHER EVIDENCE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO SUCH EFFECT. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY”, MAY BE OBTAINED FROM THE TRANSFER AGENT AND REGISTRAR OF THE COMPANY UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER AGENT AND REGISTRAR OF THE COMPANY AND THE COMPANY, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT.”

 

 

SCHEDULE D - CERTIFICATION

OF U.S. PURCHASER

 

(k)

It understands and agrees that there may be material tax consequences to the Purchaser of an acquisition, disposition or exercise of any of the Purchased Securities. The Issuer gives no opinion and makes no representation with respect to the tax consequences to the Purchaser under United States, state, local or foreign tax law of the undersigned’s acquisition or disposition of such Securities; in particular, no determination has been made whether the Issuer will be a “passive foreign investment company” within the meaning of Section 1297 of the United States Internal Revenue Code.

 

(l)	It understands and acknowledges that the Issuer is incorporated outside the United States. Consequently, it may be difficult to provide service of process on the Issuer and it may be difficult to enforce any judgment against the Issuer.

 

(m)

It understands and agrees that the financial statements of the Issuer have been prepared in accordance with International Financial Reporting Standards and therefore may be materially different from financial statements prepared under U.S. generally accepted accounting principles and therefore may not be comparable to financial statements of United States companies.

 

(n)	It consents to the Issuer making a notation on its records or giving instructions to any transfer agent of the Issuer in order to implement the restrictions on transfer set forth and described in this certification and the Securities Purchase Agreement.

 

(o)	It understands and acknowledges that the Issuer is not obligated to become a “foreign issuer” (as defined in Rule 902(e) of Regulation S).

 

(p)

It understands, that the funds representing the Aggregate Purchase Price which will be advanced by the Purchaser to the Issuer hereunder will not represent proceeds of crime for the purposes of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the “PATRIOT Act”) and the Purchaser acknowledges that the Issuer may in the future be required by law to disclose the Purchaser’s name and other information relating to the Securities Purchase Agreement and the Purchaser’s subscription hereunder, on a confidential basis, pursuant to the PATRIOT Act. No portion of the Aggregate Purchase Price to be provided by the Purchaser (i) has been or will be derived from or related to any activity that is deemed criminal under the laws of the United States, or any other jurisdiction, or (ii) is being tendered on behalf of a person or entity who has not been identified to or by the Purchaser, and it shall promptly notify the Issuer if the Purchaser discovers that any of such representations ceases to be true and provide the Issuer with appropriate information in connection therewith.

 

 

SCHEDULE D - CERTIFICATION

OF U.S. PURCHASER

 

(q)	It has no intention to distribute, and shall not transfer, either directly or indirectly, any of the Securities to any person within the United States or to U.S. persons except pursuant to an effective registration statement under the Securities Act, or an exemption therefrom.

 

Dated ____________________, 2021.

 

X ______________________________________ Signature of individual (if Purchaser is an individual) X ______________________________________ Authorized signatory (if Purchaser is not an individual) _________________________________________ Name of Purchaser (please print) _________________________________________ Name of authorized signatory (please print) _______________________________________ Official capacity of authorized signatory (please print)

 

 

Appendix “A” to Schedule D

 

CERTIFICATE OF U.S. PERSON

 

Form of Declaration for Removal of Legend

 

TO:	WESTERN MAGNESIUM CORP. (the “Company”)
TO:	Registrar and transfer agent for the shares of the Company

 

The undersigned (A) acknowledges that the sale of the securities of the Company to which this declaration relates is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”), and (B) certifies that (1) the undersigned is not (a) an “affiliate” of the Company (as that term is defined in Rule 405 under the Securities Act) (b) a “distributor” as defined in Regulation S or (c) an affiliate of a distributor; (2) the offer of such securities was not made to a person in the United States and either (a) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believed that the buyer was outside the United States, or (b) the transaction was executed on or through the facilities of the TSX Venture Exchange and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (3) neither the seller nor any affiliate of the seller nor any person acting on their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities; (4) the sale is bona fide and not for the purpose of “washing off” the resale restrictions imposed because the securities are “restricted securities” (as that term is defined in Rule 144(a)(3) under the Securities Act); (5) the seller does not intend to replace such securities with fungible unrestricted securities; and (6) the contemplated sale is not a transaction, or part of a series of transactions, which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the U. S. Securities Act. Terms used herein have the meanings given to them by Regulation S under the Securities Act.

 

Dated _______________ 20__

X_________________________________________ Signature of individual (if Purchaser is an individual) X_________________________________________ Authorized signatory (if Purchaser is not an individual) __________________________________________ Name of Purchaser (please print) __________________________________________ Name of authorized signatory (please print) __________________________________________ Official capacity of authorized signatory (please print)

 

 

Schedule E
APPENDIX 6B

 

ACKNOWLEDGEMENT – PERSONAL INFORMATION

 

TSX Venture Exchange Inc. and its affiliates, authorized agents, subsidiaries and divisions, including the TSX Venture Exchange (collectively referred to as “the Exchange”) collect Personal Information in certain Forms that are submitted by the individual and/or by an Issuer or Applicant and use it for the following purposes:

 

●

to conduct background checks,

 

●

to verify the Personal Information that has been provided about each individual,

 

●

to consider the suitability of the individual to act as an officer, director, insider, promoter, investor relations provider or, as applicable, an employee or consultant, of the Issuer or Applicant,

 

●

to consider the eligibility of the Issuer or Applicant to list on the Exchange,

 

●

to provide disclosure to market participants as to the security holdings of directors, officers, other insiders and promoters of the Issuer, or its associates or affiliates, and includes information as to such individual’s involvement with any other reporting issuers, issuers subject to a cease trade order or bankruptcy, as well as information respecting penalties, sanctions or personal bankruptcies, to which such individual has been subject, as well as any conflicts of interest that the individual may have with the Issuer,

 

●

to detect and prevent fraud,

 

●

to conduct enforcement proceedings, and

 

●

to perform other investigations as required by and to ensure compliance with all applicable rules, policies, rulings and regulations of the Exchange, securities legislation and other legal and regulatory requirements governing the conduct and protection of the public markets in Canada.

 

As part of this process, the Exchange also collects additional Personal Information from other sources, including but not limited to, securities regulatory authorities in Canada or elsewhere, investigative, law enforcement or self-regulatory organizations, regulations services providers and each of their subsidiaries, affiliates, regulators and authorized agents, to ensure that the purposes set out above can be accomplished.

 

The Personal Information the Exchange collects may also be disclosed:

 

(a)	to the agencies and organizations in the preceding paragraph, or as otherwise permitted or required by law, and they may use it in their own investigations for the purposes described above; and

 

(b)	on the Exchange’s website or through printed materials published by or pursuant to the directions of the Exchange.

 

The Exchange may from time to time use third parties to process information and/or provide other administrative services. In this regard, the Exchange may share the information with such third party service providers.

 

 

SCHEDULE 3.1(a)
SUBSIDIARIES

 

Subsidiary		Jurisdiction of Existence		Percentage of Ownership
Western Magnesium Corp.		Nevada, USA		100%
Western Magnesium Canada Corp.		British Columbia, Canada		100%

 

 

SCHEDULE 3.1(g)
CAPITALIZATION

 

The authorized capital of the Corporation consists of 1,000,000,000 voting shares of common stock at par value of $0.001, of which 351,067,741 shares of Common Stock are issued and outstanding as of the date hereof.

 

The Corporation currently has 42,370,000 stock options and 28,478,072 share purchase warrants issued and outstanding, as well as an unsecured convertible note in the principal amount of Cdn$100,000 (the “Convertible Note”). The Convertible Note bears interest at 12% per annum and is due on April 30, 2022. The Convertible Note is convertible into units of the Company at a price of Cdn$0.12 per unit, with each unit being comprised of one share of Common Stock and one warrant exercisable for a period of 2 year at a price of Cdn$0.20.

 

The Corporation has agreed to pay to Industrial Surplus Ltd. up to Cdn$200,000 in cash or issue up to 1,538,461 shares of Common Stock in consider for services provided to the Corporation.

 

 

SCHEDULE 3.1(i)
MATERIAL CHANGES; UNDISCLOSED EVENTS, LIABILITIES OR DEVELOPMENTS

 

Not applicable.

 

 

SCHEDULE 3.1(j)
litigation

 

A Notice of Civil Claim has been filed in the Supreme Court of British Columbia on September 30, 2020 by Jim Sever. Mr. Sever has claimed for upwards of US$2 million in severance and severance-type damages.

 

 

SCHEDULE 3.1(z)
SOLVENCY

 

The outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments, are as follows:

 

1. On April 30, 2021, the Company closed a non-brokered private placement of an unsecured convertible note in the principal amount of Cdn$100,000 (the “Convertible Note”). The Convertible Note bears interest at 12% per annum and is due on April 30, 2022. The Convertible Note is convertible into units of the Company at a price of Cdn$0.12 per unit, with each unit being comprised of one share of Common Stock and one warrant exercisable for a period of 2 year at a price of Cdn$0.20.

 

2. The Company has an unsecured loan (the “Loan”) outstanding of approximately Cdn$47,724 owed to a related party. The Loan bears interest at 18% and is due on demand.

 

 

SCHEDULE 3.1(ll)
INDEBTEDNESS AND SENIORITY

 

The outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments, are as follows:

 

1. On April 30, 2021, the Company closed a non-brokered private placement of an unsecured convertible note in the principal amount of Cdn$100,000 (the “Convertible Note”). The Convertible Note bears interest at 12% per annum and is due on April 30, 2022. The Convertible Note is convertible into units of the Company at a price of Cdn$0.12 per unit, with each unit being comprised of one share of Common Stock and one warrant exercisable for a period of 2 year at a price of Cdn$0.20.

 

2. The Company has an unsecured Loan outstanding of approximately Cdn$47,724 owed to a related party. The Loan bears interest at 18% and is due on demand.

 

 

SCHEDULE 4.9
USE OF PROCEEDS

 

The Company intends to use the proceeds from Offering for working capital and corporate purposes, and to repay the principal and accrued interest owing pursuant to the Convertible Note and to repay the principal and accrued interest owing pursuant to the Loan.

 

 

Exhibit 10.18

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT dated for reference the 16^th day of August, 2021

 

BETWEEN:

 

Michael Rutkowski a person with an address at

 

4826 Plantation Colony Drive, Sugar Land, TX 77478

 

(the “EMPLOYEE”)

 

AND:

 

Western Magnesium Corporation, a corporation pursuant to the laws of Delaware with a registered address at

 

8180 Greensboro Drive, Suite 720, McLean, Virginia 22102 (the “Company”)

 

(the Employee and the Company are together hereinafter referred to as the “Parties”)

 

WHEREAS:

 

A. The Company is in the business of producing Magnesium metal mineral development and processing (“Business”) and

 

B. The Company wishes to employ the Employee as the Vice President, North America Operations on the terms and conditions set forth in this Employment Agreement (this “Agreement”);

 

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the promises and mutual covenants herein, THE PARTIES HEREBY COVENANT AND AGREE as follows:

 

1.	EMPLOYMENT
1.1	Position

 

The Company agrees to employ the Employee, and the Employee agrees to serve the Company, as Vice President, North America Operations of the Company.

 

1.2	Responsibilities and Duties

 

(a)

The Employee shall perform such duties and responsibilities as set out in Schedule “A” to this Agreement. In addition to the duties and responsibilities set out in Schedule “A”, the Employee agrees to perform such other duties and responsibilities that are normally performed by a Vice President, North America Operations of a company and comply with such instructions that are reasonably assigned or communicated to him by the Company.

 

 

	(b)	The Employee shall at all times conduct himself in accordance with all laws that apply to his employment and to the affairs of the Company.
	(c)	The Employee shall comply with all written policies that apply to the Company’s senior staff that may be issued by the Company from time to time. It is agreed that the introduction and administration of such policies are within the sole discretion of the Company. If the Company introduces, amends or deletes such policies, such introduction, deletion or amendment shall not constitute a breach of this Agreement. If there is a direct conflict between this Agreement and any such policy, this Agreement shall prevail to the extent of the inconsistency.

 

1.3	Term of Employment

 

	(a)	The employment of the Employee is effective on September 1st, 2021 (the “Start Date”) and shall continue for a period of two (2) years (the “Term”) unless it is terminated earlier pursuant to the termination provisions set out below in Section 6 of this Agreement.
	(b)	The Employee shall devote all of his time and attention during normal business hours to the business of the Company and shall not, without the prior written consent of the President and Board of Directors (the “Board”), engage in any other business, profession or occupation. The Employee shall not, without the prior written consent of the Board (which consent is not to be unreasonably withheld), become an officer, director, contractor for service, employee, agent or representative of any other company, partnership, person, firm, business, enterprise or organization, where such activity would interfere with the performance of the Employee’s obligations herein.
	(c)	Section 1.3(b) shall not prevent the Employee from performing a reasonable amount of charitable or volunteer community service work, provided such work does not interfere with the performance of the Employee’s obligations herein.

 

1.4

Reporting

 

The Employee shall report to the Senior Vice-President Government Affairs and Business Development (the “CEO”).

 

1.5	Standards of Conduct

 

At all times during his employment with the Company, the Employee shall adhere to all written rules and written regulations respecting standards of conduct and conflict of interest which now are or may be established by the Company and all laws that apply to the Employee’s employment.

 

 

1.6	No Contravention or Conflict.

 

The Employee represents and warrants to the Company that this Agreement and carrying out the Employee’s duties and responsibilities in connection with the Employee’s employment with the Company under this Agreement will not contravene or conflict with any obligations the Employee may have to any past employer or other person, firm or corporation for or with whom the Employee has previously provided any services or been engaged (“Prior Entities”). The Employee agrees that he will not do anything in connection with his employment with the Company that would contravene or conflict with any such obligations. The Company is not employing the Employee to obtain the confidential information or business opportunities of any Prior Entities and the Employee is hereby requested and directed by the Company to disclose to the Company and to comply with any obligations that the Employee may have to any Prior Entities.

 

2.	COMPENSATION
2.1	Base Salary

 

	(a)	The Company will pay to the Employee an annual base salary of USD$240,000 (“Base Salary”) which will be payable in accordance with the Company’s established policies as amended from time to time, and subject to all required deductions.
	(b)	The Employee acknowledges and agrees the compensation set out in this Agreement is compensation for all hours worked by the Employee and that due to the managerial nature of the Employee’s duties and Business of the Company that the Employee may be required to perform his duties under this Agreement according to an irregular and/or fluctuating schedule as required by the Company, which may include hours outside of normal business hours.

 

2.2

Bonus

 

	(a)	The Employee shall have the opportunity to earn an annual bonus upon meeting or exceeding the Company’s achievement of annual financial and operating targets and the Employee’s performance targets (the “Bonus”). The amount of the Bonus and specific targets for the Bonus will be determined annually by the Company in its discretion, acting reasonably.
	(b)	The Employee acknowledges and agrees that receipt of a bonus in one year does not entitle the Employee to a receipt of a bonus in any subsequent year. The Employee acknowledges and agrees that payment of a bonus is contingent on the Employee being actively employed by the Company at the time the bonus is scheduled to be paid.

 

2.3

Equity

 

(a)

Upon the effective date of this agreement (September 1st, 2021) 500,000 stock options will be awarded to the Employee with another 500,000 stock options after six months (March 1st, 2022) satisfactory employment. From time to time, the Company may grant to the Employee additional options to purchase common shares of the Company (the “Stock Options”) exercisable at a price of per share at the market price per share and as approved by stock exchange rules. The number of Stock Options will be set by the board. The Company may make future grants of stock options to the Employee at its discretion.

 

 

(b)

The Stock Options will be issued according to the terms and conditions of the Company’s stock option plan and subject to all applicable securities laws, including the policies of the TSX Venture Exchange.

 

2.4

Benefits

 

(a)

The Employee will participate in the benefit plans that the Company makes available to its senior staff when such a benefit package becomes available.

 

2.5	Business Expenses

 

	(a)	The Company shall reimburse the Employee for all pre-approved traveling and other out-of-pocket expenses actually and properly incurred by the Employee in the course of carrying out his duties and responsibilities under this Agreement and which are incurred in accordance with Company policies, including but not limited to the Company’s rules of traveling expenses, if any.
	(b)	The Company shall reimburse the Employee for mobile device monthly bills and for any long-distance charges incurred by the Employee for work related international calls.
	(c)	The Employee agrees to provide to the Company an itemized monthly expense report, together with original receipts, showing all monies expended hereunder, and such other expense information as the Company may reasonably require.

 

2.6

Insurance

 

The Company will arrange and pay for Directors and Officers insurance on behalf of the Employee.

 

2.7

Vacation

 

The Company will provide the Employee with four (4) weeks’ paid vacation per calendar year in accordance with the written vacation policy of the Company from time to time applicable to the Company’s senior management. The weeks selected by the Employee shall be subject to the Company’s written consent and must be obtained no later than thirty (30) days prior to the start of the vacation period.

 

3.	Statutory Deductions

 

The Employee acknowledges that the compensation, benefits, payments and advances provided for in this Agreement may be subject to State and Federal income and withholding taxes as well as other applicable taxes, fees, and deductions.

 

 

4.	Employee’S OBLIGATIONS

 

1.1	Confidentiality

 

	(a)	The Employee acknowledges that, by reason of this Agreement, the Employee will have access to Confidential Information, as hereinafter defined, of the Company, that the Company has spent time, effort and money to develop and acquire.
	(b)	The term “Confidential Information” as used in this Agreement means information, whether or not originated by the Employee, that relates to the business or affairs of the Company, its affiliates, clients or suppliers and is confidential or proprietary to, about or created by the Company, its affiliates, clients, or suppliers. Confidential Information includes, but is not limited to, the following types of confidential information and other proprietary information of a similar nature (whether or not reduced to writing or designated or marked as confidential):
		(i)	information relating to strategies, research, communications, business plans, and financial data of the Company and any information of the Company which is not readily publicly available;
		(ii)	work product resulting from or related to work or projects performed for or to be performed for the Company or its affiliates, including but not limited to, the methods, processes, procedures, analysis, techniques and audits used in connection therewith;
		(iii)	any intellectual property contributed to the Company, and any other technical and business information of the Company, its subsidiaries and affiliates which is of a confidential, trade secret and/or proprietary character;
		(iv)	internal Company personnel and financial information, employee personal information, employee compensation, supplier names and other supplier information, purchasing and internal cost information, internal services and operational manuals, and the manner and method of conducting the Company’s business; and
		(v)	all information that becomes known to the Employee as a result of this Agreement that the Employee, acting reasonably, believes is confidential information or that the Company takes measures to protect;
	(c)	Confidential Information does not include any of the following:
		(i)	the general skills and experience gained by the Employee during the Term of this Agreement that the Employee could reasonably have been expected to acquire in similar retainers or engagements with other companies,
		(ii)	information publicly known without breach of this Agreement or similar agreements, or

 

 

		(iii)	information, the disclosure of which by the Employee is required to be made by any law, regulation or governmental authority or legal process of discovery (to the extent of the requirement), provided that before disclosure is made, notice of the requirement is provided to the Company, and to the extent reasonably possible in the circumstances, the Company is afforded an opportunity to dispute the requirement.
	(d)	The Employee acknowledges that the Confidential Information is a valuable and unique asset of the Company and that the Confidential Information is and will remain the exclusive property of the Company. The Employee agrees to maintain securely and hold in strict confidence all Confidential Information received, acquired or developed by the Employee or disclosed to the Employee as a result of or in connection with this Agreement. The Employee agrees that, both during and after the termination of this Agreement, the Employee will not, directly or indirectly, divulge, communicate, use, copy or disclose or permit others to use, copy or disclose, any Confidential Information to any person, except as such disclosure or use is required to perform its duties hereunder or as may be consented to by prior written authorization of the Company.
	(e)	The Employee understands that the Company has from time to time in its possession information belonging to third parties or which is claimed by third parties to be confidential or proprietary and which the Company has agreed to keep confidential. The Employee agrees that all such information shall be Confidential Information for the purposes of this Agreement.

 

4.2	Indemnification of Company. Employee assumes full responsibility for any fully adjudicated or confessed criminal acts undertaken in his personal capacity, separate and apart from the duties and responsibilities of his position, and will indemnify Company from any liability associated with such acts.
4.3	Intellectual Property

 

	(a)	In this Agreement:
		(i)	“Intellectual Property Rights” means any and all legal protection recognized by the law (whether by statute, common law or otherwise, in the USA, Canada and all other countries world-wide) in respect of the Works (as defined below) and Confidential Information, including trade secret and confidential information protection, patents, copyright and copyright registration, industrial design registration, trade dress and trade-marks and trade-mark registrations and other registrations or grants of rights analogous thereto;
		(ii)	“Works” includes all inventions, methods, processes, discoveries, designs, ideas, works, creations, developments, algorithms, drawings, compilations of information, analysis, experiments, data, reports, know-how, techniques, products, samples, tools, machines, software and all documentation therefore, flowcharts, specifications and source code listings, whether patentable or not, including any modifications or improvements thereto that: (1) are conceived, developed, created, generated or reduced to practice by the Employee (whether alone or with others in or outside the Company) as a result of the Employee’s involvement with the Company; or, (2) result from the Employee’s fulfillment of the Employee’s obligations hereunder; or (3) result from the use of the premises and property (including equipment, supplies or Confidential Information) owned, licensed or leased by the Company;

 

 

	(b)	The Employee will disclose all Works promptly and fully to the Company. The Employee will maintain at all times adequate and current records relating to the Works, which records will be and remain the property of the Company.
	(c)	Notwithstanding anything else contained herein, the Company will have sole and exclusive right, title and interest, world-wide, in and to all Works and Intellectual Property Rights, which right, title and interest will continue after termination of this letter agreement. Accordingly, the Employee hereby irrevocably assigns (and in the case of Works created on or after the Effective Date, agree to assign, without the need for any further remuneration or consideration) to the Company all worldwide right, title and interest of any nature whatsoever in and to all Works and Intellectual Property Rights.
	(d)	The Employee will execute and deliver to the Company whenever requested by the Company, any and all further documents and assurances that the Company may deem necessary or expedient to affect the purposes and intent of the assignment set out herein. If the Employee refuses or fails to execute any further documents and assurances whenever requested by the Company, this Agreement will form a power of attorney granting to the Company the right to execute and deliver on the Employee’s behalf (as the case may be), all such further documents and assurances that the Company may deem necessary or expedient to effect the purposes and intent of the assignment and waiver set out herein on the Employee’s behalf.

 

4.4	Non-Solicitation

 

During the Employee’s employment and for a period of two (2) years from the end of the Employee’s employment (howsoever occasioned), the Employee shall, without the prior written consent of the Company, either alone or jointly with or on behalf of any person or entity, directly or indirectly solicit or entice away or endeavor to solicit or entice away from the Company (or an affiliated company with which the Employee had direct involvement):

 

	(a)	any person who at the date of the termination of the Employee’s employment was a client or customer of the Company and with whom the Employee had direct and material contact during the course of the Employee’s employment for the purpose of carrying out the Employee’s duties under this Agreement; and
	(b)	any persons who were employees of or independent contractors of the Company at the time of the termination of the Employee’s employment, or during a period of ninety (90) days immediately preceding the termination of the Employee’s employment, to terminate their employment or contractor agreements with the Company (whether or not that person or entity would commit a breach of their contract of employment or their contract for services, by doing so).

 

 

4.5	Non-Competition

 

During the Employee’s employment and for a period of two (2) years from the end of the Employee’s employment (howsoever occasioned), the Employee shall not, directly or indirectly, whether as owner, shareholder (except to the extent of a less than 2% ownership interest of the outstanding shares of a publicly held corporation), director, agent, officer, employee, Employee, independent contractor or in any other capacity whatsoever of a corporation, partnership, proprietorship, be engaged in, compete with, be financially concerned or interested with, or employed by any company carrying on the business of development or processing of magnesium anywhere in North or South America or Europe.

 

5.	enforcement

 

	(a)	The Employee acknowledges and agrees that the covenants and obligations under this Agreement, and in particular, Article 4 are reasonable, necessary and fundamental to the protection of the Company’s legitimate business interests, and that any breach of this Agreement by the Employee would result in irreparable harm to the Company and loss and damage to the Company for which the Company could not be adequately compensated by an award of monetary damages.
	(b)	The Employee acknowledges and agrees that in the event of any breach or threatened breach of Articles 4 of this Agreement by the Employee, the Company will, in addition to any and all remedies available to the Company at law or in equity, be entitled as a matter of right to judicial relief by way of a restraining order, interim, interlocutory or permanent injunction, or order for specific performance as may be necessary to ensure that the Employee complies with and performs the Employee’s obligations under this Agreement, and including an award of special costs of any such court application against the Employee and the Employee further covenants and agrees not to oppose the granting of any such judicial relief and hereby waives any and all defences to the strict enforcement of this Agreement.

 

6.	TERMINATION
6.1	Termination by the Employee

 

The Employee may terminate this Agreement and his employment with the Company prior to the end of the Term by giving the Company at least four (4) weeks of written notice. The Company may waive all or part of this notice period by paying to the Employee only his Base Salary for the waived period of notice.

 

6.2	Termination by the Company

 

	(a)	The employment of the Employee may be terminated by the Company at any time prior to the end of the Term, without notice or any payment in lieu thereof, for Cause. For the purposes of this Agreement, “Cause” means:
		(i)	willfully disregarding or willfully disobeying any reasonable direction of the Board;

 

 

		(ii)	committing any willful or intentional act of dishonesty, including, but not limited to, fraud, or falsification of an employment record;
		(iii)	being found guilty of, or entering a plea of guilty or no contest to, any felony or any crime involving moral turpitude, dishonesty or theft;
		(iv)	improper or unauthorized disclosure of Confidential Information; or
		(v)	any action, omission or commission which a British Columbia court will conclude cause at law.
	(b)	If the Employee is terminated for Cause, the Employee will not be eligible for any notice or pay in lieu of notice or other compensation. All perquisites, benefits and other compensation will end when the Employee is given notice of termination.
	(c)	A failure by the Company to rely upon the provisions of Section 6.2(a) in any given instance or instances shall not constitute acquiescence or be deemed a waiver by the Company of its entitlement to terminate the Employee’s employment for Cause.
	(d)	At the end of the Term or upon the earlier termination of the Employee’s employment for any reason, the Employee shall immediately resign from all offices which he holds with the Company.
	(e)	The Employee understands and agrees that he will not be entitled to receive any further notice, payment in lieu of notice, severance pay, benefits, compensation, or damages of any kind, whether at common law or otherwise, other than the entitlements set out in Section 6.2(d) herein.
	(f)	The Employee understands and agrees that he will not be entitled to receive any notice, payment in lieu of notice, severance pay, benefits, compensation, or damages of any kind, whether at common law or otherwise, at the end of the Term.

 

7.	CHANGE OF CONTROL

 

	(a)	For the purpose of this Section, “Change of Control” means the occurrence of any of the following events:
		(i)	an acquisition, directly or indirectly, of voting securities of the Company (including securities of the Company on which conversion will become voting securities) by any person or group of persons acting in concert such that such person or group of persons are able for the first time to affect materially the control of the company;
		(ii)	a merger, amalgamation or other business combination of the Company with or into another entity, or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately thereafter are owned by persons who were not security holders of the Company immediately prior to such merger, amalgamation, business combination or reorganization;

 

 

		(iii)	the exercise of the voting power of any of all securities of the Company so as to cause or result in the election of a majority of members of the Board of Directors who were not previously incumbent directors thereof;
		(iv)	a tender offer, an exchange offer, a take-over bid or any other offer or bid by an entity, person or group (other than the Company or a wholly-owned subsidiary of the Company) of more than 50% of the issued and outstanding voting securities of the Company; or
		(v)	the sale, transfer or disposition by the Company of all or substantially all of the assets of the Company;
		provided that:
		(vi)	an event will not constitute a Change of Control if its sole purpose is to change the jurisdiction of incorporation of the Company or to create a holding company or other corporation, partnership or trust that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such event; and
		(vii)	a Change of Control will be deemed not to have occurred with respect to the Employee if the Employee is the acquirer or part of the acquiring group that consummates the Change of Control.
	(b)	For the purposes of this Section, “Good Reason” means the occurrence after a Change of Control event, without the Employee’s consent, of any of the following:
		(i)	the assignment by the Company of any substantial new duties inconsistent with the Employee’s positions, duties, responsibilities and status with the Company immediately prior to such a change in assigned duties;
		(ii)	a material and detrimental change in the title, position, duties and responsibilities, authority or status of the Employee with the Company;
		(iii)	a material breach by the Company of this Agreement; or
		(iv)	a material reduction of the Base Salary.
	(c)	In the event the Company terminates the Employee’s employment without cause within 12 months of a Change of Control or the Employee terminates his employment for Good Reason within 12 months of a Change of Control, the Employee is entitled to receive from the Company a payment equal to 3 months’ Base Salary.

 

8.	GENERAL
8.1	Entire Agreement

 

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and cancels and supersedes any previous oral or written communications, representations, understandings or agreements between the Parties with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express or implied, between the Parties other than as expressly set forth in this Agreement.

 

 

8.2	Severability

 

If any provisions of this Agreement is determined to be invalid, void or unenforceable, in whole or in part, such invalidity, voidance or unenforceability shall attach only to such provision or part thereof, and the remaining part of such provision and all other provisions thereof shall continue in full force and effect.

 

8.3	Continuing Obligations

 

Notwithstanding the termination of this Agreement for any reason whatsoever, the provisions of Articles 4, 5, 7, and 8 hereof and any other provisions of this Agreement necessary to give efficacy thereto shall continue in full force and effect following such termination.

 

8.4

Waiver

 

The waiver by the Employee or by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the Company or by the Employee.

 

8.5	Modification of Agreement

 

Any modification to this Agreement must be in writing and signed by the Parties or it shall have no effect and shall be void.

 

8.6	Assignment of Rights

 

The Company has the right to assign this Agreement to another party. The Employee will not assign the Employee’s rights under this Agreement or delegate to others any of the Employee’s functions and duties under this Agreement.

 

8.7	GOVERNING LAW

 

This Agreement shall be governed by and construed in accordance with the laws of the a Delaware Corporation with offices at 3733 Howard Hughes Parkway, Suite 249, Las Vegas, Nevada 89169

 

9.	Continuing Cooperation

 

The Employee agrees that he shall, both during the term of this Agreement and thereafter, fully co-operate with and assist the Company in the resolution of complaints, claims or disputes against the Company, including without limitation civil, criminal or regulatory proceedings.

 

10.	Legal Advice

 

The Employee acknowledges and agrees that he has had the opportunity to seek independent legal advice in relation to the nature, contents, terms and effect of this Agreement.

 

11.	Counterparts

 

This Agreement may be executed in counterparts, and such original executed counterparts together shall constitute one agreement.

 

 

IN WITNESS WHEREOF the Parties hereto have executed this Agreement on the day and year first written above.

 

Western Magnesium Corporation

 

Per:	/S/ Peter O’Rourke
	Senior Vice President

 

ACCEPTED AND AGREED to this 16^th day of August, 2021

 

/s/ Michael E. Rutkowski
Michael E. Rutkowski

 

 

Schedule A

 

VICE-PRESIDENT, NORTH AMERICA OPERATIONS
DUTIES AND RESPONSIBILITIES

 

The Vice President, North America Operations supports the Senior Vice-President Government Affairs and Business Development who in turn supports the Executive President and CEO in the achievement of the strategic plan of the association. They are responsible for managing an effective federal and state government relations program on behalf of Western Magnesium Corporation and the common goals of its shareholders.

 

GOVERNMENT AFFAIRS RESPONSIBILITIES

 

	●	Directs an organizations policies and objectives involving local, state, and federal government affairs.
	●	Builds strong collaborative relationships with other organizations, senior government officials in relevant federal government departments and associated authorities and committees legislatively representing and protecting the interests of the Company
	●	Leads government affairs activities by establishing positive relationships with elected officials and civil servants
	●	Develops and implements strategies to profile Western Magnesium Corporation to secure funding and enable policy development and legislation to support development and growth.
	●	Initiates and leads the Company’s efforts to align and complement member and key stakeholder public policy positions and strategies
	●	Identifies strategies to engage members in public policy input, lobby campaigns and government relations.
	●	Provides resources and advice to the Company.
	●	Monitors news media and government sources for potential changes in regulatory and legislative areas to ensure the Company reacts effectively and advises on the resulting impact on their operations.
	●	Supports lobbying efforts through advice and by opening doors with elected officials and civil servants.
	●	Writes briefs on particular initiatives for educational, promotional and policy development.
	●	Directs the work of consultants, students and interns as required

 

BUSINESS DEVELOPMENT RESPONSIBILITES

 

	●	Research and identify new business opportunities - including new markets, growth areas, trends, customers, partnerships, products and services - or new ways of reaching existing markets
	●	seek out the appropriate contact in an organisation
	●	Generate leads and cold call prospective customers
	●	Meet with customers/clients face to face or over the phone
	●	Foster and develop relationships with customers/clients
	●	Work strategically - seeing the bigger picture and setting aims and objectives to develop and improve the business carrying out necessary planning to implement operational changes
	●	Have a good understanding of the businesses’ products or services and be able to advise others about them
	●	Ensure staff are on board throughout the organisation, and understand the need for change and what is required of them
	●	Train members of your team, arranging external training where appropriate
	●	Discuss promotional strategy and activities with the marketing department
	●	Liaise with the finance team and other departments as appropriate
	●	Seek ways of improving the way the business operates
	●	Keep abreast of trends and changes in the business world.

 

SKILLS REQUIRED

 

Strong communication, leadership and team management skills are essential to this position.

 

Five years’ experience in a similar position

 

REPORTING

 

	●	Attend/Report at Monthly Management Meeting
	●	Provide regular updates to CEO
	●	Ad-hoc reporting on special projects as and when required.

 

PERFORMANCE INDICATORS

 

	●	Team performance
	●	Meeting deadlines and production of reports to standard and schedule
	●	On-going appraisal