Exhibit 10.5
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Loan Agreement with Purchase Holdings Ltd.
LOAN AGREEMENT
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(the "Loan")
PRINCIPAL: UP TO $900,000 US
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INTEREST: 12%
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DUE DATE: August 20, 2004
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ISSUE DATE: August 20, 2002
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LENDER: PURCHASE HOLDINGS LTD.
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LENDER ADDRESS: 00 Xxxx Xxxx
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Kamloops, B.C., V1S 1V1
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WITH THE TERMS AS FOLLOWS:
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FOR VALUE RECEIVED, HEMPTOWN CLOTHING INC. (the "Company"), a company
having its address for service of all notices and process hereto located
at c/o 0000-000 Xxxx Xxxxxxxx Xxxxxx, Xxxxxxxxx, XX X0X 0X0, HEREBY
ACKNOWLEDGES ITSELF INDEBTED TO THE AFORESTATED LENDER (the "Lender" and
also referred to as the "Holder" (both of which includes any assignee
properly effected in accordance with law and the terms hereof) AND THE
COMPANY PROMISES TO PAY TO THE LENDER, in the manner and at the times set
forth herein in accordance with the stated terms, the aggregate Principal
(the "Principal", also called the "Loan") sum, in the amount above set
forth, and Interest, and Warrant Units, and other costs as set forth
herein, in lawful money of Canada.
The effective date (the "Effective Date") of this Loan shall be the above
stated Issue Date and the due date (the "Due Date") for the payment of
all Warrant Units, and Principal, with interest then outstanding unless
otherwise specifically stated hereafter, shall be the above stated Due
Date.
This Loan is enforceable and actionable in accordance with the laws of
and in the jurisdiction of the Company and the Company waives any and all
defenses to the
enforcement hereof and attorns without reservation or defense to
execution hereof (except the defense of payment) and to any judgment,
reciprocating or otherwise.
SECURITIES DECLARATION
The parties hereto acknowledge that this security, or any resultant
securities, has not been registered under the securities laws of any
jurisdiction and is being issued pursuant to an exemption from
registration. The Holder hereof has received this security pursuant to a
subscription agreement by which certain representations and covenants of
investment intent and non-transfer have been made on which the Company
relies and which subscription agreement representations and terms are
herein incorporated.
2. Lending of Principal
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The Lender shall be allowed from time to time, upon written approval
by the Company, to lend up to $900,000 US to the Company. The Company
has the right to refuse to accept any amounts proposed to be lent. The
Lender's ability to lend to the company shall extend for a period of 1
year beginning August 20, 2002.
2. Interest
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This Loan will bear interest (the "Interest") on the Principal
outstanding from time to time, at 12% per annum, calculated monthly in
arrears and not in advance. The Interest only shall be payable, on a
monthly basis to the Lender at the aforesaid address or at such other
address as the Lender may notify in writing. Any unpaid Interest will be
added to the Principal.
3. Payment of Principal
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The Principal will be due and payable by the Company to the Lender
in the following manner:
(a) the Principal shall be paid on the Due Date; and
(b) in the event that any of the Principal and Interest has been
reduced by a prepayment by the Company through the exercise of
the Prepayment Right (as defined below) then the reduced
Principal and Interest shall be considered paid and discharged.
4. Prepayment Right
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The Company has the right, at any time to pre-pay (the "Prepayment
Right"), in whole or in part, from time to time, Principal and the
relevant outstanding Interest. This Prepayment Right shall be a right in
priority to all other rights to payment of this Loan.
5. Warrant Units in Addition to Interest
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The Company shall issue to the Lender on the Due Date one warrant
unit for each $2.00 US lent to the Company by the lender (the "Warrant
Units" or singularly the "Warrant Unit"). Each Warrant Unit shall
consist of a right to purchase one common share (the "Shares" or
singularly the "Share") of the Company for $2.00 US plus one piggyback
warrant (the "Piggyback Warrant"). Each Piggyback Warrant shall consist
of a right to purchas one common share of the Company for $4.00 US. The
Lender shall have 3 years from the date of issue of the Warrant Units to
exercise the Warrant Units. The Lender shall have 1 year from the
exercise of the Warrant Units to exercise the Piggyback Warrants.
The Company covenants to employ commercially reasonable best efforts
to cause the Shares to be issued, upon exercise of the Warrant Units or
the Piggyback Warrants, with the least restriction available under
appropriate regulatory laws and the Company warrants that the Shares
shall be issued as fully paid and non-assessable and in compliance with
applicable law and policy. These Shares shall be adjusted for any
capital alteration, mutatis mutandis, of the Company as if the Lender had
issued the Shares prior to such alteration.
Fractional Shares will not be issued.
5. Acknowledgement and Release
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It is hereby agreed and acknowledged by the Company and the Lender
that this Agreement shall replace and supersede any preceding agreements
and contracts of security respecting the Principal and Interest.
Upon payment of the Principal, Interest and payment of Warrant
Units, the Lender shall provide the Company, at its request, with all
such discharges, releases and acknowledgments of payment as the Company
may reasonably require and request to evidence such payment.
TO HAVE AND TO HOLD the same unto the use of the Lender, and the
Lender's lawful successors and assigns, upon and subject to the terms and
conditions herein set forth.
IN WITNESS WHEREOF the Parties have caused its duly authorized officers
to execute these terms effective on the Effective Date.
HEMPTOWN CLOTHING INC. PURCHASE HOLDINGS LTD.
Per: "Xxxxx Xxxxx" Per: "Xxxxxx Xxxx"
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Authorized Signatory Authorized Signatory
