DEBT CONVERSION AGREEMENT. THIS AGREEMENT made the 2nd day of May, and

Transcription

1 DEBT CONVERSION AGREEMENT BETWEEN: RECITALS: THIS AGREEMENT made the 2nd day of May, DRAKE PRIVATE INVESTMENTS, LLC, a corporation existing under the laws of Delaware ( Drake ) - and CASTLE RESOURCES INC., a corporation existing under the laws of Ontario (the Corporation ) A. The Corporation is indebted to Drake in the aggregate amount of $3,608,836 as at March 15, 2016, as follows: (a) aggregate principal amount of $2,275,000 pursuant to (i) a loan in the principal amount of $2,200,000 dated July 14, 2010, and (ii) a loan in the principal amount of $75,000 dated July 24, 2015 for an aggregate principal amount of $2,275,000, as amended; and (b) accrued interest on the loans of $1,333,836, (collectively, with all accrued and unpaid interest earned thereon up to the date hereof, the Debt ); and B. In order to improve the working capital of the Corporation, it is desirable that Drake convert $1,333,836 of the Debt (the Conversion Amount ) into 74,102,000 special warrants at a deemed purchase price of $0.018 per Special Warrant in the form of Schedule A attached hereto (the Special Warrants ). IN CONSIDERATION of the premises, the sum of $1.00 now paid by each of the parties, each one to the other, the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Conversion of Debt Drake hereby agrees that it will convert the Conversion Amount, being remaining Debt of $1,333,836, into Special Warrants and the Corporation accepts such conversion. Upon the delivery of the Special Warrants, the Conversion Amount of the debt shall be deemed irrevocably converted, and Drake shall be treated for all purposes as the holder of record of the Special Warrant as of the conversion date.

2 2 2. Subscription In furtherance of the conversion of the Conversion Amount set forth in Section 1 above but subject to receipt of all necessary regulatory approvals, Drake hereby subscribes for the Special Warrants, and the Corporation hereby applies the full amount of the Conversion Amount owing by the Corporation to Drake in full payment of the aggregate subscription price for the Special Warrants. 3. Subscription Price and Issuance of Share Certificate The purchase price for the Special Warrant to be issued by the Corporation is equal to the Conversion Amount. The Corporation hereby agrees that in connection with the conversion it will issue a certificate representing the Special Warrants and that such certificate will be registered in the name of Drake. 4. Representations Drake represents, covenants and warrants with the Corporation as follows: (a) (b) (c) (d) it has the right to settle the Conversion Amount; the Conversion Amount is legally and beneficially held by it and is not subject to any lien, encumbrance or interest of any third party; this Agreement constitutes legal, valid and binding obligations enforceable against it except as enforceability may be limited to applicable laws relating to enforcement of creditor's rights generally; and the execution, delivery and performance by it of this Agreement does not conflict with any contracts or other obligations to which she may be bound. The Corporation represents, covenants and warrants with Drake as follows: (e) (f) (g) it is duly formed and validly subsists under all applicable laws and has the corporate power and authority to enter into the transactions contemplated hereby; it has taken all necessary action to authorize such execution, delivery and performance of its obligations under this agreement; this Agreement constitutes legal, valid and binding obligations enforceable against it except as enforceability may be limited to applicable laws relating to enforcement of creditor's rights generally;

3 3 (h) (i) the execution, delivery and performance by it of this Agreement will, at all times, comply with all applicable laws and regulations including those of applicable securities regulatory authorities and self-regulatory organizations; and the execution, delivery and performance by it of this Agreement does not conflict with any contracts or other obligations to which it may be bound and does not conflict with and does not and will not result in a breach of its articles, by-laws or resolutions. 5. Time of Essence Time shall be of the essence of this agreement. 6. Currency Unless otherwise indicated, all dollar amounts referred to in this agreement are in Canadian dollars. 7. Assignment This agreement may not be assigned by any of the parties without the prior written consent of the other party and execution by the assignee of a counterpart of this agreement wherein such assignee agrees to be bound by this agreement as if it was an original party hereto. This agreement shall be binding upon and enure to the benefit of the parties and their respective legal representatives, successors and permitted assigns and shall survive the conversion. 8. Governing Law This agreement shall be governed by and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable herein. The courts of Ontario shall have non-exclusive jurisdiction with respect to any matter arising hereunder or related hereto. 9. Further Assurances Each of the parties hereto agrees that it will from time to time hereafter execute and deliver or cause to be executed and delivered such additional documents and instruments and do such acts and things as may be necessary or desirable to fully and effectually carry out the intent and purpose of this agreement. [Signature pages follow.]

4 IN WITNESS WHEREOF the parties have executed this agreement as of the date first written above. 4 DRAKE PRIVATE INVESTMENTS, LLC Per: Scott Riley, Portfolio Manager CASTLE RESOURCES INC. Per: Robert Bruggeman, Director

5 A-1 SCHEDULE A UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE, ,102,000 SPECIAL WARRANTS To Subscribe for Common Shares of CASTLE RESOURCES INC. (an Ontario corporation) Certificate Number: SW EXERCISABLE ONLY PRIOR TO 5:00 P.M., TORONTO TIME, ON, 2021 AFTER WHICH TIME THE SPECIAL WARRANTS SHALL BE NULL AND VOID THIS CERTIFIES THAT, for value received, Drake Private Investments, LLC, 954 Lexington Avenue, #149, New York, N.Y (the "Holder"), is entitled to subscribe for Seventy-Four Million, One Hundred and Two Thousand (74,102,000) common shares in the capital of CASTLE RESOURCES INC. (the "Corporation"), subject to adjustment as herein set forth. The Special Warrants are issued pursuant to a debt conversion agreement dated May 2, 2016 (the "Debt Conversion Agreement"). 1). Interpretation The following provisions shall be applicable to the Special Warrants: 1.1 Currency All dollar amounts referred to herein shall be in lawful money of Canada. 1.2 Defined Terms As used herein, the following words and phrases shall have the following meanings respectively: (a) (b) (c) (d) (e) "business day" means a day other than a Saturday, Sunday, any statutory holiday or any other day on which banks are generally closed in Toronto; Capital Reorganization shall have the meaning as provided for in Section 3 hereof; "close of business" means 5:00 o'clock in the afternoon (Toronto time); "Common Shares" means common shares without par value in the capital of the Corporation whether issued or unissued, as constituted at the date hereof; provided that in the event of a change, reclassification, subdivision, redivision, reduction, combination, or consolidation thereof, or successive such changes, reclassifications, subdivisions, redivisions, reductions, combinations or consolidations, and subject to adjustment, if any, having been made in accordance with the provisions of Section 2 below, "Common Shares" shall thereafter mean the shares resulting from such change, reclassification, subdivision, redivision, reduction or combination; "director" means a director of the Corporation for the time being and "directors" or "board of directors" means the board of directors of the Corporation or, if duly constituted and empowered, the executive committee of the board of directors of the Corporation for the time being, and reference, without further elaboration, to action by the directors means action by the

6 A-3 directors of the Corporation as a board or action taken by the said executive committee as such committee. (f) (g) (h) (i) (j) (k) (l) (m) (n) Exercise Date" means the date upon which the Holder exercises its subscription rights hereunder pursuant to Section 1.3 hereof, or is deemed to have exercised its subscription rights hereunder pursuant to Section 1.4 hereof, whichever shall occur earlier; "herein", "hereto", "hereunder", "hereof", "hereby" and similar expressions mean or refer to this Special Warrant certificate and not to any particular section, clause, subclause, subdivision or portion hereof, and the expressions, "Section", "clause" and "subclause" followed by a number or letter mean and refer to the specified Section, clause or subclause hereof; "person" means any individual, corporation, company, partnership, association or trust; "Qualifying Event" means either (i) a consolidation of the issued and outstanding shares of the Corporation on the basis of a minimum of four (4) old shares for one (1) new share, or (ii) such other step which permits the exercise of the Special Warrants without a consolidation pursuant to applicable regulatory requirements, including the delisting of the Common Shares from trading on the Canadian Securities Exchange; "Qualifying Date" means the date, if any, on which a Qualifying Event becomes effective; "Registrar and Transfer Agent" means the Corporation or such other transfer agent as the Corporation may appoint from time to time as the registrar and transfer agent of the Special Warrants and the Common Shares; "shareholder" means any shareholder of the Corporation; "Special Warrants" mean the special warrants evidenced hereby; "Special Warrant Register" means the register to be maintained by the Registrar and Transfer Agent pursuant to Section 3 hereof; and (o) "Time of Expiry" means 5:00 p.m., Toronto time, on, Manner of Exercise; Issuance of Certificates The Holder may exercise its right to subscribe for Common Shares hereunder at any time prior to the Time of Expiry and after the Qualifying Date, by the surrender to the Registrar and Transfer Agent of this Special Warrant certificate, together with a completed subscription in the form attached hereto (the "Special Warrant Subscription Form"), but without additional payment of any kind, at the principal office of the Registrar and Transfer Agent in the City of Toronto, prior to the close of business or any business day, or at such other address as the Corporation may designate by notice in writing to the Holder at the address of the Holder appearing on the Special Warrant Register. The Common Shares subscribed for shall be and shall be deemed to be issued to the Holder as the owner of record of such Common Shares as of the close of business on the date on which this Special Warrant certificate shall have been so surrendered. Certificate(s) for the Common Shares subscribed for, evidencing the aggregate number of Common Shares for which the Holder is entitled to subscribe hereunder, shall be delivered to the Holder within a reasonable time, not exceeding five business days, after the subscription right provided for herein has been so exercised. Share certificate(s) so delivered shall be in such denomination(s) as may be requested by the Holder and shall be registered in the name of the Holder or such other name as the Holder may designate. The Corporation shall pay all taxes and other expenses and charges payable in connection with the preparation, execution and delivery of share certificate(s) pursuant to this Section 1.3, except that in case such share certificate(s) shall be registered in a name or names other than the Holder of the Special Warrants or its nominee, funds sufficient to pay all stock transfer taxes which shall be payable in connection with the execution and delivery of such share certificate(s) shall be paid by the Holder to the Corporation at the time of the delivery of such share certificate(s) as set out above.

7 A Common Shares to be Fully Paid The Corporation covenants and agrees that all Common Shares issued hereunder will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. 1.6 No Fractional Shares The Corporation shall not be required to issue fractional Common Shares upon the exercise or deemed exercise by the Holder of its rights hereunder and the number of Common Shares to which the Holder is entitled upon the exercise or deemed exercise hereof, if such number includes a fraction of a Common Share, shall be rounded up to the next whole number. 1.7 Common Shares to be Reserved The Corporation shall, so long as the Special Warrants are outstanding, at all times ensure that there are a sufficient number of Common Shares authorized to be issued upon the exercise or deemed exercise of the Holder's rights hereunder to enable the Special Warrants to be exercised upon the basis and upon the terms and conditions herein provided; provided that nothing herein contained shall affect or restrict the right of the Corporation to issue Common Shares from time to time subject to the terms and conditions of the Special Warrants. 1.8 Corporation to Complete Qualifying Event The Corporation shall use its commercially reasonable best efforts to undertake a Qualifying Event as soon as practicable and, in any event, within ninety (90) days. 1.9 Expiration of Special Warrants Special Warrants which are not exercised prior to the Time of Expiry shall, immediately thereafter, be null and void. 2). Adjustment to Subscription Rights 2.1 Adjustment to Subscription Rights If at any time prior to the Exercise Date there shall be: (a) (b) (c) (d) a reclassification of the Common Shares outstanding at any time or a change of the Common Shares into other shares or securities or a subdivision or consolidation of the Common Shares into a greater or lesser number of shares or any other capital reorganization; a consolidation, amalgamation or merger of the Corporation with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other shares or securities); a transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or other entity; or an issue or distribution to the holders of all or substantially all of the Corporation's outstanding Common Shares, by way of dividend or otherwise, of securities of the Corporation including rights, options or warrants to acquire shares of the Corporation or securities convertible into or exchangeable for shares of the Corporation, or any property or assets including any evidences of indebtedness, other than any dividend paid by the Corporation in the ordinary course;

8 A-4 (any of such events being called a "Capital Reorganization"), the Holder shall thereafter be entitled to receive upon the exercise or deemed exercise of its subscription rights hereunder, and shall accept for no extra cost, in lieu of the number of Common Shares to which the Holder was theretofore entitled upon such exercise or deemed exercise, the kind and amount of shares or other securities or property which the Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the Holder had been the registered holder of the number of Common Shares to which the Holder was theretofore entitled to acquire upon such exercise or deemed exercise. Appropriate adjustments shall be made as a result of any such Capital Reorganization in the application of the provisions set forth in this Section 2 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in this Section 2 shall thereafter correspondingly be made applicable as nearly as may reasonably be in relation to any shares, other securities or other property thereafter deliverable upon the exercise or deemed exercise hereof. b) Adjustments Cumulative The adjustments provided for in Section 2.1 are cumulative and shall apply (without duplication) to successive Capital Reorganizations or other events resulting in any adjustment under the provisions of Section 2.1; provided that, notwithstanding any other provision of this Section 2, no adjustment shall be made in the number of Common Shares which may be acquired on the exercise or deemed exercise hereof unless it would result in a change of at least one-hundredth of a Common Share (provided, however, that any adjustments which by reason of this Section 2.2 are not required to be made shall be carried forward and taken into account in any subsequent adjustment). c) No Adjustment No adjustment in the number of Common Shares which may be acquired upon the exercise or deemed exercise hereof shall be made in respect of any event described in Section 2.1 if the Holder is entitled to participate in such event on the same terms mutatis mutandis as if the Holder had exercised or had been deemed to have exercised its Special Warrants prior to or on the effective date or record date of such event. d) Adjustment by Directors In the event that the Corporation after the date hereof shall take any action affecting the Common Shares other than action described in this Section 2, which in the opinion of the directors of the Corporation would materially affect the rights of holders of the Special Warrants, the number of Common Shares which may be acquired upon the exercise or deemed exercise hereof shall be adjusted in such manner and at such time, by action by the directors, in their sole discretion as they may determine to be equitable in the circumstances. Failure of the directors to make such an adjustment shall be conclusive evidence that the directors have determined that it is equitable to make no adjustment in the circumstances. In the event that any such adjustment is made, the Corporation shall deliver a certificate to the Holder describing such adjustment. e) Abandoning Capital Reorganization If the Corporation shall set a record date to determine the holders of the Common Shares for the purpose of entitling them to receive any issue or distribution or for the issue of any rights, options or warrants and shall thereafter and before such distribution or issue to such shareholders legally abandon its plan to make such distribution or issue, then no adjustment in the number of Common Shares which may be acquired upon the exercise or deemed exercise hereof shall be required by reason of the setting of such record date. f) Condition Precedent As a condition precedent to the taking of any action which would require an adjustment pursuant to Section 2.1, the Corporation shall take any action which may, in the opinion of counsel, be necessary in order that the Corporation may validly and legally issue as fully paid and non-assessable all Common Shares which the Holder is entitled to receive on the full exercise or deemed exercise hereof in accordance with the provisions hereof.

9 A-7 g) Notice Forthwith after any adjustment in the number of Common Shares to which the Holder is entitled pursuant to this Section 2, the Corporation shall deliver a notice of such adjustment to the Holder setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. h) Reference to Legal Counsel In case a state of facts shall exist to which the provisions of this Section 2 are not strictly applicable, or if strictly applicable operate in an unclear manner or in a manner that would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes hereof, the Corporation shall execute and deliver to the Holder an amendment hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in accordance with the opinion of Tory Tory DesLauriers & Binnington, counsel to the Corporation, to whom the Corporation or the Holder may refer any such question. 3). Special Warrant Register A register shall be kept by the Registrar and Transfer Agent at its principal office in the City of Toronto, 151 Front Street West, 8th Floor, and at such other offices as may be required by law wherein shall be entered the name, address and description of the registered holder(s) of the Special Warrants and particulars of the Special Warrants. 4). Transfer of Special Warrants The Holder may transfer the Special Warrants evidenced hereby either in whole or in part. Every transfer of Special Warrants must be in writing under the hand of the registered Holder(s) or the Holder(s)' legal personal representatives or the attorney authorized in writing of such registered Holder(s). Any such transfer, accompanied by this Special Warrant certificate, must be delivered at the principal office of the Registrar and Transfer Agent in the City of Toronto, 151 Front Street West, 8th Floor, together with such evidence of identity or title as the Registrar and Transfer Agent may reasonably require, whereupon the transfer will be registered and duly noted by endorsement hereon signed by the Registrar and Transfer Agent. If part only of the Special Warrants evidenced hereby is transferred, the Registrar and Transfer Agent will deliver to the Holder and the transferee replacement such Special Warrants certificates substantially in the form of this certificate. Transfers of the Special Warrants evidenced hereby may be subject to restrictions under applicable securities law. Holders of Special Warrants should consult their own professional advisers in order to assess the legal aspects of a transfer of the Special Warrants evidenced hereby. 5). Notices Any notice or other communication, including a demand or a direction, required or permitted to be given hereunder shall be in writing and shall be given by facsimile or other means of electronic communication or by hand-delivery as hereinafter provided. Any such notice or other communication, if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the business day following the sending, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below either to the individual designated below or to a senior employee of the addressee at such address with responsibility for matters to which the information relates. Notice of change of address shall also be governed by this Section 5. Notice and other communications shall be addressed as follows: (a) in the case of the Corporation: Castle Resources Inc. Suite Bay Street Toronto, ON M5H 2Y2 Attention: Mr. Dennis H. Peterson Telecopier number: (416)

10 A-7 (b) (c) in the case of the Holder, at the address of the holder as set forth on the Special Warrant Register in the case of the Registrar and Transfer Agent: Castle Resources Inc. Suite Bay Street Toronto, ON M5H 2Y2 Attention: Mr. Dennis H. Peterson Telecopier number: (416) (d) in each case, with a copy to: 6). Governing Law Peterson & Company, LLP Suite Bay Street Toronto, ON M5H 2Y2 Attention: Mr. Dennis H. Peterson Telecopier number: (416) The Special Warrants shall be governed by the laws of the Province of Ontario. 7). Time of the Essence Time shall be of the essence hereof. 8). Business Day In the event that any date upon or by which any other action is required to be taken by the Corporation or the Holder is not a business day, then such action shall be required to be taken on or by the next succeeding day which is a business day. 9). Number and Gender Words importing the singular number only include the plural and vice versa and words importing any gender include all genders. 10). Headings The division of this Special Warrant certificate into Sections, clauses, subclauses or other subdivisions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. 11). Binding Effect The terms and conditions of the Special Warrants as set out herein shall enure to the benefit of and be binding upon the registered Holder(s) hereof, its heirs, executors, administrators, successors and assigns to the extent provided herein and shall enure to the benefit of and be binding upon the Corporation and its respective successors and assigns.

11 A-7 12). Severability In the event any provision hereof shall be void or unenforceable for any reason, it shall be severed from the remainder of the provisions hereof and such remainder shall remain in full force and effect notwithstanding such severance. Any court with jurisdiction over any dispute with respect to the Special Warrants may amend the provisions hereof to the minimum extent required to render the impugned provision valid and enforceable. IN WITNESS WHEREOF the Corporation has executed this Special Warrant certificate under its corporate seal this day of, CASTLE RESOURCES INC. By: Robert Bruggeman Director c/s The holding of this warrant does not constitute the Holder a shareholder of the Corporation nor entitle him to any right or interest in respect hereof except as herein expressly provided.