OXUSU Oxus Acquisition Corporation

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A
(Amendment No. 1)

 

CURRENT REPORT

 Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 15, 2024 (February 7, 2024)

 

 

BOREALIS FOODS INC.

(Exact name of Registrant as Specified in its Charter)

 

 

Ontario		001-40778		98-1638988
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

1540 Cornwall Rd. #104 Oakville, Ontario		L6J 7W5
(Address of Principal Executive Offices)		(Zip Code)

 

(905) 278-2200

Registrant’s telephone number, including area code

 

Oxus Acquisition Corp.

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a.12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares		BRLS		Nasdaq Capital Market
Warrants		BRLSW		Nasdaq Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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 financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

Introductory Note

 

Overview

 

This Amendment No. 1 to the Current Report on Form 8-K of Borealis Foods Inc. (“New Borealis”) originally filed by New Borealis on February 13, 2024 (such Current Report, the “Original Current Report”) is being filed for the purpose of supplementing the historical financial statements and pro forma combined financial information provided under Items 9.01(a) and 9.01(b) in the Original Current Report to include the audited consolidated financial statements of each of Oxus Acquisition Corp., our predecessor company (“Oxus”), and Borealis Foods Inc. (“Borealis”), as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations of Oxus and Borealis for the year ended December 31, 2023, and the unaudited pro forma condensed combined financial information of New Borealis for the year ended December 31, 2023. This Amendment No. 1 further amends the Original Current Report in order to reflect business updates and developments at New Borealis subsequent to the filing date of the Original Current Report.

 

The Business Combination

 

On February 7, 2024 (the “Closing Date”), Borealis, Oxus, and 1000397116 Ontario Inc., an Ontario corporation and a wholly owned subsidiary of Oxus (“Newco”), consummated the transactions (collectively, the “Transaction”) contemplated by the Business Combination Agreement, dated as of February 23, 2023, by and among Borealis, Oxus, and Newco (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “Business Combination Agreement”) by means of a statutory arrangement (the “Arrangement”) under the Canada Business Corporations Act and the Business Corporations Act (Ontario), implemented in accordance with the terms and conditions set forth in the Business Combination Agreement and the plan of arrangement attached as Exhibit B thereto (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “Plan of Arrangement”) and which is incorporated herein by reference, following the approval at an extraordinary general meeting of the shareholders of Oxus held on February 2, 2024 (the “Special Meeting”).

 

Pursuant to the terms of the Business Combination Agreement, among other things: (i) Oxus domesticated and continued as a corporation under the laws of Ontario, Canada (“New Oxus”); and (ii) pursuant to the Plan of Arrangement, (a) Newco and Borealis amalgamated (the “Borealis Amalgamation”, and the amalgamated corporation resulting therefrom, “Amalco”), with Amalco surviving the Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (b) following the Borealis Amalgamation, New Oxus and Amalco amalgamated (the “New Borealis Amalgamation,” and together with the Borealis Amalgamation, the “Amalgamations,” and the corporation resulting therefrom, “New Borealis,” as a corporation amalgamated under the Business Corporations Act (Ontario)), with New Borealis surviving the New Borealis Amalgamation. New Borealis will continue under the name “Borealis Foods Inc.”

 

In connection with the Transaction, New Oxus issued an aggregate of 21,378,890 common shares of New Oxus (“New Oxus Common Shares”), which, upon completion of the New Borealis Amalgamation, survived and continued as common shares of New Borealis (the “New Borealis Common Shares,” and the holders thereof upon completion of the Transaction, the “New Borealis Shareholders”).

 

Conversion and Exchange of Equity in the Transaction.

 

Upon the closing of the Transaction (the “Closing”), the following occurred:

 

●

The common shares of Borealis (“Borealis Common Shares”) were exchanged for shares of New Borealis Common Shares equal to the quotient of (a) $150,000,000 minus Borealis’ Closing Net Indebtedness, as agreed to by the parties, of $17,000,000, which equals $133,000,000, divided by (b) $10.00 (the “Aggregate Transaction Consideration”).

 

●

Each Borealis Common Share was exchanged for 0.0661 of a New Borealis Common Share, which is equal to the quotient obtained by dividing the Aggregate Transaction Consideration by the aggregate number of Borealis Common Shares issued and outstanding immediately prior to the Borealis Amalgamation.

 

 

●

As of the Closing Date, the Aggregate Transaction Consideration was 13,300,000 New Oxus Common Shares, and was based on 201,206,834 Borealis Common Shares issued and outstanding, with an exchange rate of 0.0661, which the process is described in the final prospectus and definitive proxy statement, dated January 16, 2024 (the “Proxy Statement/Prospectus”) filed by Oxus with the Securities and Exchange Commission (the “SEC”), which is incorporated herein by reference.

 

A description of the Transaction and the terms of the Business Combination Agreement are included in the Proxy Statement/Prospectus in the section titled “The Business Combination – The Business Combination Agreement” beginning on pages 2 and 107, respectively, of the Proxy Statement/Prospectus.

 

The foregoing description of the Business Combination Agreement is a summary only, does not purport to be complete and is qualified in its entirety by the full text of the Business Combination Agreement, which is incorporated herein by reference.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Shareholder Support Agreements

 

Concurrently with the execution of the Business Combination Agreement, Borealis entered into Shareholder Support Agreements with Oxus and certain Borealis shareholders. Pursuant to the Shareholder Support Agreements, among other things, such Borealis shareholders agreed to vote their Borealis Common Shares in favor of the Transaction and not to sell or transfer their Borealis Common Shares.

 

The Shareholder Support Agreements are described in the Proxy Statement/Prospectus in the sections entitled “Certain Agreements Related to the Business Combination– Shareholder Support Agreements” beginning on pages 5 and 121, respectively, of the Proxy Statement/Prospectus.

 

The foregoing description of the Shareholder Support Agreements does not purport to be complete and is qualified in its entirety by the full text of the form of the Shareholder Support Agreements, which is incorporated herein by reference.

 

Sponsor Support Agreement

 

Concurrently with the execution of the Business Combination Agreement, Borealis entered into a Sponsor Support Agreement with Oxus and Oxus Capital Pte Ltd. (the “Sponsor”), pursuant to which, among other things, the Sponsor agreed to (A) vote its Founder Shares in favor of the Transaction and the Oxus Proposals, (B) not redeem its Founder Shares, (C) waive certain of its anti-dilution rights, (D) convert the Sponsor Convertible Notes, and (E) forfeit certain Sponsor Founder Shares as a part of incentive equity compensation for directors, officers and employees of Borealis.

 

The Sponsor Support Agreement is described in the Proxy Statement/Prospectus in the section titled “Certain Agreements Related to the Business Combination Agreement – Sponsor Support Agreement” beginning on pages 5 and 121, respectively, of the Proxy Statement/Prospectus.

 

The foregoing description of the Sponsor Support Agreement does not purport to be complete and is qualified in its entirety by the full text of the Sponsor Support Agreement, which is incorporated herein by reference.

 

Third Amended and Restated Promissory Note

 

On February 7, 2024, New Borealis and the Sponsor entered into a Promissory Note (the “Sponsor Note”), which amends, replaces, and supersedes in its entirety the Second Amended and Restated Promissory Note, dated October 2, 2023 (the “Original Sponsor Note”), pursuant to which Oxus was granted the right to borrow up to an aggregate principal amount of $6,000,000. The Sponsor Note’s principal shall be payable on the one-year anniversary of the Sponsor Note. The Sponsor Note was amended and restated to extend the maturity date from the Closing Date to February 7, 2025, and to include an assumption of liabilities to constitute a drawdown of the principal.

 

 

The foregoing description of the Original Sponsor Note does not purport to be complete and is qualified in its entirety by the full text of the Original Sponsor Note, which is incorporated herein by reference. The foregoing description of the Sponsor Note does not purport to be complete and is qualified in its entirety by the full text of the Sponsor Note, which is incorporated herein by reference, a copy of which is attached hereto as Exhibit 10.11.

 

Registration Rights Agreements

 

At Closing, the Sponsor, Oxus directors, certain Borealis shareholders, and certain Borealis directors and officers (the “Holders”) entered into Registration Rights Agreements, pursuant to which Oxus will be obligated to file a registration statement to register the resale of certain securities of Oxus held by the Holders. The Registration Rights Agreement will also provide the Holders with “piggy-back” registration rights, subject to certain requirements and customary conditions.

 

The terms of the Registration Rights Agreements described in the Proxy Statement/Prospectus in the section titled “Certain Agreements Related to the Business Combination Agreement – Registration Rights Agreements” beginning on pages 5 and 121 respectively, of the Proxy Statement/Prospectus.

 

The foregoing description of the Registration Rights Agreements does not purport to be complete and is qualified in its entirety by the full text of the form of the Registration Rights Agreements, which is incorporated herein by reference.

 

Lock-Up Agreements

 

At Closing, the Holders entered into Lock-Up Agreements, pursuant to which (A) 50% of the New Borealis Common Shares held by either a director, officer, or 5% or greater holder party to such agreements (the “Restricted Securities”) will be locked-up during the period commencing from Closing and ending on the earlier to occur of (i) 12 months after the date of the Closing and (ii) the date on which the closing price of New Borealis Common Shares equals or exceeds $12.00 per share (as adjusted to take into account any stock split, stock dividend, reverse stock split, recapitalization or similar event) for any 20 trading days within a 30-trading day period starting after the Closing, and (B) 50% of the Restricted Securities will be locked-up during the period commencing from Closing and ending on 12 months after the date of Closing, subject to certain specifications and exceptions.

 

The terms of the Lock-Up Agreements are described in the Proxy Statement/Prospectus in the section titled “Certain Agreements Related to the Business Combination Agreement – Lock-Up Agreements” beginning on pages 5 and 121, respectively.

 

The foregoing description of the Lock-Up Agreements does not purport to be complete and is qualified in its entirety by the full text of the form of the Lock-Up Agreements, which is incorporated herein by reference.

 

New Investor Note Purchase Agreements

 

In accordance with the terms of the Business Combination Agreement, Borealis executed New Investor Note Purchase Agreements with certain investors. On February 8, 2023, a New Investor Note Purchase Agreement for an amount of $20,000,000 was executed by Belphar Ltd. (the “Belphar Note”). On March 3, 2023, a New Investor Note Purchase Agreement for an amount of $5,000,000 was executed by Saule Algaziyeva (the “Saule Note”). On November 15, 2023, a New Investor Note Purchase Agreement for an amount of $2,000,000 was executed by Aman Murat Baikadamuly (the “Aman Note”). On January 30, 2024, a New Investor Note Purchase Agreement for an amount of $3,000,000 was executed by GSS Overseas LTD. (the “GSS Note,” and collectively with the Belphar Note, the Saule Note, and the Aman Note, the “New Investor Note Purchase Agreements”). The amount of the Minimum Cash Condition set forth in the Business Combination Agreement was reduced by any cash amounts received by Borealis prior to the Closing in connection with (A) the New Investor Convertible Note Financing, including $30,000,000 received through January 30, 2024, or (B) any Permitted Company Financing. All New Investor Convertible Notes issued pursuant to the New Investor Note Purchase Agreements converted into 4,163,510 New Borealis Common Shares immediately following the New Borealis Amalgamation.

 

 

The terms of the New Investor Note Purchase Agreements are described in the Proxy Statement/Prospectus in the section titled “Certain Agreements Related to the Business Combination– New Investor Note Purchase Agreements” beginning on pages 5 and 121, respectively.

 

The foregoing description of the New Investor Note Purchase Agreements does not purport to be complete and is qualified in its entirety by the full text of the Belphar Note and the Saule Note, each of which is incorporated herein by reference, and the Aman Note and the GSS Note, copies of which are attached hereto as Exhibits 10.8 and 10.9, respectively.

 

Belphar Ltd. Board Nomination Agreement

 

On February 7, 2024, a Board Nomination Agreement was entered into by New Borealis and Belphar Ltd. (“Belphar”) effective upon Closing. Such agreement provides that, so long as Belphar and its affiliates continue to beneficially own or control at least eight percent (8%) of the issued and outstanding New Borealis Common Shares, Belphar has the right to designate one nominee for election to the board of directors of New Borealis (the “New Borealis Board”). Among other things, Belphar’s nominee must: (A) meet the qualification requirements to serve as a director under the Business Corporations Act (Ontario), applicable U.S. securities laws and/or the applicable rules of any stock exchange on which the New Borealis Common Shares are listed; (B) be an independent director pursuant to the requirements of the Nasdaq Capital Market ( “Nasdaq”); and (C) substantially satisfy the recommendations for director nominees in Institutional Shareholder Services’ and Glass Lewis’ proxy voting guidelines applicable to New Borealis in effect from time to time. Belphar’s initial nominee is Shukhrat Ibragimov.

 

The foregoing description of the Board Nomination Agreement does not purport to be complete and is qualified in its entirety by the full text of the Board Nomination Agreement, which is incorporated herein by reference.

 

Indemnification Agreements

 

On the Closing Date, New Borealis entered into indemnification agreements with each of its directors and executive officers. These indemnification agreements provide the directors and executive officers of New Borealis with contractual rights to indemnification and advancement of certain expenses incurred by such director or executive officer in any action or proceeding arising out of his or her services as one of New Borealis’ directors or executive officers.

 

The foregoing description of the indemnification agreements does not purport to be complete and is qualified in its entirety by the full text of the form of indemnification agreement, a copy of which is attached hereto as Exhibit 10.13.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

The disclosure set forth in the “Introductory Note” above is incorporated by reference into this Item 2.01 of this Current Report on Form 8-K.

 

FORM 10 INFORMATION

 

Item 2.01(f) of this Current Report on Form 8-K states that if the predecessor registrant was a shell company, as Oxus was immediately before the Transaction, then the registrant must disclose the information that would be required if the registrant were filing a general form for registration of securities on Form 10. Accordingly, New Borealis is providing the information below that would be included in a Form 10 if it were to file a Form 10. Please note that the information provided below relates to the combined company after the consummation of the Transaction unless otherwise specifically indicated or the context otherwise requires.

 

Forward-Looking Statements.

 

Certain statements in this Current Report on Form 8-K and in documents incorporated herein by reference may constitute “forward-looking statements” for purposes of the federal securities laws. New Borealis’ forward-looking statements include, but are not limited to: statements regarding New Borealis management team’s expectations, beliefs, intentions, projections and predictions, future plans, strategies and tactics, anticipated events or trends and similar expressions concerning factual matters that are not historical facts. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, respective capital resources, or performance, including any underlying assumptions, are forward-looking statements.

 

 

In some cases, you can identify forward-looking statements by the following words: “approximately,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “seeks,” “would” or the negative version of these words or other comparable words or phrases and similar expressions, although the absence of these words does not mean that a statement is not forward-looking.

 

Forward-looking statements in the Proxy Statement/Prospectus may include, but are not limited to, for example, statements about: changes in New Borealis’ strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, and plans; and expansion plans and opportunities.

 

These forward-looking statements are based on information available as of the date of this Current Report on Form 8- K, and current expectations, forecasts, and assumptions, and involve a number of judgments, risks, and uncertainties and are not predictions of actual performance. Accordingly, forward-looking statements should not be relied upon as representing New Borealis’ views as of any subsequent date, and New Borealis does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

These forward-looking statements are not intended to serve as, and must not be relied on as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability regarding future performance, events, or circumstances. Many of the factors affecting actual performance, events, and circumstances are beyond the control of New Borealis. As a result of a number of known and unknown risks and uncertainties, New Borealis’ actual results or performance may be materially different from those expressed or implied by these forward-looking statements.

 

Some factors that could cause actual results to differ include:

 

●

Borealis’ limited operating history makes it difficult to evaluate its business and prospects;

 

●

Borealis may be unable to execute its business plan or maintain its competitive position and high-level customer satisfaction if Borealis fails to maintain adequate operational and financial resources, particularly if Borealis continues to grow rapidly;

 

●

a significant portion of Borealis’ revenue is concentrated with a limited number of customers;

 

●

adverse climate conditions may have an adverse effect on Borealis’ business. Borealis may take various actions to mitigate its business risks associated with climate change, which may require Borealis to incur substantial costs and may not be successful, due to, among other things, the uncertainty associated with the longer-term projections associated with managing climate risks;

 

●

Borealis’ dependence on suppliers may materially adversely affect its operating results and financial position;

 

●

manufacturing and production forecasts are based on multiple assumptions. Borealis must adequately estimate its manufacturing capacity and inventory supply. If Borealis overestimates its demand and overbuilds its capacity or inventory, it may have significantly underutilized assets. Underutilization of Borealis’ manufacturing facilities can adversely affect its gross margin and other operating results;

 

●

Borealis may experience volatility in costs for ingredients and packaging due to conditions that are difficult to predict;

 

●

Borealis’ future success will depend, in part, on its ability to maintain its technological leadership, enhance its current food products, develop new food products that meet changing customer needs and preferences, advertise and market its food products, and influence and respond to emerging industry standards and other technological changes on a timely and cost-effective basis;

 

●

Borealis’ business depends on its use of proprietary technology relying heavily on laws to protect;

 

●

New Borealis’ management team has limited experience managing a public company;

 

 

●

U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or the New Borealis Board; and

 

●

New Borealis will incur significant increased costs as a result of operating as a public company, and its management will be required to devote substantial time to new compliance initiatives.

 

Other risks and uncertainties indicated in this Current Report on Form 8-K, including those under “Risk Factors” herein, and other filings that have been made or will be made with the SEC by New Borealis.

 

These statements are based upon information available to New Borealis, as the case may be, as of the date of this Current Report on Form 8-K, and while New Borealis, as the case may be, believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that such party has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

Please see the other risks and uncertainties set forth in the Proxy Statement/Prospectus in the section titled “Risk Factors” beginning on page 26 of the Proxy Statement/Prospectus and is incorporated herein by reference.

 

Business and Properties.

 

The business of New Borealis is described in the Form 10-K of New Borealis, filed with the SEC on April [●], 2024 (the “Annual Report”) in the section titled “Item 1. Business” beginning on page 1, which is incorporated herein by reference.

 

The properties of New Borealis are described in the Annual Report in the sections titled “Item 1. Business” beginning on page 1 and in “Item 2. Properties” beginning on page 21, which are incorporated herein by reference.

 

The business and properties of Oxus prior to the Transaction are described in the Proxy Statement/Prospectus in the section titled “Information About  Oxus” beginning on page 191, and such description is incorporated herein by reference.

 

Risk Factors.

 

The risks associated with Borealis’ business are described in the Proxy Statement/Prospectus in the section titled “Risk Factors” beginning on page 26, and are incorporated herein by reference.

 

Financial Information of Borealis.

 

Reference is made to the disclosure set forth in Item 9.01 of this Current Report on Form 8-K concerning the financial information of Borealis and Oxus, which is incorporated herein by reference.

 

Deferred Transaction Fees.

 

In connection with the Closing, New Borealis deferred a majority of the Closing Transaction Fees (as defined in the Business Combination Agreement) to the first anniversary of the Closing Date or an earlier date in the event of the occurrence of specified events.

 

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

 

Reference is made to the disclosure set forth in Item 9.01 of this Current Report on Form 8-K concerning the management’s discussion and analysis of financial condition and results of operations of Borealis and Oxus, which is incorporated herein by reference.

 

Directors and Executive Officers.

 

New Borealis’ directors and executive officers as of immediately after the Closing are set forth in the table below, with each person’s biography and familial relationship, if any, described in the Proxy Statement/Prospectus in the section titled “Management of New Borealis After the Business Combination,” beginning on page 206, which section of the Proxy Statement/Prospectus is incorporated herein by reference.

 

 

Directors and Executive Officers		Age		Position/Title
Reza Soltanzadeh		51		Director and Chief Executive Officer
Barthelemy Helg		58		Non-executive Chairman and Directors
Pouneh Rahimi		56		Chief Legal Officer
Stephen Wegrzyn		59		Chief Financial Officer
Matt Talle		62		Chief Strategy Officer
Henry Wong		57		Chief Marketing Officer
Ertharin Cousin		66		Director
Shukhrat Ibragimov		37		Director
Kanat Mynzhanov		40		Director
Steven Oyer		68		Director
Shiv Vikram Khemka		61		Director

 

Biographical information concerning the directors and executive officers listed above is set forth below.

 

Reza Soltanzadeh, M.D. is a co-founder of Borealis and has served as its Chief Executive Officer and a member of Borealis’ board of directors since July 2019. Prior to founding Borealis, Dr. Soltanzadeh served as the Chief Executive Officer of IIIC Investment Group, an emerging markets multibillion-dollar food-focused buyout firm, from February 2003 to May 2016. Dr. Soltanzadeh has continued to serve as a founder and partner of Z Ventures, Inc., an early-stage green technology investment company, since its founding in March 2008. Dr. Soltanzadeh obtained his M.D. from the University of Manipal, India. Dr. Soltanzadeh is qualified to serve on the New Borealis Board due to his business and technical expertise, along with his strategic insight into Borealis’ business as its current Chief Executive Officer.

 

Barthelemy Helg is a co-founder of Borealis and has served as the Chairman of Borealis’ board of directors since July 2019. Mr. Helg has served as Chairman of Dara Capital AG, a FINRA and SEC registered investment advisory and wealth management company since March 2015. Mr. Helg currently serves as a Director of AB2 Bio Ltd, a biotech company he co-founded focused on treatment of rare autoimmune diseases since July 2010. Mr. Helg served as Managing Partner of Lombard Odier & Co, where he was a member of the Finance Risk and Credit committees, from April 2000 to December 2006. Prior to that, he was Vice President for Mergers and Acquisitions of Nestle S.A. from January 1998 to March 2000. Mr. Helg began his carrier as an investment banker at Goldman Sachs. Mr. Helg obtained his M.L. from the University of Geneva, Switzerland, his L.L.M. from New York University and an MBA from Harvard Business School. He is also admitted to the New York Bar. Mr. Helg is qualified to serve on the New Borealis Board due to his extensive experience working with entrepreneurial companies and his experience in the food industry.

 

Pouneh Rahimi has served as Borealis’ Chief Legal Officer since July 2019. Ms. Rahimi also serves as legal counsel at Rahimi Law Office, a position she has held since September 2003. In this role, Ms. Rahimi serves as part-time general counsel to select technology companies, addressing their day-to-day legal matters arising in connection with ongoing operations including negotiation of strategic contracts and technology licensing. Ms. Rahimi has over 25 years of experience working with companies in the high-tech industry both as a lawyer and trusted business advisor. Ms. Rahimi’s practice has focused on general corporate and business matters including corporate governance and compliance, intellectual property development and licensing, trademarks (in the U.S. and Canada), and private debt and equity financing. Earlier in her career, Ms. Rahimi served as a general counsel to MRO Software, Inc. formally a publicly traded company on Nasdaq, as well as a corporate associate at Nixon Peabody LLP. Ms. Rahimi obtained her J.D. from the New England School of Law and her B.A. from McGill University. Ms. Rahimi is licensed to practice law in New York, Massachusetts, and Ontario.

 

Steve Wegrzyn has served as Borealis’ Chief Financial Officer since July 2020. Prior to joining Borealis, Mr. Wegrzyn served as the Interim Chief Financial Officer and Integration Specialist for Shed Financial Services, a financial services company, from January 2019 to July 2020. Prior to Shed Financial Services, Mr. Wegrzyn served as Chief Financial Officer for Diesel Laptops, an automotive software company, from January 2018 to November 2018. Mr. Wegrzyn held several interim CFO consulting positions from January 2015 to March 2018 in various industries including computer manufacturing, chemical manufacturing, waste transportation, trucking, and food manufacturing. Mr. Wegrzyn began his career as an accountant at Ernst and Young. Mr. Wegrzyn obtained his B.S. in Accounting and Finance from the Darla Moore School of Business of the University of South Carolina.

 

 

Matt Talle has served as Chief Strategy Officer of Palmetto Food Group (a subsidiary of Borealis) since January 2020. Prior to joining Palmetto Food Group, Mr. Talle held multiple leadership roles with increasing responsibility at Nissin Foods U.S. where he worked for 30 years. During his tenure at Nissin Foods, Mr. Talle served as Vice President of Business Development from June 2015 to December 2019, as Executive Vice President, Board of Director from March 2010 to June 2015, and from March 2008 to June 2010, Mr. Talle served as of Vice President of sales and Marketing. Mr. Talle obtained his B.S., Ag-Business from California Polytechnic University.

 

Henry Wong has served as Chief Marketing Officer of Palmetto Food Group (a subsidiary of Borealis) since 2021. Mr. Wong has also served as President and Creative Strategist of Vyoo Brand + Content, a branding and marketing agency, since September 2016. His past experience also includes being Sr. VP of Global Ad Agency Saatchi & Saatchi as well as marketing for such food brands as Maple Leaf Foods, P&G, and Hormel Foods. Mr. Wong holds bachelor degrees from Toronto Metropolitan University and the University of Toronto in Media Studies and Film.

 

Ertharin Cousin became a director of New Borealis on February 7, 2024 pursuant to the terms of the Plan of Arrangement. Since September 2019, Ms. Cousin has served as Founder, President and Chief Executive Officer of Food Systems For The Future Institute, a non-profit organization to catalyze, enable and scale market-driven agtech, foodtech, and food innovations, and also as Visiting Scholar, Spogli Institute for the Study of International Relations, Center for Food and Environment at Stanford University. She has served as Distinguished Fellow of The Chicago Council on Global Affairs, a global affairs think tank, since June 2017. Ms. Cousin previously served at Stanford University as Payne Distinguished Lecturer and Visiting Fellow, Spogli Institute for the Study of International Relations, Center for Food and Environment from September 2017 to June 2019. From April 2012 to April 2017, Ms. Cousin served as Executive Director of the United Nations World Food Programme, the food-assistance branch of the United Nations, and she served as Ambassador and Permanent Representative to the United Nations Food and Agriculture Agencies on behalf of the U.S. Department of State from August 2009 to April 2012. Ms. Cousin previously served in a variety of executive roles between 1987 and 2009, including Founding President and Chief Executive Officer of The Polk Street Group, a management services company; Executive Vice President and Chief Operating Officer of America’s Second Harvest; Senior Vice President, Public Affairs for Albertsons Companies; White House Liaison and Special Advisor to the Secretary for the 2016 Olympics for the U.S. Department of State; and Assistant Attorney General for The State of Illinois. Ms. Cousin currently serves a member of the Supervisory Board of Bayer AG and the Board of Directors of Mondelez International, Inc. Ms. Cousin earned a B.A. at the University of Illinois at Chicago and received her J.D. from the University of Georgia School of Law.

 

Shukhrat Ibragimov became a director of New Borealis on February 7, 2024 pursuant to the terms of the Plan of Arrangement. Mr. Ibragimov serves as member of the Board of Directors of Eurasian Resources Group (ERG), a leading natural resources (ferrochrome, iron, aluminum) company with the integrated mining, processing, energy, logistics and marketing operations based mainly in Kazakhstan and operating globally (extraction and processing of metals), since March 2021. Prior to his appointment to the Board of Directors of ERG, Mr. Ibragimov served as ERG’s Head of Business Development since 2015. Mr. Ibragimov currently also serves as member of the Boards of Directors of Eurasia Insurance Company JSC, Eurasian Financial Company JSC, Eurasian Bank JSC. In 2020, Mr. Ibragimov founded Eurasian Space Ventures LLP (ESV) based in Kazakhstan, venture fund investing in startups in aerospace industry. Through ESV, Mr. Ibragimov controls BITEEU, a cryptocurrency exchange operating globally. Mr. Ibragimov also is a co-founder of SPRK Music, a music platform that helps musicians to be discovered via a dedicated platform. Mr. Ibragimov graduated from the European Business School London with bachelor degree and the Beijing Language and Culture University with masters’ degree.

 

Kanat Mynzhanov became a director of New Borealis on February 7, 2024 pursuant to the terms of the Plan of Arrangement. Mr. Mynzhanov has served as Oxus’ Chief Executive Officer and director since Oxus’ inception in February 2021. Mr. Mynzhanov led and co-founded a hedge fund, Bellprescot Prime Fund, and asset management firm Bellprescot Asset Management in September 2016. He served as the director of the investment advisory firm, Bellprescot Ltd. from September 2016 until April 2021. He served as the chief investment officer of Bellprescot Asset Management from September 2016 to June 2020. The hedge fund’s primary focus of investments was technology driven public companies with leading and disruptive products and service, including internet of things and cloud, autonomous driving, artificial intelligence, machine learning, semiconductors, cybersecurity and robotics. Since 2018, Mr. Mynzhanov advised on several private equities deals in fintech (payments, remittances and alternative financing), mobility (including EV battery metals and EV battery technology) and structured products, including tokenization and syndicated co-lending. Prior to founding the hedge fund, Mr. Mynzhanov served as the head of investments at Kazatomprom-Damu, an investment subsidiary of NAC Kazatomprom JSC, where he led and mentored a team of highly skilled investment managers responsible for mergers and acquisitions, joint ventures and business development across metals & mining, rare metals and alternative energy industries. Mr. Mynzhanov joined NAC Kazatomprom JSC in 2014 as an investment manager and during his time, he oversaw numerous projects and established strong connections with some of the largest global firms in the industry. From March 2011 to March 2014, Mr. Mynzhanov consulted and led the business development of a tungsten concentrate producer in CIS region. From November 2008 to March 2011, Mr. Mynzhanov led and participated in operational, commercial and investment management of oil tankers firm in London. Over the years, Mr. Mynzhanov consulted for various firms, including those in the metals and mining sector, on raising capital through initial public offerings, as well as restructuring and various business developments. Mr. Mynzhanov holds a Master of Science from University of Westminster.

 

 

Steven Oyer became a director of New Borealis on February 7, 2024 pursuant to the terms of the Plan of Arrangement. Mr. Oyer is a seasoned finance executive with over 40 years of business and investment experience. Since January 2023, Mr. Oyer served as the Managing Partner of Sustainable Finance Partnerships (SFP) where he advises companies in capital transactions and business development. Prior to that, Mr. Oyer served as Chief Executive Officer of i(x) Net Zero, a publicly traded holding company focused on energy transition and sustainability. From September 2015 to February 2018, Mr. Oyer served as Senior Vice President at Lazard Asset Management where he led their Global Family Office Advisory Group. Mr. Oyer’s experience includes a senior position at the Private Funds Group of Brookfield Asset Management focused on Real Assets and Renewable Investments. Additionally, Mr. Oyer served as interim Chief Executive Officer and led the restructuring of Saflink Corporation, a NASDAQ listed biometric software company. Mr. Oyer served as a board member and audit chair of Salton, Inc., a designer, marketer, manufacturer, and distributor of a broad range of branded small appliances. Mr. Oyer was the founder of Quake Capital, an accelerator that fosters early-stage ventures led by student and faculty entrepreneurs from university ecosystems and still serves in an advisory capacity. Mr. Oyer is currently a board member of The Truth Initiative, a nonprofit public health organization committed to tobacco use prevention and nicotine addiction. He also has served as a member of the investment committee for the Florida Atlantic University’s Foundation. Mr. Oyer attended the University of Massachusetts.

 

Shiv Vikram Khemka became a director of New Borealis on February 7, 2024 pursuant to the terms of the Plan of Arrangement. Mr. Khemka has served as one of Oxus’ independent directors commencing since September 2021. Mr. Khemka is a vice-chairman of SUN Group, a 120-year-old family enterprise comprised of both operating and investment companies. He has served as a vice-chairman of SUN Group since 1990. SUN Group is active in asset management, natural resources, green infrastructure and high technology. SUN has partnered to establish SUN Mobility, an energy tech company focused on becoming a leader in EV energy. SUN is also a significant investor in a leading EV solid state battery manufacturer. The group has been active in various regions around the world, including India, the Middle East, Central and South-East Asia. Mr. Khemka is the chairman of the Entrepreneurship Sports Generation, also executive chairman of the Global Education and Leadership Foundation. He is currently a member of the board of governors at Junior Achievement Worldwide and is a member of the Leadership Council at the Brooking Centre for Universal Education. The World Economic Forum elected Mr. Khemka a “Global Leader for Tomorrow” and he was also a member of the organization’s Global Agenda Council on Education. He has served on both the Brown University and Yale University’s President’s Councils. Mr. Khemka has also served as a board member on the Stanford Philanthropy and Civic Society (PACS) centre. He is currently a founding member of V20, a global community of values experts and practitioners that engage with G20, and is the chairman of Aikido Aikikai Foundation of India. He was awarded the Dr. Jean Mayer Global Citizenship Award from Tufts University, the Outstanding Contribution to Education Prize and the India Alumni Award from the Wharton School of Business. Mr. Khemka studied at Eton College, earned a BA in economics from Brown (1985), an MBA/MA with distinction from the Wharton School of Business and the Lauder Institute at the University of Pennsylvania (1990).

 

Belphar Board Nomination Agreement

 

The information set forth in the Item 1.01 above with respect to the Belphar Board Nomination Agreement is incorporated by reference into this Item 2.01 of this Current Report on Form 8-K.

 

Director and Executive Compensation

 

Information with respect to the compensation of New Borealis’ executive officers is described in the Proxy Statement/Prospectus in the section titled “Executive and Director Compensation” beginning on page 212, which is incorporated herein by reference.

 

New Borealis will determine the annual compensation to be paid to the members of the New Borealis Board.

 

Security Ownership of Certain Beneficial Owners and Management.

 

The following table sets forth information regarding the actual beneficial ownership of New Borealis as of February 7, 2024 by:

 

●

each person who is the beneficial owner of more than 5% of the issued and outstanding New Borealis Common Shares; and

 

●

each of New Borealis’ named executive officers and directors.

 

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she, or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days of February 7, 2024.

 

The beneficial ownership of New Borealis is based on 21,378,890 New Borealis Common Shares issued and outstanding as of February 7, 2024, immediately following the Closing of the Transaction.

 

Unless otherwise indicated, New Borealis believes that all persons named in the table below have sole voting and investment power with respect to all Borealis Common Shares beneficially owned by them. To our knowledge, no New Borealis Common Shares beneficially owned by any executive officer or director have been pledged as security.

 

 

The following table illustrates varying ownership levels in New Borealis with the percentage of outstanding shares based on New Borealis Common Shares:

 

Name and Address of Beneficial Owner		Number of shares				% of Total Voting Power
Directors and Named Executive Officers of New Borealis(1)
Reza Soltanzadeh(2)			3,660,452				17.121	%
Barthelemy Helg(3)			3,205,556				14.994	%
Stephen Wegrzyn(4)			33,046				*
Pouneh Rahimi(5)			—				*
Matt Talle(6)			80,962				*
Henry Wong(7)			14,334				*
Kanat Mynzhanov(8)			200,000				*
Shiv Vikram Khemka(9)			50,000				*
Shukhrat Ibragimov(10)			3,224,880				15.084	%
Steven Oyer			—				—
Ertharin Cousin			—				—
All directors and executive officers as a group (11 individuals)			10,469,230				49.87	%
Five or more Percent Holders
Reza Soltanzadeh(2)			3,660,452				17.121	%
Leila Rasoulian(13)			3,660,452				17.121	%
Oxus Capital Pte.(11)			5,352,477				25.036	%
Belphar Ltd.(12)			2,848,955				13.326	%
Barthelemy Helg(3)			3,205,556				14.994	%

 

*	Less than 1%.

 

(1)	Unless otherwise noted, the business address of each of the following entities or individuals is c/o Borealis Foods Inc., 1540 Cornwall Road, Suite 104, Oakville, Ontario L6J 7W5.

 

(2)

Consists of (i) 3,532,505 Common Shares held by Zagros Alpine Capital ULC and (ii) 127,947 Common Shares held by Z Ventures Inc. Reza Soltanzadeh is the President of Zagros Alpine Capital ULC and Z Ventures Inc. Leila Rasoulian is the spouse of Mr. Soltanzadeh. Mr. Soltanzadeh and Ms. Rasoulian may be deemed to share beneficial ownership of all the Common Shares held by Zagros Alpine Capital ULC and Z Ventures Inc. Mr. Soltanzadeh and Ms. Rasoulian may be deemed to have joint voting and dispositive power over the shares held by Zagros Alpine Capital ULC and Z Ventures Inc.

 

(3)	Consists of 3,205,556 Common Shares.

 

(4)	Consists of 33,046 Common Shares.

 

(5)	Does not include of 192,368 Common Shares held by Zagros Alpine Capital ULC. Ms. Rahimi does not have voting or dispositive power over the shares held by Zagros Alpine Capital ULC.

 

(6)	Consists of 80,962 Common Shares. Does not include 133,703 Common Shares held by Zagros Alpine Capital ULC. Mr. Talle does not have voting or dispositive power over the shares held by Zagros Alpine Capital ULC.

 

(7)	Consists of 14,334 Common Shares.

 

(8)	Consists of 200,000 Common Shares.

 

(9)	Consists of 50,000 Common Shares.

 

(10)	Consists of (i) 2,848,955 Common Shares held by Belphar Ltd. and (ii) 375,925 Common Shares held by GSS Overseas LTD. Mr. Ibragimov is the sole shareholder of Belphar Ltd. and GSS Overseas LTD. and has sole voting and dispositive power over the shares of Belphar Ltd. and GSS Overseas LTD.

 

(11)	Consists of 5,352,477 Common Shares. Kenges Rakishev is the controlling shareholder.

 

(12)	Consists of 2,848,955 Common Shares. Mr. Ibragimov is the controlling shareholder.

 

(13)

Consists of (i) 3,532,505 Common Shares held by Zagros Alpine Capital ULC and (ii) 127,947 Common Shares held by Z Ventures Inc. Reza Soltanzadeh is the spouse of Ms. Rasoulian. Ms. Rasoulian and Mr. Soltanzadeh may be deemed to share beneficial ownership of all the Common Shares held by Zagros Alpine Capital ULC and Z Ventures Inc. Ms. Rasoulian and Mr. Soltanzadeh may be deemed to have joint voting and dispositive power over the shares held by Zagros Alpine Capital ULC and Z Ventures Inc.

 

 

Certain Relationships and Related Party Transactions, and Director Independence.

 

Certain relationships and related party transactions are described in the Proxy Statement/Prospectus in the sections titled “Certain Borealis Relationships and Related Person Transactions” and “Certain Oxus Relationships and Related Person Transactions” beginning on pages 216 and 218, respectively, of the Proxy Statement/Prospectus, which are incorporated herein by reference.

 

Reference is made to the disclosure regarding director independence in the section of the Proxy Statement/Prospectus titled “Management of New Borealis After the Business Combination – Independence of Directors” beginning on page 206 of the Proxy Statement/Prospectus, which is incorporated herein by reference.

 

The information set forth under “Item 1.01 Entry into a Material Definitive Agreement,” “Shareholder Support Agreement,” “Sponsor Support Agreement,” “Registration Rights Agreements and Lock-Up Agreements,” “New Investor Note Purchase Agreement,” “Board Nomination Agreement,” and “Item 5.02 Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers” of this Current Report on Form 8-K is incorporated into this Item 2.01 by reference.

 

Legal Proceedings.

 

There is no material litigation, arbitration, or governmental proceeding currently pending against New Borealis or any members of its management team.

 

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Market Information and Holders

 

Oxus’ units, common stock and warrants were historically quoted on the Nasdaq under the symbols “OXUS,” “OXUSU” and “OXUSW,” respectively. The New Borealis Common Shares and the New Borealis Warrants began trading on Nasdaq under the new trading symbols “BRLS” and “BRLSW,” respectively, on February 8, 2024.

 

As of the Closing Date and following the completion of the Transaction, New Borealis had 21,378,890 New Borealis Common Shares issued and outstanding held of record by 79 holders and 9,300,000 New Borealis Warrants outstanding held of record by 4 holders.

 

Dividends

 

New Borealis has not paid any dividends to its shareholders. The New Borealis Board will consider whether or not to institute a dividend policy in the future. The determination to pay dividends will depend on many factors, including, among others, New Borealis’ financial condition, current, and anticipated cash requirements, contractual restrictions and financing agreement covenants, solvency and other tests imposed by applicable corporate law and other factors that the New Borealis Board may deem relevant.

 

Recent Sales of Unregistered Securities.

 

Reference is made to the disclosure set forth under Item 3.02 of this Current Report on Form 8-K concerning recent sales of unregistered securities, which is incorporated herein by reference.

 

Description of Registrant’s Securities.

 

New Borealis’ Common Shares

 

A description of New Borealis Common Shares is included in the Proxy Statement/Prospectus in the section titled “Description of New Borealis Securities” beginning on page 221 and is incorporated herein by reference.

 

New Borealis Warrants

 

A description of New Borealis Warrants is included in the Proxy Statement/Prospectus in the sections titled “New Borealis Warrants” and “Exercise of New Borealis Warrants” beginning on pages 226 and 132, respectively, and is incorporated herein by reference.

 

 

Indemnification of Directors and Officers.

 

In connection with the Transaction, New Borealis entered into indemnification agreements with each of its directors and officers. These indemnification agreements provide such directors and executive officers with contractual rights to indemnification and expense advancement.

 

The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the text of the form of indemnification agreements, a copy of which is attached hereto as Exhibit 10.13 and is incorporated herein by reference.

 

Financial Statements and Supplementary Data.

 

The information set forth in Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.

 

Changes in Accountants on Accounting and Financial Disclosure.

 

The information set forth under Item 4.01 of this Current Report on Form 8-K is incorporated herein by reference.

 

Financial Statements and Exhibits.

 

Reference is made to the disclosure set forth under Item 9.01 of this Current Report on form 8-K concerning the financial information of New Borealis.

 

Item 2.02 Results of Operations and Financial Condition.

 

Reference is made to the disclosure set forth under Item 9.01 of this Current Report on Form 8-K concerning the financial statements of Borealis and the disclosure contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations of Borealis, is incorporated herein by reference.

 

Item 3.02 Unregistered Sales of Equity Securities

 

Following the Closing, the New Investor Convertible Notes, each of which was issued pursuant to a New Investor Note Purchase Agreement, converted into 4,163,510 New Borealis Common Shares. The New Borealis Common Shares issued pursuant to the New Investor Convertible Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or were issued in reliance upon the exemption provided under Section 4(a)(2) of the Securities Act and Regulation S promulgated thereunder. Further information regarding the New Investor Convertible Notes is made under the subheading “New Investor Note Purchase Agreements” in Item 1.01 of this Current Report on Form 8-K, which is incorporated in this Item 3.02 by reference.

 

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Each of these transactions was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (or Regulation S as promulgated thereunder) as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the note certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or general advertising.

 

Further, the issuance of New Borealis Common Shares upon the conversion of the New Investor Convertible Notes is exempt from registration under Section 3(a)(10) of the Securities Act as the examination and approval by the court or governmental entity (either U.S. or foreign) of the fairness of the business combination or exchange offer is deemed to be an adequate substitute for the protection afforded to investors.

 

Item 3.03 Material Modification to Rights of Security Holders.

 

Pursuant to the Plan of Arrangement: (a) Articles of Amalgamation were filed for New Borealis (the “Articles”) with the Ministry of Public and Business Service Delivery of Ontario; and (b) New Borealis adopted amended and restated bylaws substantially in the form included in Annex J to the Proxy Statement/Prospectus (the “Bylaws,” and together with the Articles, the “Governing Documents”), in each case effective as of February 7, 2024. Following the Arrangement, existing Oxus shareholders became holders of New Borealis Common Shares and, as such, their rights are governed by the Governing Documents and applicable law.

 

 

The material terms of the Governing Documents and the general effect upon the rights of the New Borealis Shareholders are described in the Proxy Statement/Prospectus beginning at page 156 thereof, which is incorporated by reference herein. The foregoing description of the Governing Documents is a summary only and is qualified in its entirety by reference to the complete text of the Articles and the Bylaws, respectively, each of which is incorporated herein by reference.

 

Item 4.01 Change in Registrant’s Certifying Accountants.

 

On February 7, 2024, the New Borealis Board approved the appointment of Berkowitz Pollack Brant, Advisors + CPAs (“BPB”) as New Borealis’ independent registered public accounting firm to audit Borealis’ consolidated financial statements for the year ended December 31, 2024. BPB served as the independent registered public accounting firm of Borealis prior to the Transaction. Accordingly, Marcum LLP (“Marcum”), Oxus’ independent registered public accounting firm prior to the Transaction, was informed on February 7, 2024 that it will be dismissed as New Borealis’ independent registered public accounting firm, effective immediately upon the filing of the December 31, 2023 Form 10-K for Oxus, pre-business combination SPAC.

 

The report of Marcum on Oxus’ balance sheet as of December 31, 2023 and December 31, 2022 and the related statements of operations, changes in shareholders’ (deficit) equity and cash flows for the year ended December 31, 2022 and for the period from February 3, 2021 (inception) through December 31, 2021, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainties, audit scope or accounting principles, except for an explanatory paragraph in such report regarding the substantial doubt about Oxus’ ability to continue as a going concern.

 

During the period from February 3, 2021 (inception) through December 31, 2023 and the subsequent interim period through the date of Marcum’s dismissal, there were no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) between Oxus and Marcum on any matter of accounting principles or practices, financial disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Marcum, would have caused it to make reference to the subject matter of the disagreements in its reports on Oxus’ financial statements for such periods.

 

During the period from February 3, 2021 (inception) through December 31, 2023 and the subsequent interim period through the date of Marcum’s dismissal, there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act), except that for the years ended December 31, 2023 and December 31, 2022, based upon an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, the Chief Executive Officer and the Chief Financial Officer of Oxus concluded that its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective due to its accounting for complex financial instruments and prepaid expenses, as well as the chief executive officer having administrative access to the Company’s financial reporting. Based on the foregoing, it was determined that Oxus had material weaknesses as of December 31, 2023 relating to its internal controls over financial reporting.

 

During the period from February 3, 2021 (inception) through December 31, 2022 and the subsequent interim period through the date of Marcum’s dismissal, Oxus and Borealis did not consult with BPB regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the financial statements of Oxus or Borealis, and no written report or oral advice was provided that BPB concluded was an important factor considered by us in reaching a decision as to the accounting, auditing, or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K under the Exchange Act) or a “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act).

 

New Borealis has provided Marcum with a copy of the foregoing disclosures and has requested that Marcum furnish New Borealis with a letter addressed to the SEC stating whether it agrees with the statements made by New Borealis set forth above. A copy of Marcum’s letter, dated February 13, 2024, is filed as Exhibit 16.1 to this Current Report on Form 8-K.

 

Item 5.01 Changes in Control of Registrant.

 

Reference is made to the section of the Proxy Statement/Prospectus entitled “Oxus Shareholder Proposal No. 4 — The Share Issuance Proposal” beginning on page 162 of Proxy Statement/Prospectus, which is incorporated herein by reference. Further reference is made to disclosure in the section titled “Introductory Note” in Item 2.01 of this Current Report on Form 8-K, which is incorporated herein by reference.

 

 

Item 5.02 Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

The information set forth in the sections titled “Director and Executive Officers” and “Certain Relationships and Related Transactions” in Item 2.01 of this Current Report on Form 8-K and in the section titled “Executive and Director Compensation” beginning on page 212 of the Proxy Statement/Prospectus is incorporated herein by reference.

 

The New Borealis Board consists of seven (7) members. On February 7, 2024, each of Reza Soltanzadeh, Barthelemy Helg, Kanat Mynzhanov, Shiv Vikram Khemka, Shukhrat Ibragimov, Steven Oyer, and Ertharin Cousin became directors of New Borealis pursuant to the terms of the Plan of Arrangement. Such individuals will serve as directors of New Borealis until the first annual meeting of New Borealis Shareholders following the Transaction or their earlier resignation. Biographical information for these individuals is set forth in Item 2.01 of this Current Report on Form 8-K.

 

The Committees of the Board of Directors

 

The New Borealis Board appointed Shiv Vikram Khemka, Kanat Mynzhanov, and Steven Oyer to serve on the Audit Committee, with Mr. Oyer serving as its Chairman. The New Borealis Board appointed Kanat Mynzhanov, Shiv Vikram Khemka, and Steven Oyer to serve on the Nominating and Corporate Governance Committee, with Mr. Oyer serving as its Chairman. The New Borealis Board appointed Kanat Mynzhanov, Shiv Vikram Khemka, and Steven Oyer to serve on the Compensation Committee, with Mr. Khemka serving as the Chairman. Information with respect to Borealis’ Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee is set forth in the Proxy Statement/Prospectus in the section entitled “Management of New Borealis After the Business Combination – Corporate Governance” beginning on page 209 of the Proxy Statement/Prospectus, which is incorporated herein by reference.

 

In connection with the consummation of the Transaction, effective upon completion of the Closing, on February 7, 2024: Reza Soltanzadeh was appointed to serve as the Chief Executive Officer; Stephen Wegrzyn was appointed to serve as the Chief Financial Officer, Pouneh Rahimi was appointed to serve as Chief Legal Officer: Matt Talle was appointed to serve as Chief Strategy Officer; and Henry Wong was appointed to serve as Chief Marketing Officer. The biographical information set forth in Item 2.01 of this Current Report on Form 8-K, is incorporated in this section by reference.

 

New Borealis’ executive compensation program is designed to align with compensation rules applicable to “smaller reporting companies,” as defined in the Exchange Act.

 

In connection with the Closing, on February 7, 2024, each executive officer and director of New Oxus immediately prior to the Closing resigned from his or her respective positions with the post-combination company, other than any individual that became a director of New Borealis pursuant to the terms of the Plan of Arrangement.

 

Equity Incentive Plan.

 

At a special meeting of the Oxus shareholders held on February 2, 2024, the Oxus shareholders considered and approved the Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan was previously approved, subject to shareholder approval, by Oxus’ board of directors on February 2, 2024, and subsequently approved and ratified by the New Borealis Board upon the Closing of the Transaction. The Incentive Plan became effective immediately upon the consummation of the Transaction. The Incentive Plan initially makes available a maximum number of 1,125,869 Borealis Common Shares. The aggregate number of Borealis Common Shares that is (i) issued to an officer, director, 10% stockholder and anyone who possesses material non-public information because of his or her relationship with the company or with an officer, director or principal stockholder of the company (“Insiders”) under the Incentive Plan or any other proposed or established share compensation arrangement within any one-year period will not exceed 10% of the total issued and outstanding Borealis Common Shares subject to the Incentive Plan from time to time and (ii) issuable to a non-employee director under the Incentive Plan during any fiscal year of Borealis may not have a “fair value” as of the date of grant, as determined in accordance with ASC Topic 718 (or any other applicable accounting guidance), that exceeds $300,000 in the aggregate.

 

 

A summary of the terms of the Equity Incentive Plan is set forth in the Proxy Statement/Prospectus in the section titled “Oxus Shareholder Proposal No. 5 – The Incentive Plan Proposal” beginning on page 163 of the Proxy Statement/Prospectus and is incorporated herein by reference. Such summary and the foregoing description does not purport to be complete and is qualified in its entirety by reference to the text of the Equity Incentive Plan, which is incorporated herein by reference as Exhibit 10.4 of the Proxy Statement/Prospectus.

 

Share Issuance Proposal.

 

At the Special Meeting, the Oxus shareholders considered and approved the Share Issuance Proposal (the “Issuance Proposal”). The Issuance Proposal was previously approved, subject to shareholder approval, by Oxus’ board of directors on February 2, 2024. The Issuance Proposal became effective upon the consummation of the Transaction. Existing holders of Oxus’ Class A Shares and Class B Shares received an aggregate of 6,561,968 Borealis Common Shares. New Oxus issued 13,300,000 New Oxus Common Shares to Borealis shareholders, which survived and continued as New Borealis Common Shares.

 

A summary of the terms of the Share Issuance Proposal is set forth in the Proxy Statement/Prospectus in the section titled “Oxus Shareholder Proposal No. 4 – The Share Issuance Proposal” beginning on page 162 of the Proxy Statement/Prospectus and is incorporated herein by reference. Such summary and the foregoing description do not purport to be complete and are qualified in their entirety by reference to the text of the Share Issuance Proposal, which is incorporated herein by reference.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

The information set forth in Item 3.03 of this Current Report on Form 8-K is incorporated by reference into this Item 5.03.

 

Item 5.05 Amendments to Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics.

 

In connection with the Closing of the Transaction, on February 7, 2024 and effective as of such date, the New Borealis Board adopted a new code of business conduct and ethics (the “Code of Ethics”) applicable to directors, officers, and employees of New Borealis and its subsidiaries. New Borealis intends to post any amendments to or any waivers from a provision of the Code of Ethics on its website. The full text of the Code of Ethics is included as Exhibit 14.1 to this Current Report on Form 8-K and incorporated herein by reference.

 

Item 5.06 Change in Shell Company Status.

 

As a result of the Transaction, on February 7, 2024, Oxus ceased being a shell company. Reference is made to the disclosure in the Proxy Statement/Prospectus in the section titled “Oxus Shareholder Proposal 1 – The Business Combination Proposal” beginning on page 137 of the Proxy Statement/Prospectus, and such disclosure is incorporated herein by reference. Further reference is made to the information contained in Item 2.01 of this Current Report on Form 8-K.

 

Item 7.01 Regulation FD Disclosure.

 

On February 7, 2024, New Borealis issued a press release announcing the Closing. A copy of the press release is furnished pursuant to Exhibit 99.1 attached hereto to this Current Report on Form 8-K and is incorporated herein by reference.

 

The information in this Item 7.01, including Exhibit 99.1, is furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liabilities under that section, and shall not be deemed to be incorporated by reference into filings of the registrant under the Securities Act, or the Exchange Act, regardless of any general incorporation language in such filings. This Current Report on Form 8-K will not be deemed an admission as to the materiality of any information contained in this Item 7.01, including Exhibit 99.1.

 

 

Item 9.01 Financial Statements and Exhibits.

 

(a)

Financial Statements of Business Acquired.

 

The audited consolidated financial statements of Borealis Foods Inc. as of and for the years ended December 31, 2023 and December 31, 2022 and the related notes are included as Exhibits 99.2 to this Current Report and are incorporated herein by reference.

  

The audited consolidated financial statements of Oxus Acquisition Corp. as of and for the years ended December 31, 2023 and December 31, 2022 and the related notes are included as Exhibit 99.3 to this Current Report and are incorporated herein by reference.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Borealis Foods Inc. for the year ended December 31, 2023 are included as Exhibit 99.4 to this Current Report and is incorporated herein by reference.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Oxus Acquisition Corp. for the year ended December 31, 2023 are included as Exhibit 99.5 to this Current Report and is incorporated herein by reference.

 

(b)

Pro Forma Financial Information.

 

The unaudited pro forma condensed combined financial information of the New Borealis for the year ended December 31, 2023, is attached as Exhibit 99.6 and is incorporated herein by reference.

 

(c)

Exhibits

 

Exhibit Number		Description
2.1*+		Business Combination Agreement, dated as of February 23, 2023, by and among Oxus Acquisition Corp., 1000397116 Ontario Inc., and Borealis Foods Inc. (incorporated by reference to Exhibit 2.1 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
2.2*+		Amendment No. 1 to the Business Combination Agreement, dated as of August 11, 2023, by and among Oxus Acquisition Corp., 1000397116 Ontario Inc., and Borealis Foods Inc. (incorporated by reference to Exhibit 2.2 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on October 24, 2023).
2.3*+		Amendment No. 2 to the Business Combination Agreement, dated as of January 11, 2024, by and among Oxus Acquisition Corp., 1000397116 Ontario Inc., and Borealis Foods Inc. (incorporated by reference to Exhibit 2.3 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on January 12, 2024).
2.4*+		Plan of Arrangement (Amended) (incorporated by reference on Exhibit 10.4 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on October 24, 2023).
3.1*		Form of New Borealis By-Laws (incorporated by reference to Exhibit 10.9 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
3.2*		Form of Borealis Articles of Continuance (incorporated by reference to Exhibit 10.8 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
10.1*+		Form of Shareholder Support Agreement, dated as of February 23, 2023, by and among Oxus Acquisition Corp. and certain shareholders of Borealis Foods Inc. (incorporated by reference to Exhibit 10.4 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
10.2*+		Sponsor Support Agreement, dated as of February 23, 2023, by and among Oxus Acquisition Corp., Oxus Capital Pte. Ltd and Borealis Foods Inc. (incorporated by reference to Exhibit 10.11 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
10.3*+		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.5 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
10.4*+		Form of Lock-up Agreement (incorporated by reference to Exhibit 10.6 to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).
10.5*		Note Purchase Agreement, dated February 28, 2023, by and between Borealis Foods Inc. and Saule Algaziyeva (incorporated by reference to Exhibit 10.37 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on October 24, 2023).
10.6*		Note Purchase Agreement, dated February 8, 2023, by and between Borealis Foods Inc. and Belphar Ltd. (incorporated by reference to Exhibit 10.38 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on October 24, 2023).
10.7*		First Amendment to the Note Purchase Agreement, dated July 23, 2023 (incorporated by reference to Exhibit 10.41 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on November 13, 2023).
10.8#		Note Purchase Agreement, dated November 15, 2023, by and between Borealis Foods Inc. and Aman Murat Baikdamuly
10.9		Note Purchase Agreement, dated January 30, 2024, by and between Borealis Foods Inc. and GSS Overseas LTD.
10.10*		Second Amended and Restated Promissory Note, dated October 2, 2023 (incorporated by reference to Exhibit 10.40 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on October 24, 2023).
10.11*		Third Amended and Restated Promissory Note, dated February 7, 2024 (incorporated by reference to Exhibit 10.11 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.12*		Form of Board Nomination Agreement, by and between Borealis Foods, Inc. and Belphar Ltd. (incorporated by reference to Exhibit 10.42 to Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on January 5, 2024).
10.13*		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.13 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.14*		Form of Equity Incentive Plan (incorporated by reference on Annex K to Oxus Acquisition Corp.’s Registration Statement on S-4, filed with the SEC on August 14, 2023).

 

 

10.15*#		Services Agreement, dated October 8, 2019, by and between Meherdad (Matt) Talle and Borealis Foods Inc. (incorporated herein by reference to Exhibit 10.15 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.16*#		Consulting Agreement, dated April 18, 2023, by and between Borealis Foods Inc. and Vonnie Rochester (incorporated herein by reference to Exhibit 10.16 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.17*#		Consulting Agreement, dated June 1, 2023, by and between Borealis Foods Inc. and Food Systems for the Future Institute (incorporated herein by reference to Exhibit 10.17 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.18*#		Brand Ambassador Agreement, dated April 1, 2023, by and between MN2S Corp and Borealis Foods Inc. (incorporated herein by reference to Exhibit 10.18 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.19*#		Talent Contract, dated April 1, 2023, by and between Humble Pie Media Limited and Borealis Foods Inc. (incorporated herein by reference to Exhibit 10.19 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.20*#		Master Broker Agreement, dated April 1, 2023, by and between Palmetto Gourmet Foods, Inc. and Next Step Club Solutions, LLC. (incorporated herein by reference to Exhibit 10.20 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.21*#		Master Broker Agreement, dated February 21, 2023, by and between Palmetto Gourmet Foods, Inc. and Godwin Retail Group LLC (incorporated herein by reference to Exhibit 10.21 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.22*#		Master Broker Agreement, dated April 12, 2023, by and between Palmetto Gourmet Foods, Inc. and Star Brokerage LLC (incorporated herein by reference to Exhibit 10.22 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.23*#		Services Agreement, dated June 1, 2023, by and between Borealis Foods Inc. and Wolfgang W. Pasewald (incorporated herein by reference to Exhibit 10.23 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.24*#		Broker Agreement, dated September 15, 2023, by and between Palmetto Gourmet Foods, Inc. and Advantage Waypoint LLC d/b/a Waypoint (incorporated herein by reference to Exhibit 10.24 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.25*#		Contract Manufacturing Services Agreement, dated January 28, 2019, by and between Palmetto Gourmet Foods, Inc. and Rap Snacks, Inc. (incorporated herein by reference to Exhibit 10.25 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.26*#		Vendor Agreement by and between Palmetto Gourmet Foods, Inc. and PAQ, Inc. dba Food4Less and Rancho San Miguel Markets (incorporated herein by reference to Exhibit 10.26 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.27*#		Product Purchase Agreement, dated October 19, 2020, by and between Palmetto Gourmet Foods, Inc. and The Golub Corporation (incorporated herein by reference to Exhibit 10.27 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.28*#		Standard Vendor Agreement, dated February 15, 2022, by and between Palmetto Gourmet Foods, Inc. and Moran Foods, LLC dba Save-A-Lot, Ltd. (incorporated herein by reference to Exhibit 10.28 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.29*#		Standard Vendor Agreement, dated July 2016, by and between Palmetto Gourmet Foods, Inc. and Associated Food Stores, Inc. (incorporated herein by reference to Exhibit 10.29 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.30*#		Supplier Agreement, dated December 21, 2020, by and between Palmetto Gourmet Foods, Inc. and C&S Wholesale Grocers (incorporated herein by reference to Exhibit 10.30 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.31*#		Purchase Order Agreement, dated December 9, 2022, by and between Palmetto Gourmet Foods, Inc. and BJ’s Wholesale Club, Inc. (incorporated herein by reference to Exhibit 10.31 to Borealis Food Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
10.32#		Vendor Agreement, dated June 29, 2021, by and between Bashas’ Inc. and Palmetto Gourmet Foods, Inc. (incorporated herein by reference to Exhibit 10.32 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
14.1*		Borealis Foods Inc. Code of Business Conduct and Ethics (incorporated herein by reference to Exhibit 14.1 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
14.2		Borealis Foods Inc. Executive Compensation Recovery Policy (incorporated herein by reference to Exhibit 97.0 to Borealis Foods Inc.’s Annual Report on Form 10-K, filed with the SEC on April 15, 2024).
16.1*		Letter from Marcum LLP to the SEC, dated February 13, 2024 (incorporated herein by reference to Exhibit 16.1 to Borealis Foods Inc.’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
99.1*		Press release dated February 7, 2024 announcing the closing of the Business Combination (incorporated herein by reference to Exhibit 99.1 to Borealis Foods Inc’s Current Report on Form 8-K, filed with the SEC on February 13, 2024).
99.2		Audited consolidated financial statements of Borealis Foods Inc. as of December 31, 2023 and 2022, and for the years ended December 31, 2022 and 2021.
99.3		Audited consolidated financial statements of Oxus Acquisition Corp. as of December 31, 2023 and 2022, and for December 31 2022 and 2021.
99.4		Management’s Discussion and Analysis of Financial Condition and Results of Operations of Borealis Foods Inc. for the year ended December 31, 2023.
99.5		Management’s Discussion and Analysis of Financial Condition and Results of Operations of Oxus Acquisition Corp. for the year ended December 31, 2023.
99.6		Audited pro forma condensed combined financial information of New Borealis.
99.7*		Form of 10-K, filed by Borealis Foods Inc. with the SEC on April 15, 2024 (solely to the extent referred to herein).
99.8*		Oxus Acquisition Corp.’s Registration Statement on S-4/A, filed with the SEC on January 12, 2024 (solely to the extent referred to herein).
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

#	Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

*	Previously filed.

+	Annexes, schedules, and exhibits to this Exhibit omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	BOREALIS FOODS INC.
Date: April 15, 2024
	By:	/s/ Reza Soltanzadeh
		Reza Soltanzadeh
		Chief Executive Officer & Director

 

 

18

 

Exhibit 10.8

 

NOTE PURCHASE AGREEMENT

 

Made and effective as of the 15^th day of November, 2023 (the “Effective Date”),

 

BETWEEN:

 

BOREALIS FOODS INC., a corporation incorporated under the laws of the Province of Ontario (hereinafter called the “Corporation”)

 

- AND -

 

Aman Murat Baikadamuly, resident of the Republic of Kazakhstan individual identification number 930519300095 (the “Purchaser”)

 

WHEREAS the Corporation as of February 23, 2023 entered into a Business Combination Agreement (the “Definitive Agreement”) with Oxus Acquisition Corp. (“Oxus”) pursuant to which the Corporation shall, through a series of transactions carried out in accordance with the terms and conditions of the Definitive Agreement, amalgamate with Oxus, with the amalgamated entity being a public company, the shares of which shall be traded on the Nasdaq Stock Market LLC (such amalgamated entity referred to herein as the “Public Company”).

 

WHEREAS the Corporation desires to complete a financing for its corporate purposes through the issuance of convertible promissory notes, the issuance of which is provided for by this Note Purchase Agreement (“Purchase Agreement”), and the Corporation is duly authorized to create and issue the Note on the terms and conditions set forth herein.

 

NOW THEREFORE it is hereby covenanted, agreed and declared as follows:

 

ARTICLE 1
INTERPRETATION

 

1.1

Definitions

 

In this Purchase Agreement and in the Note, including the recitals to this Purchase Agreement, unless there is something in the subject matter or context inconsistent therewith, the following words shall have the following meanings, namely:

 

“affiliate” has the meaning given in Section 1(1) of the Business Corporations Act (Ontario); “Ancillary Documents” has the meaning set forth in Section 6.1;

 

“Business Day” means a day which is not a Saturday or Sunday or a civic or statutory holiday in Ontario;

 

“Canadian Pension Plan” means any “pension plan” that is subject to the funding requirements of the Pension Benefits Act (Ontario) or applicable pension benefits legislation in any other Canadian jurisdiction.

 

 

certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

“Change of Control” means:

 

(i) the purchase or acquisition by any Person or group of Persons acting jointly or in concert, of voting control of an aggregate of 50% or more of the outstanding equity of the Corporation;

 

(ii) the sale or other transfer of all or substantially all of the consolidated assets of the Corporation; or

 

(iii) the completion by the Corporation of an amalgamation, arrangement, merger or other consolidation or combination involving the Corporation such that shareholders of the Corporation prior to such amalgamation, arrangement, merger or other consolidation would not beneficially own, or exercise control or direction over, voting securities of the Corporation carrying the right to cast more than 50% of the votes attaching to all voting securities, or immediately following such an event, the directors of the Corporation do not constitute a majority of the board of directors (or equivalent) of the successor or continuing corporation or entity immediately following such event;

 

“Closing” has the meaning set forth in Section 2.2;

 

“Company Value” means USD $150,000,000;

 

“Constating Documents” has the meaning set forth in Section 6.2(a);

 

“Conversion Notice” means a notice in the form attached hereto as Schedule “B”;

 

“Conversion Securities” has the meaning set forth in Section 6.3;

 

“Date of Conversion” has the meaning set forth in Section 4.1(e);

 

“Debt” means all obligations, liabilities and indebtedness of the Corporation and its Subsidiaries which would, in accordance with GAAP, be classified upon a consolidated balance sheet of the Corporation as indebtedness for borrowed money of the Corporation and its Subsidiaries;

 

“Default” means an event that, with the passage of time would result an Event of Default; “Definitive Agreement” has the meaning given to it in the recitals hereto;

 

“director” means a director of the Corporation for the time being and “directors” or “board of directors” or “board” means the board of directors of the Corporation or, if duly constituted and whenever duly empowered, the executive committee of the board of directors of the Corporation for the time being, and reference to action by the directors means action by the directors of the Corporation as a board or action by the said executive committee as such committee;

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

“Employee Stock Option Plan” means the Corporation’s Employee Stock Option Plan established January 6, 2022;

 

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect;

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with the Corporation or any of its Subsidiaries under section 414 of the U.S. Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time;

 

“ERISA Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title IV of ERISA (other than a multiemployer plan) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Corporation or any of its Subsidiaries or any ERISA Affiliate or with respect to which the Corporation or any of its Subsidiaries or any ERISA Affiliate may have any liability;

 

“Event of Default” means any event specified in Section 7.1, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act;

 

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Purchase Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code.

 

“Food Safety Laws” means all laws, constitutions, treaties, statutes, codes, orders, decrees, rules, regulations, by-laws and ordinances relating in whole or in part to food safety and the manufacture, sale, packaging, labelling, import, export and distribution of food products.

 

“GAAP” means generally accepted accounting principles in Canada, as adopted and modified (if applicable) by CPA Canada (or any successor thereto), applied on a consistent basis, which are in effect from time to time;

 

“Insolvency Legislation” means legislation in any applicable jurisdiction relating to reorganization, arrangement, compromise or re-adjustment of debt, dissolution or winding-up, or any similar legislation, and specifically includes for greater certainty the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) and the Bankruptcy Code (United States), together with any other similar statutes (including corporate statutes) in Canada or any other applicable jurisdiction in which the Corporation, any of its Subsidiaries operates.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

“Insolvency Proceeding” is any proceeding by or against any Person under any Insolvency Legislation, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Interest” means the amount accrued on the balance of the Principal Amount indicated in the Note from time to time outstanding at the Interest Rate;

 

“Interest Rate” means ten percent (10%) per annum;

 

“Issuer Party” has the meaning set forth in Section 7.1(g);

 

“Lien” means any lien, mortgage, charge, hypothecation, pledge, security interest, prior assignment, option, warrant, lease, sublease, right to possession, right of distress, encumbrance, claim, right or restriction which affects, by way of a conflicting ownership interest or otherwise, the right, title or interest in or to any particular property.

 

“Material Adverse Change” means the occurrence of an event which has a material adverse effect on (i) the financial condition of Corporation and its Subsidiaries taken as a whole, (ii) the Corporation’s ability to perform its obligations under this Purchase Agreement or the Note or the validity or enforceability of a material provision of this Purchase Agreement or the Note or (iii) the property, business, operations or liabilities of the Corporation and the Subsidiaries taken as a whole;

 

“Material Contracts” means, collectively:

 

(i) the Credit Agreement dated August 10, 2023 among the Corporation and Frontwell Capital Partners Inc., as amended, restated, supplemented or otherwise modified from time to time;

 

(ii) each Shareholder Debt Document;

 

(iii) material customer contracts, broker agreements and distribution agreements;

 

(iv) the Definitive Agreement;

 

(v) material real estate documents; and

 

(vi) any new contract or agreement with monthly revenue greater than $100,000 or involving a liability or expenditure greater than $100,000, and

 

any other contacts or agreements which, if breached or terminated, could reasonably be expected to result in a Material Adverse Change.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

“Maturity Date” means June 8, 2024;

 

“Non-Canadian Pension Plan” means any “pension plan”, scheme, fund (including any superannuation fund) or other similar program established, sponsored or maintained outside of Canada by the Corporation or any of its Subsidiaries primarily for the benefit of employees thereof residing outside of Canada, which is subject to statutory funding requirements in advance of the payment of pension benefits thereunder, and which plan is not subject to the funding requirements of the Pension Benefits Act (Ontario) or applicable pension benefits legislation in any other Canadian jurisdiction;

 

“Note” means, the USD $2,000,000 convertible promissory note to be issued by the Corporation hereunder on the Closing Date;

 

“Pension Plan” means a Canadian Pension Plan or a Non-Canadian Pension Plan.

 

“Permitted Debt” means, collectively (i) all Debt incurred hereunder and under the Notes, (ii) all Debt identified in Schedule 6.7 (including any Debt owing to Frontwell Capital Partners);

 

“Permitted Lien” means, in respect of the Corporation and any of its Subsidiaries:

 

(i) encumbrances for taxes, assessments or governmental charges incurred in the ordinary course of business that are not yet due and payable or the validity of which is being actively and diligently contested in good faith by the relevant Person, provided adequate reserves with respect thereto are maintained on the books of the relevant Person in accordance with GAAP;

 

(ii) construction, mechanics’, carriers’, warehousemen’s and materialmen’s liens and liens in respect of vacation pay, workers’ compensation, employment insurance or similar statutory obligations, provided the obligations secured by such liens are not yet due and payable or the validity of which is being actively and diligently contested in good faith by the relevant Person, provided adequate reserves with respect thereto are maintained on the books of the relevant Person, and, in the case of construction liens, which have not yet been filed or for which the relevant Person has not received written notice of a Lien or which singly or in the aggregate do not materially detract from the value of the asset concerned or the Holder’s security;

 

(iii) encumbrances arising from court or arbitral proceedings, provided that the claims secured thereby are being contested in good faith by the relevant Person, provided adequate reserves with respect thereto are maintained on the books of relevant Person in accordance with GAAP, execution thereon has been stayed and continues to be stayed and such Lien do not result in an Event of Default;

 

(iv) good faith deposits made in the ordinary course of business to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, surety, customs, performance bonds and other similar obligations;

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

(v) deposits to secure statutory obligations or in connection with any matter giving rise to a Lien described in (ii) above;

 

(vi) deposits of cash or securities in connection with any appeal, review or contestation of any Lien or any matter giving rise to a Lien described in (i) or (iii) above;

 

(vii) zoning restrictions, easements, rights of way, leases or other similar encumbrances or privileges in respect of real property which in the aggregate do not materially affect the value of such property nor impair the use of such property by the relevant Person in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;

 

(viii) security given by the relevant Person to a public utility or any governmental authority, when required by such utility or governmental authority in connection with the operations of the relevant Person, in the ordinary course of its business, which singly or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the business of the relevant Person;

 

(ix) any other Lien which the Purchaser approves in writing as a Permitted Lien subsequent to the date hereof; and

 

(x) Liens listed in Schedule 5.17, and provided that in no event shall any assets or property of the Company or any Subsidiary thereof be subject to such security interests or mortgages.

 

“Person” includes an individual, corporation, company, partnership (whether general or limited), association or trust;

 

“Principal” has the meaning set forth in Section 2.5(a);

 

“Public Company” has the meaning given to it in the recitals hereto;

 

“Qualifying Transaction” means closing of transactions as described in Section 2.08 of the Definitive Agreement;

 

“Recall” means any voluntary or involuntary attempt or instruction to return any product of the Corporation or its Subsidiaries’ business to the control of Corporation or its Subsidiaries, or to otherwise recall, retrieve, withdraw, remove, stop, or limit the distribution of any such product, or to encourage or direct the disposal, destruction, or non-use of any such product, due to a known or potential safety risk associated with the consumption of the product, or the potential violation of Food Safety Laws;

 

“Securities” means common shares in the capital of the Public Company;

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

“Shareholder Debt Documents” means, collectively, each of the note purchase agreements described in Schedule 6.7 and the notes issued thereunder in favor, directly or indirectly, of a shareholder of the Corporation;

 

“Shareholders Agreement” means the Shareholders’ Agreement among the Corporation and the shareholders of the Corporation dated October 1, 2019, as amended, restated, supplemented or otherwise modified from time to time;

 

“Shares” means the Class A Common Shares, Class B Common Shares, Class C Common Shares, Class D Common Shares, Class E Common Shares, Class F Common Shares, Class G Common Shares, Class H Common Shares, Class I Common Shares and Class J Common Shares in the capital of the Corporation;

 

“Spot Rate” means, in relation to the conversion of one currency into another currency, the spot rate of exchange for such conversion as quoted by the Bank of Canada at the close of business on the Business Day that such conversion is to be made (or, if such conversion is to be made before close of business on such Business Day, then at approximately close of business on the immediately preceding Business Day);

 

“Subsidiary” means any Person of which more than 50% of the outstanding voting shares or other equity interests (pertaining to the right to appoint or to elect Persons to the board, committee or group who determine the management and policy of such Person) is owned or controlled, directly or indirectly, by or for the Corporation and includes any Person in like relation to a Subsidiary;

 

“Taxes” means all taxes of any kind or nature whatsoever including income taxes, capital taxes, minimum taxes, levies, imposts, stamp taxes, royalties, duties, charges to tax, value added taxes, commodity taxes, goods and services taxes, and all fees, deductions, compulsory loans, withholdings and restrictions or conditions resulting in a charge imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future by any governmental or quasi-governmental authority of or within any jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon and any instalments in respect thereof;

 

“this Purchase Agreement”, “hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar expressions refer to this Purchase Agreement and not to any particular Article, Section, subsection, clause, subdivision or other portion hereof and include any and every instrument supplemental or ancillary hereto;

 

“United States” means the United States of America, its territories and possessions, any state of the United States, and the District of Columbia;

 

“Valuation Cap” means USD $120,000,000.00;

 

“Welfare Plan” means any medical, health, hospitalization, insurance or other employee benefit or welfare plan or arrangement applicable to employees resident in Canada, the United States or any other jurisdiction in which the Corporation or any of its Subsidiaries operates.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

“Withholding Amount” has the meaning set forth in Section 2.7; and

 

“written direction of the Corporation” means an instrument in writing signed by one of the Chief Executive Officer, the President or the Chairman and also by one of any other officer of the Corporation.

 

1.2

Special Accounting Provisions

 

For the purposes of this Purchase Agreement and in respect of the Note and the determinations required to be made under any of the covenants herein contained which relate to the Note and the definitions set forth in Section 1.1, the following shall apply:

 

(a)

whenever any conversion of Canadian currency or of any other currency into United States currency or vice versa is required herein, such conversion shall, unless otherwise provided herein, be determined as of a date not more than ten days prior to the date when such conversion is required to be made, and shall, unless otherwise provided herein, be made at the Spot Rate;

 

(b)

all determinations shall be made in accordance with GAAP and shall give effect to retirements of securities to be effected concurrently with or prior to any proposed action; and

 

(c)

all determinations made hereunder shall be conclusive and binding for all purposes of this Purchase Agreement.

 

1.3

Interpretation

 

In this Purchase Agreement:

 

(a)

words importing the singular number or masculine gender shall include the plural number or the feminine or neuter genders, and vice versa;

 

(b)

all references to Articles and Schedules refer, unless otherwise specified, to Articles of and Schedules to this Purchase Agreement;

 

(c)

all references to Sections refer, unless otherwise specified, to sections, subsections or clauses of this Purchase Agreement and reference to subsections or clauses refer to paragraphs in the same section as the reference or to clauses in the same subsection as the reference; and

 

(d)

words and terms denoting inclusiveness (such as “include” or “includes” or “including”), whether or not so stated, are not limited by and do not imply limitation of their context or the words or phrases which precede or succeed them.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

1.4

Headings, Etc.

 

The division of this Purchase Agreement into Articles and Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Purchase Agreement or of the Note.

 

1.5

Day not a Business Day

 

In the event that any day on or before which any action required to be taken hereunder is not a Business Day, then, unless otherwise expressed, such action shall be required to be taken on or before the requisite time on the next succeeding day that is a Business Day.

 

1.6

Applicable Law

 

This Purchase Agreement and the Note shall be construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and shall be treated in all respects as Ontario contracts.

 

1.7

Monetary References

 

All references to currency herein and in the Note shall be to lawful money of the United States of America, unless otherwise expressed.

 

1.8

Invalidity, Etc.

 

Any provision hereof which is prohibited or unenforceable shall be ineffective only to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof.

 

1.9

Language

 

This document is drawn up in English at the express wish of the parties. C’est le volanté expresse des parties que cette entente soit redigée en anglais.

 

1.10

Successors and Assigns

 

This Purchase Agreement shall enure to the benefit of and be binding upon the Corporation and the Purchaser and their respective successors and assigns, including for certainty in the case of the Corporation, the Public Company.

 

1.11

Schedules

 

Schedule “A” – Form of Note

Schedule “B” – Form of Conversion Notice

Schedule 5.17 – Permitted Liens

Schedule 6.6 – Share Capital

Schedule 6.7 – Debt

Schedule 6.8 – Material Contracts

Schedule 6.10 – Employee Matters

Schedule 6.22 – Non-Arm’s Length Transactions

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

ARTICLE 2
NOTE AND NOTE ISSUANCE

 

2.1

Note Issuance.

 

The Corporation has authorized the issuance and sale of the Note in the principal amount of USD $2,000,000, such Note to be issued at the Closing.

 

2.2

Purchase and Sale of Note.

 

Subject to satisfaction of the conditions precedent set forth in Section 3.1, the Corporation agrees to issue and sell to the Purchaser, and, subject to and in reliance upon the representations, warranties, covenants, terms and conditions of this Purchase Agreement, the Purchaser agrees to purchase from the Corporation, the Note. The purchase by and sale to the Purchaser the Note shall take place at a closing (the “Closing”) to be held electronically or at the offices of the Corporation, after this Purchase Agreement is executed or such other date and at such time as may be mutually agreed upon by the Corporation and the Purchaser. At the Closing, the Corporation will issue and deliver the Note to the Purchaser, which Note shall be dated as of the date of this Purchase Agreement, against payment of the purchase price thereof by wire transfer, or other means of immediately available funds, such payment shall be referred as completed after the funds are released from the bank account of the Purchaser. The Purchaser shall make the payment within 15 calendar days after the Note is issued and delivered to the Purchaser.

 

2.3

Use of Proceeds

 

The Corporation shall use the proceeds of the Note for working capital and operations-related capital expenditures, and the Purchaser is entitled to review and examine the use of proceeds by the Corporation any time while the Principal and accrued Interest is outstanding.

 

2.4

Note Attributes

 

Each Note shall be in the form attached hereto as Schedule “A”. For certainty, any replacement note issued pursuant to Section 9.3 hereof shall (i) be in the form attached here as Schedule “A”, as amended to give effect to the reduction to the Principal Amount (as defined therein), and (ii) from and after the issuance thereof, be deemed to be a “Note” referred to herein for the purposes of this Purchase Agreement.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

2.5

Repayment of Principal and Interest

 

(a)

Principal

 

Subject to the provisions of this Purchase Agreement, the principal amount (the “Principal”) of the Note outstanding on the day prior to the Maturity Date shall be repaid to the Purchaser in full on the Maturity Date. In addition, all accrued and unpaid Interest on the principal obligations and all fees and other amounts due and payable hereunder shall be paid to the Purchaser on the Maturity Date.

 

(b)

Interest

 

The parties hereto agree that Interest shall accrue and be calculated on the Principal of each Note at the Interest Rate from its date of issuance, up to and including the date of repayment or conversion thereof. All such accrued Interest will be:

 

(i)

paid in cash on the date on which such Note is repaid if such Note is repaid in cash pursuant to the terms hereof; or

 

(ii)

converted into Securities on the Date of Conversion.

 

Interest shall accrue on any overdue amounts at the Interest Rate, both before and after demand and before and after default, judgment and execution from the date thereof until payment in full of all amounts owing to the Purchaser hereunder and under the Note have been paid in accordance with the terms of this Purchase Agreement.

 

(c)

Prepayment

 

The Corporation shall not make any optional prepayment of Principal or Interest.

 

2.6

Interest

 

(a)

Interest on Conversion

 

Where the Principal is converted to Securities pursuant to the terms hereof, any Interest payable in connection with the Note shall also be converted to Securities, subject to Section 2.7 below.

 

(b)

Per annum

 

Unless otherwise stated, wherever in this Purchase Agreement or the Note reference is made to a rate of interest “per annum” or a similar expression is used, such interest shall be calculated using the nominal rate method, and not the effective rate method, of calculation and the basis of a 12 month period of 365 days or 366 days, as the case may be.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

2.7

Withholding Taxes

 

(a)

All payments to be made by or on behalf of the Corporation pursuant hereunder (including the Conversion) or under the Notes are to be made without set-off, deduction, compensation or counterclaim and free and clear of and without deduction or withholding for or on account of any Taxes (which for greater certainty does not include Taxes on the overall income or capital of the Purchaser), except for the deduction of such Taxes as required by applicable laws. If required by applicable laws, the Corporation shall be entitled to deduct or withhold from any amounts payable to the Purchaser, such amount as is required to be deducted or withheld in respect of any Taxes with respect to the payment (a “Withholding Amount”). The Corporation shall duly remit any Withholding Amount to the appropriate governmental authority within the applicable time limits under applicable law. As soon as practicable after the remittance of such Withholding Amount to a governmental authority, the Corporation will deliver to the Purchaser the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Purchaser.

 

(b)

If the Corporation deducts or withholds any Withholding Amount (including any Withholding Amount in respect of a Conversion of the Notes as set forth under Article 4), the Corporation shall promptly pay to the Purchaser, in the currency in which such Withholding Amount was paid in accordance with Section 2.7(b) was made, an additional amount as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the Purchaser receives an amount equal to the sum it would have received had no such deduction or withholding been made (“Additional Amount”), together with the relevant receipt addressed to the Purchaser. For the avoidance of doubt, on a Conversion of the Notes as set forth under Article 4, the Corporation shall pay the Withholding Amount applicable in respect of such Conversion, if any, to the applicable governmental authority, shall reduce the number of Securities issuable to the Purchaser by that number of Securities equivalent in value to the Withholding Amount in respect of that Purchaser, and shall pay any applicable Additional Amount in respect of such Conversion to the Purchaser in accordance with Section 2.7(b).

 

(c)

The Corporation will indemnify the Purchaser, within 10 days after demand therefor, for the full amount of any Taxes payable or paid by the Purchaser or required to be withheld or deducted from a payment to such Purchaser and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant governmental authority (for greater certainty, without duplication for additional amounts paid under Section 2.7(b)).

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

 

(d)

The Purchaser shall, at such times as are reasonably requested by the Corporation, provide the Corporation with any properly completed and executed documentation prescribed by law, or reasonably requested by the Corporation, certifying as to any entitlement of the Purchaser to an exemption from, or reduction in, any withholding Tax with respect to any payments to be made to the Purchaser hereunder or under the Note (including any documentation necessary to establish an exemption from, or reduction of, any Taxes that may be imposed under FATCA). The Purchaser shall, whenever a lapse in time or change in circumstances renders such documentation expired, obsolete or inaccurate in any respect, deliver promptly to the Corporation updated or other appropriate documentation (including any new documentation reasonably requested by the applicable withholding agent) or promptly notify the Corporation of its inability to do so. In addition, the Purchaser, if reasonably requested by the Corporation, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Corporation as will enable the Corporation to determine whether or not the Purchaser is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.7(e) below) shall not be required if in the Purchaser’s reasonable judgment such completion, execution or submission would subject the Purchaser to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of the Purchaser.

 

(e)

If a payment made to the Purchaser hereunder or under the Note would be subject to U.S. federal withholding Tax imposed by FATCA if the Purchaser were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), the Purchaser shall deliver to the Corporation at the time or times prescribed by law and at such time or times reasonably requested by the Corporation such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Corporation as may be necessary for the Corporation to comply with their obligations under FATCA and to determine that the Purchaser has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause, “FATCA” shall include any amendments made to FATCA after the date of this Purchaser Agreement.

 

ARTICLE 3
CONDITIONS PRECEDENT

 

3.1

Conditions Precedent to Closing

 

The obligations of the Purchaser hereunder are subject to the fulfillment or waiver, prior to or concurrently with Closing, of each of the following conditions:

 

(a)

The Corporation shall have delivered, or caused to be delivered, to the Purchaser duly executed copies of:

 

(i)

this Purchase Agreement;

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

(ii)

the Note;

 

(b)

Each of the representations and warranties of the Corporation contained in Article 6 shall be true and complete in all material respects on and as of the date of the Closing;

 

(c)

The Corporation shall have obtained or made all approvals, consents, qualifications and filings necessary to complete the purchase and sale described herein. The Corporation shall have delivered to the Purchaser a certificate of good standing in respect of the Corporation, and any Subsidiaries of the Corporation, each dated no more than thirty (30) days prior to the date of Closing.

 

ARTICLE 4
CONVERSION

 

4.1

Conversion

 

(a)

The outstanding Principal and all accrued and unpaid Interest on the Note may be converted into Securities pursuant to the terms set forth in Section 4.1(c) below (each, a “Conversion”).

 

(b)

Unless otherwise agreed to in writing by the parties, the outstanding Principal and accrued and unpaid Interest on the Note shall automatically be subject to a Conversion into Securities as soon as the Qualifying Transaction occurs as stated in the Plan of Arrangement approved by the Definitive Agreement without any other further action required on the part of the Purchaser and the Note shall be deemed to be surrendered for conversion at such time for purposes of Section 4.1(d).

 

(c)

Each Conversion under the Note shall be effected in accordance with the following:

 

(i)

the outstanding Principal and accrued and unpaid interest of the Note to be converted shall be converted in full into such number of Securities equal to the quotient of:

 

(A)

the product of:

 

(I)

the aggregate of all of the Principal outstanding and all accrued and unpaid Interest, multiplied by

 

(II)

an amount equal to Company Value divided by the Valuation Cap, divided by,

 

(B)

USD $10.00.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

(d)

For the purposes hereof, the Note shall be deemed to be surrendered for conversion on the day that the Purchaser delivers the Conversion Notice and the surrendered Note to the Corporation, or if the Note is automatically converted pursuant to Section 4.1(c), the date on which such automatic Conversion occurs in accordance therewith (in each case, the “Date of Conversion”).

 

(e)

From and after the Date of Conversion, the Purchaser shall be entitled to be entered in the books of the Corporation as the holder of the number of Securities into which the Note is convertible in accordance with the Section 4.1(a), and, as soon as practicable thereafter (and in any event, within five (5) Business Days), the Corporation shall deliver to the Purchaser a certificate or certificates for such Securities. The certificates representing the Securities to be issued upon conversion of the Note shall bear such restrictive or other legends as may be required by applicable laws.

 

(f)

The Securities issued upon conversion shall rank pari passu in respect of dividends declared in favour of Purchaser on and after the Date of Conversion, from which applicable date they will for all purposes be and be deemed to be issued and outstanding as fully paid and non-assessable Securities.

 

4.2

No Requirement to Issue Fractional Securities

 

The Corporation shall not be required to issue fractional Securities upon the conversion of the Note and the Purchaser will not be entitled to compensation for any such fractional Securities. If, as a result of any adjustment, the Purchaser would become entitled to a fractional Security, the Purchaser shall have the right to acquire only the adjusted number of full Securities (computed to the nearest whole number with any numbers above one-half being rounded up).

 

4.3

Adjustments to Securities

 

If and while the Note is outstanding, there is a reclassification of the Securities or a capital reorganization of Corporation or a consolidation, amalgamation, arrangement or merger of the Corporation with or into any other Person or other entity other than the Qualifying Transaction; or a sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to any other Person or other entity or a liquidation, dissolution or winding-up of the Corporation, the Purchaser, to the extent that it has not exercised its right of conversion or the conversion has not automatically occurred, as applicable, as provided for in this Section 4.3 prior to the effective time of such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance or liquidation, dissolution or winding-up, upon the exercise of such right thereafter, shall be entitled to receive and shall accept, in lieu of the number of Securities then sought to be acquired by it, the kind and number of shares or other securities or property of the Corporation or of the Person or other entity resulting from such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, or to which such sale or conveyance may be made or which holders of Securities receive or are entitled to receive pursuant to such liquidation, dissolution or winding-up, as the case may be, that the Purchaser would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance or liquidation, dissolution or winding-up, if, on the record date or at the effective time thereof, as the case may be, the Purchaser had been the registered holder of the number of Securities sought to be acquired by it and to which it was entitled to acquire upon the exercise of the conversion right. To the extent that the Purchaser has not exercised its right of conversion or the conversion has not automatically occurred, the Corporation shall not effect any such consolidation, amalgamation, arrangement or merger, sale or conveyance or similar transaction unless, before the consummation thereof, the successor Person (if other than the Corporation) resulting from such transaction, shall, contemporaneously with any such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, sale or conveyance or liquidation, dissolution or winding-up, deliver a new convertible promissory note in replacement of the Note which shall provide, to the extent possible, for the application of the provisions set forth in this Section with respect to the rights and interests thereafter of the Purchaser to the end that the provisions set forth in this Purchase Agreement and the Note shall thereafter correspondingly be made applicable, as nearly as may reasonably be, with respect to any shares or other securities or property to which the Purchaser is entitled on the exercise of its conversion rights thereafter. The provisions of this Section 4.3 shall similarly apply to successive reorganizations, reclassifications, consolidations amalgamations, arrangements, mergers, sales, conveyances or similar transactions.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

ARTICLE 5
COVENANTS

 

The Corporation hereby covenants and agrees with the Purchaser for the benefit of the Purchaser as follows:

 

5.1

Payment of Principal and Interest

 

The Corporation will duly and punctually pay or cause to be paid to the Purchaser the Principal of and Interest accrued on the Note, at the places and in the manner mentioned herein and in the Note, subject to Section 2.7.

 

5.2

To Carry out this Purchase Agreement

 

The Corporation will duly and punctually perform and carry out all of the acts or things to be done by it as provided in this Purchase Agreement and the Note.

 

5.3

Carry on Business

 

Subject to the express provisions hereof, the Corporation will, and will cause its Subsidiaries to, carry on and conduct their respective businesses in a proper, efficient and business-like manner and diligently use, operate, maintain, repair and replace their respective properties and plants so as to preserve and protect the earnings, incomes, rents and profits thereof, all in accordance with good business practice; provided that nothing herein contained shall prevent the Corporation or any Subsidiary from ceasing to use or operate any particular property if in the opinion of the directors it shall be advisable and in the best interests of the Corporation to do so. Subject to the express provisions hereof, the Corporation will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights. The Corporation undertakes to ensure that for so long as any amount is outstanding under this Purchase Agreement the Corporation will not enter into a single transaction or a series of transactions, whether related or not, to transfer or otherwise dispose of all or any part of any of its shares in any of its Subsidiaries or sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Corporation and its Subsidiaries (taken as a whole) to any other third party.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

5.4

Dispositions

 

The Corporation shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise dispose of any of its property, assets or undertaking, except for (i) in the ordinary course of business and (ii) in respect of obsolete or worn-out equipment and (iii) sales of other assets for proceeds not exceeding, in the aggregate, USD $50,000 per annum.

 

5.5

Taxes

 

The Corporation will duly file on a timely basis all Tax returns required to be filed by it pay and cause to be paid all Taxes lawfully levied, assessed or imposed upon or in respect of its property or any part thereof or upon the income and profits of the Corporation and of its Subsidiaries as and when the same become due and payable; provided that the Corporation and its Subsidiaries, acting diligently and in good faith, shall be entitled to contest by appropriate proceedings any such Taxes and, upon such contest, may delay or defer payment or discharge thereof.

 

5.6

Remittances.

 

The Corporation will make all of the remittances required to be made by it to the applicable federal, provincial or municipal governments and keep such remittances up to date.

 

5.7

Pension and Welfare Plans

 

The Corporation shall, and shall cause each of its Subsidiaries to, make all required payments in respect of funding each Pension Plan and Welfare Plan applicable thereto and to otherwise fully comply with all applicable laws governing or affecting such Pension Plans and Welfare Plans.

 

5.8

Inspection of Property

 

The Corporation will, and will cause each of its Subsidiaries to, (i) maintain books and records of account in accordance with GAAP and all applicable laws, and (ii) permit representatives of the Purchaser to (A) visit and inspect any property of any of them and to examine and make abstracts from any books and records of any of them at any reasonable time during normal business hours and upon reasonable request and notice, and subject to the Corporation’s health and safety requirements, and at the Corporation’s expense, and (B) discuss the business, property, condition (financial or otherwise) and prospects of the Corporation with their senior officers and (in the presence of such representatives, if any, as it may designate) with its independent chartered accountants.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

5.9

Comply with Law and Maintain Permits

 

The Corporation will, and will cause each of its Subsidiaries to, comply with applicable laws and obtain and maintain all permits, licenses, consents and approvals necessary to the ownership of its property and to the conduct of its business in each jurisdiction where it carries on business or owns property.

 

5.10

Transactions with Affiliates.

 

The Corporation shall not and shall not permit any of its Subsidiaries to enter into any transaction with any officer, director, employee, shareholder or any Person not dealing at arm’s length or any affiliate of any of the foregoing (specifically excluding any employment or option agreement or intercompany indebtedness or transactions between the Corporation and any of its Subsidiaries) unless such transaction is on terms no less favorable to the Corporation than would be obtainable in an arm’s length transaction.

 

5.11

Material Contracts

 

The Corporation and each of its Subsidiaries shall observe each term, covenant and agreement contained in the Material Contracts in all material respects.

 

5.12

Employee Matters

 

The Corporation shall not, and shall not permit its Subsidiaries to, make any material change in the compensation payable or to become payable to any employee, including any bonuses, wage rates, benefits, severance or termination pay, except as required by applicable law, pursuant to any existing employment agreement as disclosed in writing to the Purchaser. The Corporation shall not, and shall not permit its Subsidiaries to, materially change the benefits to which the employees are entitled under any employee plan or create any materially different employment contract template, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement.

 

5.13

Insurance

 

The Corporation will, and will cause each of its Subsidiaries to, maintain adequate insurance issued by insurers of recognized standing in respect of its material property, as is customary in the case of businesses of established reputation engaged in the same or similar businesses, and will provide the Purchaser with copies of all insurance policies relating thereto if so requested.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

5.14

Intellectual Property

 

It shall maintain all of its material Intellectual Property, take all actions necessary to defend such Intellectual Property from adverse claims and abide by the material terms of the agreements governing that Intellectual Property licensed by it.

 

5.15

Notices

 

The Corporation will provide the Purchaser with prompt written notice of:

 

(a)

the occurrence of any Default or Event of Default;

 

(b)

any new Material Contracts, together with a copy thereof;

 

(c)

any dispute, notice of termination, proposed amendment or other material information given or received under or in connection with any Material Contract;

 

(d)

all claims or proceedings pending or, to its knowledge, threatened against it which may give rise to uninsured liability in excess of USD $100,000 or which could result in a Material Adverse Change;

 

(e)

any allegation or claim made by a third party that the business of the Corporation or its Subsidiaries infringes or misappropriates the Intellectual Property rights of any person;

 

(f)

any allegation or claim of material deficiency, violation or potential violation of Food Safety Laws, made by a third party, including any governmental authority;

 

(g)

any product Recall conducted by or on behalf of the Corporation or its Subsidiaries;

 

(h)

any investigation, inquiry or enforcement proceedings by any governmental authority; and

 

(i)

any of the representations or warranties hereunder or under any of the Ancillary Documents becoming untrue or incorrect.

 

5.16

Fundamental Changes

 

Provide the Purchaser with at least 15 days’ prior written notice, effect any change: (i) of its or any Subsidiaries’ name, (ii) in the jurisdiction of the location of its or any Subsidiaries’ chief executive office or registered office or any material tangible assets, or (iii) to its or any Subsidiaries’ Constating Documents.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

5.17

Debt and Liens

 

Corporation will in reasonable time and due manner inform the Purchaser of any new liens and debts incurred by the Corporation and/or its Subsidiaries while the Principal and accrued Interest is outstanding.

 

5.18

No Distributions on Shares During Event of Default

 

The Corporation shall not declare or pay any dividend to the holders of its issued and outstanding Shares after the occurrence of an Event of Default unless and until such Default shall have been cured or waived or shall have ceased to exist.

 

5.19

ERISA Plan

 

None of the Corporation, any of its Subsidiaries or any of its or their ERISA Affiliates operate or administer any ERISA Plan.

 

5.20

Use of Proceeds

 

The Corporation shall use the proceeds of the Note solely as permitted by Section 2.3.

 

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CORPORATION

 

The Corporation represents and warrants to the Purchaser, as follows, each of which representation and warranty is true and correct as of the date hereof and will be true and correct as of the Closing Date.

 

6.1

Organization, Qualifications and Corporate Power

 

The Corporation and each of its Subsidiaries is duly incorporated or formed and validly existing and in good standing under the laws of its jurisdiction of formation and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to be so licensed or qualified would not have a material adverse effect on the business or assets of the Corporation or such Subsidiary, as applicable. The Corporation and each of its Subsidiaries has the corporate power and authority to own and hold its properties and to carry on its business as now conducted. The Corporation has the corporate power and authority to execute, deliver and perform its obligations under this Purchase Agreement and all other certificates, documents and instruments ancillary hereto (collectively, the “Ancillary Documents”) and to issue, sell and deliver each Note and the Conversion Securities.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.2

Authorization of Agreements; Non-Contravention

 

(a)

The execution and delivery by the Corporation of this Purchase Agreement and each Note and all Ancillary Documents, the performance by the Corporation of its obligations hereunder and thereunder and the issuance, sale and delivery of each Note and the Conversion Securities have been duly authorized by all requisite corporate action and will not contravene, violate or conflict with, constitute a breach of or default under, result in the loss of any benefit under, permit the acceleration of any obligation under or create in any party the right to terminate, modify or cancel:

 

(i)

any applicable laws, permits or authorizations applicable to the Corporation or its Subsidiaries;

 

(ii)

any judgment, decree, order, injunction, award or ruling of any governmental authority or arbitration panel to which the Corporation or any of its Subsidiaries is a party or by which the Corporation or any of its Subsidiaries are bound;

 

(iii)

the articles, bylaws or any other constating document of the Corporation or its Subsidiaries (in each case, its “Constating Documents”);

 

(iv)

any provision of any Material Contract or any other indenture, mortgage, agreement, contract or instrument to which the Corporation, or any of its properties or assets is bound,

 

(v)

any government subsidy or incentive;

 

or conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a default under any such Material Contract or other indenture, agreement or other instrument, or result in the creation or imposition of any Lien, or claim of any nature whatsoever upon any of the properties or assets of the Corporation.

 

(b)

None of the issuance, sale or delivery of the Note or the Conversion Securities is subject to any pre-emptive right of shareholders of the Corporation that has not been waived or complied with or to any right of first refusal or other right in favor of any Person that has not been waived or complied with.

 

6.3

Validity

 

This Purchase Agreement has been duly executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation, enforceable against the Corporation in accordance with its terms. Each Note, when executed and delivered in accordance with this Purchase Agreement, will constitute the legal, valid and binding obligations of the Corporation, enforceable against the Corporation in accordance with their terms. The Securities issuable upon conversion of the Note (the “Conversion Securities”), when issued, sold and delivered in compliance with the terms and for the consideration expressed in this Purchase Agreement and the Note, will be duly authorized and validly issued, exempt from the registration and prospectus requirements of all applicable securities laws, fully paid and nonassessable. The issuance or sale of the Note or the Conversion Securities will not trigger any anti-dilution adjustments, other than any such adjustments as have been effectively waived in writing prior to the date hereof.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.4

Consents and Approvals

 

No registration or filing with, or consent or approval of or other action by, any federal, provincial or other governmental agency or instrumentality, or any other third party, is or will be necessary for the valid execution, delivery and performance by the Corporation of this Purchase Agreement or the issuance, sale and delivery of the Note, other than filings pursuant to applicable securities laws (all of which filings have been or will be made by the Corporation) in connection with the sale of the Note, if any. Other than as set forth in Schedule 6.4, no third party has or will have any written or oral agreement, option, warrant, participation right, pre-emptive right, right of first refusal, privilege or any other right, commitment or arrangement of any character, kind or nature whatsoever capable of becoming any of the foregoing which would be contravened by the execution, delivery and performance by the Corporation of this Purchase Agreement or the issuance, sale and delivery of the Note.

 

6.5

Title

 

The Corporation and its Subsidiaries have good, valid and marketable beneficial and legal title to their assets, free and clear of any and all Liens and adverse claims created by, through or under the Corporation and its Subsidiaries, other than the Permitted Liens. Other than the Permitted Liens, it has not received notice from any third party claiming an interest in and to any of the assets of the Corporation or any of its Subsidiaries.

 

6.6

Status of Share Capital

 

(a) All the outstanding share capital of the Corporation has been duly authorized, is validly issued and is fully paid and non-assessable, and no shares of the share capital of the Corporation or other securities of the Corporation have been issued in violation (i) of any law, treaty, regulation, ordinance, decree, judgment, order or similar requirement made or issued under sovereign or statutory authority and applicable to or binding upon the Corporation, (ii) the Constating Documents or (iii) any pre-emptive right of shareholders of the Corporation or any right of first refusal or other right in favor of any Person that was not waived.

 

(a)

The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized share capital of the Corporation are as set forth in the Corporation’s Constating Documents, a complete copy of which has been delivered to the Purchaser.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

(b)

There are no unanimous shareholder agreements other than the Shareholders Agreement, a complete copy of which, together with all amendments thereto, has been delivered to the Purchaser.

 

(c)

Attached hereto as Schedule 6.6 is a true and correct list of all of the authorized, and the issued and outstanding, stock, shares or other equity interests of the Corporation and the record and beneficial owners of such stock, shares or other equity interests, the numbers of any certificate representing such stock, shares or other equity interests, and the number of shares or other equity interests covered by all outstanding options, warrants, subscriptions or purchase rights of any nature in respect of any such stock, shares or other equity interests.

 

(d)

Except as set forth in Schedule 6.6, (i) no options, warrants, subscriptions or purchase rights of any nature to acquire from the Corporation stock, shares or other equity interests in the capital of the Corporation or are authorized, issued or outstanding, nor is the Corporation obligated in any other manner to issue stock, shares or other equity interests in the capital of the Corporation except as contemplated by this Purchase Agreement; (ii) there are no restrictions on the transfer of shares in the capital of the Corporation other than those imposed by applicable securities laws, the Constating Documents and the Shareholders Agreement and as otherwise contemplated by this Purchase Agreement; (iii) the Corporation is not a party to, and to the best of the Corporation’s knowledge, there are, no agreements, understandings, trusts or other collaborative arrangements or understandings concerning the voting of the share capital of the Corporation other than the Shareholders Agreement, and (iv) the Corporation is not a party to, and to the Corporation’s knowledge, there are, no agreements, understandings, trusts or other understandings concerning transfers of the share capital of the Corporation other than the Shareholders Agreement. Notwithstanding the foregoing, the Purchaser understands and agrees that the Corporation may issue additional shares to Corporation’s Employee Stock Option Plan.

 

6.7

Debt

 

Schedule 6.7 lists all outstanding Debt of the Corporation and its Subsidiaries. Other than the Debt in favour of Frontwell Capital Partners Inc., Oxus Capital PTE Ltd., Utica Equipment Finance, Belphar LTD., and Saule Algaziyeva, all Debt of the Corporation is owed, directly or indirectly, to shareholders of the Corporation.

 

6.8

Material Contracts

 

Schedule 6.8 lists all Material Contracts of the Corporation and its Subsidiaries. The Material Contracts are in full force and effect and were entered into and have been performed in accordance with their terms in all material respects. None of the Corporation or any of its Subsidiaries is in default under, or in breach in any material respect of its obligations contained in, any of the Material Contracts. So far as Corporation is aware, no other party is in default under or in breach any material respect of its obligations contained in, any of the Material Contracts, and no party to a Material Contract has given notice of its intention to terminate, amend or modify a Material Contract.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.9

Welfare and Pension Plans

 

The Corporation and each of its Subsidiaries has adopted all Welfare Plans required by applicable law and each of such plans has been maintained in compliance with such laws in all material respects including, without limitation, all requirements relating to employee participation, funding, investment of funds, benefits and transactions with the Corporation and its Subsidiaries and persons related to them. Neither the Corporation nor any Subsidiary has a material contingent liability with respect to any post-retirement benefit under a Welfare Plan. Neither the Corporation nor any Subsidiary maintains a Pension Plan.

 

6.10

ERISA Plans

 

Neither the Corporation nor any of its Subsidiaries or their respective ERISA Affiliates operates or administers any ERISA Plan.

 

6.11

Employee Matters

 

None of the Corporation or any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement, except as set forth on Schedule 6.11. No employee of the Corporation or any of its Subsidiaries has been granted the right to continued employment by the Corporation or such Subsidiary or to any material compensation following termination of employment with the Corporation or such Subsidiary. No employee of the Corporation or any Subsidiary, nor any consultant with whom any of them has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, them. The continued employment by the Corporation or its Subsidiary of its respective present employees, and the performance of their respective contracts with its independent contractors, will not result in any such violation, and neither the Corporation nor any of its Subsidiaries has received any notice alleging that such violation has occurred. No officer, key employee or group of employees of the Corporation or its Subsidiaries intends to terminate his, her or their employment with the Corporation or such Subsidiary, as applicable, nor does the Corporation or any its Subsidiaries have a present intention to terminate the employment of any such officer, key employee or group of employees. Each former employee of the Corporation and its Subsidiaries whose employment was terminated thereby has entered into an agreement with the Corporation or Subsidiary providing for the full release of any claims against the Corporation or such Subsidiary, or any related party arising out of such employment.

 

6.12

Intellectual Property

 

(a)

The Corporation and its Subsidiaries has sufficient title and ownership of, or licenses to, all patents, patent applications, trademarks, service marks, trade names, domain names, copyrights, trade secrets, know-how, recipes and formulae, rights relating to social media, logos, domain names, website names and world wide web addresses, information, proprietary rights and processes (collectively, “Intellectual Property”) necessary for its business as now conducted without any violation or infringement of the rights of others.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

(b)

Schedule 6.12 sets forth a complete list and a description of all Intellectual Property applications and registrations owned by the Corporation and its Subsidiaries. The Corporation and its Subsidiaries own such Intellectual Property free and clear of any Liens (other than Permitted Liens). Such Intellectual Property is subsisting and valid and enforceable, and no action, suit, proceeding, arbitration, investigation, charge, complaint, claim, or demand is pending or, to the knowledge of the Corporation, is threatened, that (i) challenges the validity, enforceability or ownership of such Intellectual Property or (ii) alleges that the conduct of the business by the Corporation or its Subsidiaries infringes on or otherwise violates any rights relating to Intellectual Property of any other person.

 

(c)

The Corporation and its Subsidiaries take and have taken commercially reasonable steps to protect, maintain and enforce the Intellectual Property necessary for its business, including in respect of the confidentiality of proprietary information and trade secrets material to the business, such as product recipes. To the knowledge of the Corporation, there has been no unauthorized disclosure of any trade secrets or material proprietary information of the Company or its Subsidiaries.

 

(d)

To the knowledge of the Corporation, the operation of its business as currently conducted and as proposed to be conducted, does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any person. To the knowledge of the Corporation, no person is currently infringing, misappropriating or otherwise violating any of the Corporation or its Subsidiaries’ Intellectual Property or any material Intellectual Property licensed to the Corporation or its Subsidiaries. There have been no pending, or threatened, Intellectual Property claims, proceedings or litigation involving the Corporation.

 

(e)

The transactions contemplated by this Purchase Agreement and the continued operation of the Corporation and its Subsidiaries’ respective businesses as currently contemplated, will not violate or breach the terms of any Intellectual Property license, or entitle any other party to any such Intellectual Property license to terminate or modify it, or otherwise adversely affect any of the Corporation or its Subsidiaries rights under it.

 

6.13

Litigation

 

As of the date of execution of this Purchase Agreement, other than as disclosed in Schedule 6.13, there are no actions (including, without limitation, derivative actions), suits, proceedings or investigations pending and, to the knowledge of the Corporation, there are no proceedings threatened by or against the Corporation or its Subsidiaries at law or in equity in any court or before any other governmental authority which if adversely determined (i) would (alone or in the aggregate) result in a material liability or have a material adverse effect or (ii) seeks to enjoin, either directly or indirectly, the execution, delivery or performance by the Corporation of this Purchase Agreement and the Note issued hereunder or the transactions contemplated thereby. To the knowledge of the Corporation there are no grounds on which any such proceedings might be commenced with any reasonable likelihood of success.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.14

Compliance with Laws

 

(a)

Neither the Corporation nor any of its Subsidiaries is in violation of any federal, provincial, state, municipal or other applicable law, regulation or order of any governmental authority, domestic or foreign, which applies to the Corporation, its Subsidiaries or their respective business.

 

(b)

The Corporation and its Subsidiaries are in compliance with, and have complied with at all times, all Food Safety Laws, including those applicable to current good manufacturing practices, food additives, sanitary transportation, hazard analysis and risk-based preventive controls, supplier verification, protection against the intentional adulteration of food, and food labeling and advertising.

 

(c)

The Corporation and its Subsidiaries have not received any written notices of deficiency, violation or potential violation with respect to, any Food Safety Laws, other than with respect to normal-course facility audits of governmental authorities where non-material deficiencies, violations or observations may have been noted by the governmental authority and which were subsequently corrected and resolved.

 

(d)

To the knowledge of the Corporation, the Corporation and its Subsidiaries have not manufactured, sold, packaged, labelled, imported, exported or distributed any food product that is or was “adulterated,” “misbranded,” or otherwise violative within the meaning of any Food Safety Laws, and all such products are and have been in material conformity with all contractual commitments and product warranties.

 

(e)

No food product manufactured, sold, packaged, labelled, imported, exported or distributed by the Corporation is a novel food within the meaning of applicable Food Safety Laws.

 

(f)

There has been no Recall of any food product manufactured, sold, packaged, labelled, imported, exported or distributed by the Corporation or its Subsidiaries, and no facts or circumstances exist that could reasonably be expected to result in a Recall, including, without limitation, any violation of Food Safety Laws.

 

(g)

The Corporation and its Subsidiaries have all material approvals, permits, registrations, and licenses of all Governmental Authorities that are necessary to permit Corporation and its Subsidiaries to carry on their respective businesses in all material respects as currently conducted. All such approvals, permits, registrations, and licenses are in full force and effect. There has been no cancellation, revocation or material violation or material default of any approval, permit, registration, and license, and no proceeding is pending or, to the knowledge of the Corporation, threatened to cancel, revoke or limit any such approval, permit, registration, or license.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.15

Financial Statements

 

The audited consolidated financial statements of the Corporation for the fiscal year ended 2022 and the unaudited consolidated financial statements of the Corporation, for the periods through January 1, 2023 present fairly in all material respects the consolidated financial position of the Corporation, on a consolidated basis as at the dates indicated and the results of their operations and changes in their financial position for the periods specified and reflect all material liabilities (absolute, accrued, contingent or otherwise) of the Corporation, as of the dates thereof and such financial statements have been prepared in conformity with GAAP applied, except as otherwise stated therein, on a consistent basis.

 

6.16

Default

 

No Default or Event of Default has occurred and is continuing.

 

6.17

Material Adverse Change

 

No Material Adverse Change has occurred since the Definitive Agreement has been signed.

 

6.18

Solvency

 

None of the Corporation, its Subsidiaries or any of their respective predecessors, where applicable, (a) has committed any act of bankruptcy or initiated or taken steps to initiate any Insolvency Proceeding, (b)(i) is insolvent, (ii) is unable for any reason to unable to meet its obligations as they generally become due, (iii) has ceased paying its current obligations or (iv) is a Person the aggregate of whose property is not, at fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to pay all its obligations due and accruing due, (c) has proposed, or given notice of its intention to propose, a compromise or arrangement to its creditors generally, including pursuant to any Insolvency Legislation, or (d) has any petition for a receiving order in bankruptcy filed against it, made a voluntary assignment in bankruptcy, taken any proceeding with respect to any compromise or arrangement, taken any proceeding to have itself declared bankrupt or wound-up, taken any proceeding to have a receiver appointed of any part of its assets, has had any encumbrancer take possession of any of its property.

 

6.19

Taxes

 

The Corporation and its Subsidiaries has filed all federal, provincial, state and other (including foreign) Tax returns which are required to be filed, and, other than as set forth in Schedule 6.19, have paid all Taxes as shown on said returns, as well as all other Taxes to the extent that they have become due, unless being contested in good faith with appropriate reserves. All Tax liabilities of the Corporation and each Subsidiary are adequately provided for on the Corporation’s or Subsidiary’s books, as applicable, including interest and penalties. No Tax liability has been asserted by taxing authorities for Taxes in excess of those already paid, and no taxing authority has notified the Corporation, or any of its Subsidiaries, of any material deficiency in any federal, state and other Tax returns.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.20

Insurance

 

The Corporation and its Subsidiaries maintains insurance for risks and in amounts customary for prudent companies in the Corporation’s or Subsidiary’s industry and owners of comparable assets with responsible insurers against such risks. Neither Corporation nor any of its Subsidiaries is in default with respect to any of the material provisions contained in any current insurance policy or has failed to give any notice or pay any premium or present any unsettled claim under any current insurance policy in a due and timely fashion.

 

6.21

Liabilities

 

Neither the Corporation nor its Subsidiaries has any material liabilities and, to the best of its knowledge no material contingent liabilities, not disclosed in the financial statements of the Corporation, except (i) current liabilities incurred in the ordinary course of business to the date of the financial statements, which have not been, either in any individual case or in the aggregate, materially adverse and (ii) liabilities of a type not required by GAAP to be reflected in financial statements.

 

6.22

Non-Arm’s Length Transactions

 

All agreements, arrangements or transactions between the Corporation and its Subsidiaries, on the one hand, and any affiliate of or other Person not dealing at arm’s length with the Corporation or its Subsidiaries (other than ordinary course arrangements with any employee, management or director of the Corporation or its Subsidiaries), on the other hand, in existence as of Closing are set forth on Schedule 6.22.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.23

Sanctions and Anti-Money Laundering

 

(a)

None of the Corporation, nor any of the Corporation’s Subsidiaries, nor any of their respective directors, officers, employees or affiliates nor, to the best of their collective knowledge, any agents or other persons acting on behalf of any of the foregoing,

 

(i)

is, or is owned or controlled by, a person listed on the “Specially Designated Nationals and Blocked Persons” list maintained by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), or any similar list maintained by the United Nations, the European Union or any other U.S. government entity;

 

(ii)

is, or is owned or controlled by, a person that is the subject of any of the sanctions administered by OFAC, the U.S. Department of State (including, but not limited to, conduct sanctionable under the Iran Sanctions Act or the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010), or any equivalent sanctions or measures imposed by the United Nations, the European Union or any other U.S. government entity (collectively, the “Sanctions”), or has engaged in sanctionable conduct under Sanctions;

 

(iii)

directly or indirectly, has conducted, conducts or is otherwise involved with any business with or involving any government (or any sub-division thereof), or any person, entity or project, targeted by, or located in any country that is the subject of Sanctions;

 

(iv)

directly or indirectly supports or facilitates, or plans to support or facilitate or otherwise become involved with, any such person, government, entity or project; or

 

(v)

is or ever has been in violation of or subject to an investigation relating to Sanctions.

 

(b)

The Corporation acknowledges that Canadian federal law and regulations administered by, inter alios, Foreign Affairs and International Trade Canada and the Department of Public Safety Canada (collectively, the “Departments”) prohibit the Corporation from, among other things, engaging in transactions with Persons on the lists created under various federal statutes and regulations (including, but not limited to, the Freezing Assets of Corrupt Foreign Officials Act (Canada), the Special Economic Measures Act (Canada), the United Nations Act (Canada) and under the Criminal Code (Canada)) and blocked Persons and foreign countries and territories subject to Canadian sanctions administered by, inter alios, the Departments (together, the “Canadian Sanctions”). The Corporation represents and warrants that neither it nor any of its directors, officers or affiliates is a Person or is owned or controlled by a Person that is subject to Canadian Sanctions (a “Prohibited Person”) and the Corporation is not acting directly or indirectly on behalf of any Prohibited Person in connection with the transactions contemplated herein.

 

(c)

The operations of the Corporation are and have at all times been conducted in compliance with all anti-money laundering laws and all applicable financial record keeping and reporting requirements, rules, regulations and guidelines applicable to the Corporation (collectively, “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 Corporation with respect to Money Laundering Laws is pending and, to the best of its knowledge, no such actions, suits or proceedings are threatened or contemplated.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

6.24

Accuracy of Information

 

All factual information heretofore or contemporaneously furnished by or on behalf of the Corporation to the Purchaser in connection with this Purchase Agreement, the Note or the Qualifying Transaction, was true and accurate in all material respects at the time given and the Corporation is not aware of any omission of any material fact which renders such factual information incomplete or misleading in any material way at the time given.

 

ARTICLE 7
DEFAULT

 

7.1

Events of Default

 

Upon the happening of any one or more of the following events (each an “Event of Default”), namely:

 

(a)

breach by the Corporation of any representations, warranties or terms and conditions of this Purchase Agreement;

 

(b)

if the Corporation makes default in payment of the principal or premium, if any, payable on the Note;

 

(c)

if the Corporation makes default in payment of any Interest due on the Note and if such default continues for a period of ten (10) days when the same becomes due under any provision hereof or of the Note;

 

(d)

failure to deliver when due certificates representing any Conversion deliverable upon the conversion of the Note within five (5) Business Days after the Date of Conversion;

 

(e)

this Purchase Agreement shall for any reason, or is claimed by the Corporation to, cease in whole or in any material part to be a legal, valid, binding and enforceable obligation of the Corporation;

 

(f)

if a decree or order of a court having jurisdiction in the premises is entered adjudging the Corporation, any of its Subsidiaries (collectively, the “Issuer Parties”), a bankrupt or insolvent under the Bankruptcy and Insolvency Act (Canada) or any other bankruptcy, insolvency or analogous laws, or issuing sequestration or process of execution against, or against any substantial part of the property of any Issuer Party, or appointing a receiver of, or of any substantial part of the property of any Issuer Party or ordering the winding-up or liquidation of its affairs, and any such decree or order continues unstayed and in effect for a period of 30 days;

 

(g)

if a resolution is passed for the dissolution, winding-up or liquidation of any Issuer Party, or if any Issuer Party institutes proceedings to be adjudicated a bankrupt or insolvent, or consents to the institution of bankruptcy or Insolvency Proceedings against it under the Bankruptcy and Insolvency Act (Canada) or any other bankruptcy, insolvency or analogous laws, or consents to the filing of any such petition or to the appointment of a receiver of, or of any substantial part of, the property of any Issuer Party or makes a general assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they become due or takes corporate action in furtherance of any of the aforesaid purposes;

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

(h)

if, after the date of this Purchase Agreement, any proceedings with respect to the Corporation are taken with respect to a compromise or arrangement, with respect to creditors of any Issuer Party generally, under the applicable legislation of any jurisdiction;

 

(i)

any Issuer Party ceases to operate;

 

(j)

the occurrence of an event of default under one or more mortgage, bond, indenture, loan agreement or other document evidencing indebtedness of the Corporation or of any its Subsidiaries, which indebtedness has an aggregate outstanding principal amount of USD $100,000 or more, and such default: (i) results in the acceleration of such indebtedness prior to its stated maturity; or (ii) constitutes a failure to make any payment with respect to any such indebtedness when due and payable after expiration of any applicable grace period;

 

(k)

failure by the Corporation or any of its Subsidiaries to pay one or more final judgment or judgments in an aggregate amount of USD $100,000 or more and which judgments are not paid, discharged or stayed for a period of 30 days;

 

(l)

the occurrence of any action, suit or proceeding against or affecting the Corporation before any court or before other governmental or regulatory entity which, if successful, could reasonably be expected to result in a Material Adverse Change, unless the action, suit, or proceedings is contested diligently and in good faith and, in circumstances where a lower court or tribunal has rendered a decision adverse to it, the Corporation is appealing such decision, and has provided a reserve in respect thereof in accordance with GAAP;

 

(m)

a writ of execution or attachment or similar process in respect of any judgment which, together with all other such writs of execution or attachment or similar process is, in the aggregate, in excess of USD $100,000, is issued or levied against all or a substantial portion of the property of the Corporation or of a Subsidiary in connection with any judgment against the said party and such writ, execution, attachment or similar process is not released, bonded, satisfied, discharged, vacated or stayed within 30 days after its entry, commencement or levy;

 

(n)

a Change of Control occurs other than as a result of the Qualifying Transaction, then in each and every such event the Principal of and Interest on the Note then outstanding and all moneys outstanding hereunder shall become immediately due and payable to the Purchaser and the Corporation shall forthwith pay to the Purchaser such Principal, accrued and unpaid Interest and all other moneys outstanding hereunder, together with Interest borne at the Interest Rate on such Principal, Interest and such other moneys from the date of the Event of Default arising until payment is received by the Purchaser.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

The Corporation shall give written notice to the Purchaser immediately upon the Corporation becoming aware of the occurrence of an Event of Default, containing reasonable details of that Event of Default, and shall provide such other information as is reasonably requested in writing by the Purchaser in respect of such Event of Default.

 

ARTICLE 8
NOTICES

 

8.1

Notice to Corporation

 

(a)

Notices to the Corporation shall be in writing and may be delivered:

 

(i)

Personally by leaving them with the party, or at the offices of the party, to whom they are addressed at that party’s address hereinafter given, and notices so served shall be deemed to have been received by the addressee thereof on the day of delivery, unless actually delivered on a day which is not a Business Day or after 5:00 o’clock p.m. on the day of delivery, in which case notice shall be deemed to be received on the next ensuing Business Day;

 

(ii)

by electronic mail or any other like method by which a message may be sent directly to the party to whom they are to be delivered at that party’s address hereinafter given, and notices so sent shall be deemed to have been received by the addressee thereof on the Business Day following the day of transmission; and

 

(iii)

by mailing them first class (air mail if to or from a country other than Canada) registered post, postage prepaid, to the party to whom they are to be delivered, in which case notices mailed shall be deemed to be received by the addressee thereof on the fifth Business Day following the day of mailing thereof.

 

(b)

The address of the Corporation shall be as follows:

 

Borealis Foods Inc.
1540 Cornwall Rd., Suite 104
Oakville, ON
L6J7

Attention: Reza Soltanzadeh, President
E-mail: [*****]

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

8.2

Notice to Purchasers

 

Any notice, direction or other communication to be given under this Purchase Agreement shall be in writing and given by delivering it by personal delivery or courier or sending it by electronic mail and addressed to the addresses set forth above for the Corporation, and to the address for the Purchaser is:

 

Aman Murat Baikadamuly

 

Address: _____[*****]__________________________________________________________________

 

email address: __[*****]_________________________________________________________________

 

A notice is deemed to be given and received (i) if sent by Personal delivery or courier, on the date of delivery if it is a Business Day and the delivery was made prior to 5:00 p.m. (local time in place of receipt) and otherwise on the next Business Day, or (ii) if sent by electronic mail, on the Business Day following the date of transmission. The Purchaser may change its address for service or agent for service from time to time by providing a notice in accordance with the foregoing. Any subsequent notice must be sent to the party at its changed address. Any element of the Purchaser’s address that is not specifically changed in a notice will be assumed not to be changed.

 

8.3

Change of Address

 

Any party to this Purchase Agreement may change its address by notice delivered in accordance with this Purchase Agreement.

 

ARTICLE 9
MISCELLANEOUS

 

9.1

Finder’s Fee

 

Other than as disclosed in Schedule 9.1, each party represents that it neither is nor will be obligated for any finder’s or broker’s fee or commission in connection with the transactions contemplated by this Purchase Agreement. The Corporation agrees to indemnify and hold harmless the Purchaser from any liability for any commission or compensation in the nature of a finder’s or broker’s fee (and any asserted liability) for which the Corporation or any of its officers, employees or representatives is responsible.

 

9.2

Subordination

 

The indebtedness evidenced by the Note is hereby expressly subordinated in right of payment to the prior payment in full of all the Corporation’s indebtedness to Frontwell Capital Partners and Belphar Ltd., but all other unsecured indebtedness of the Corporation is ranked pari passu to the right of payment in full of all the Corporation’s indebtedness to the Purchaser. Purchaser agrees to execute a subordination agreement in a form acceptable to Frontwell Capital Partners concurrently with the execution hereof.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

9.3

Replacement of Note

 

Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of the Note, the Corporation will issue a new Note, of identical tenor and amount and dated the date to which interest has been paid, in lieu of such lost, stolen, destroyed or mutilated Note and the affidavit of the Purchaser setting forth the circumstances with respect to such loss, theft or destruction shall be accepted as satisfactory evidence of the loss, theft, destruction or mutilation of such Note.

 

9.4

Expenses

 

Each party will pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Purchase Agreement.

 

9.5

Amendment

 

Any term of this Purchase Agreement and the Note may be amended and the observance of any term of this Agreement and the Note may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Corporation and the Purchaser.

 

9.6

Severability

 

If the whole or any portion of this Purchase Agreement or the application thereof to any circumstance will be held invalid or unenforceable to an extent that does not affect the operation of this Purchase Agreement in question in a fundamental way, the remainder of this Purchase Agreement, or its application to any circumstance other than that to which it has been held invalid or unenforceable, will not be affected thereby and will be valid and enforceable to the fullest extent permitted by applicable law.

 

9.7

Execution

 

This Purchase Agreement may be simultaneously executed by electronic signature and in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument.

 

9.8

Time is of the Essence

 

Time shall be of the essence in this Purchase Agreement.

 

9.9

Entire Agreement

 

This Purchase Agreement, together with the Note and the Ancillary Documents, constitutes the entire agreement between the Corporation and the Purchaser with respect to the subject matter hereof. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the parties with respect thereto except as expressly set forth in this Purchase Agreement, the Note and the and the Ancillary Documents.

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

IN WITNESS whereof the parties hereto have executed these presents under their respective corporate seals and the hands of their proper officers in that behalf.

 

	CORPORATION:
	BOREALIS FOODS INC.
	By:	/s/ Reza Soltanzadeh
		Reza Soltanzadeh
		Its:	President
		Date:	11/15/2023
	PURCHASER:
	Aman Murat Baikadamuly
	/s/ Aman Murat Baikadamuly
	Date:	11/15/2023

 

 

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[*****]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

35

 

Exhibit 10.9

 

NOTE PURCHASE AGREEMENT

 

Made and effective as of the 30 day of January, 2024 (the “Effective Date”),

 

BETWEEN:

 

BOREALIS FOODS INC., a corporation incorporated under the laws of the Province of Ontario (hereinafter called the “Corporation”)

 

- AND -

 

GSS Overseas LTD., a corporation incorporated under the laws of the British Virgin Islands (the “Purchaser”)

 

WHEREAS the Corporation as of February 23, 2023 entered into a Business Combination Agreement (the “Definitive Agreement”) with Oxus Acquisition Corp. (“Oxus”) pursuant to which the Corporation shall, through a series of transactions carried out in accordance with the terms and conditions of the Definitive Agreement, amalgamate with Oxus, with the amalgamated entity being a public company, the shares of which shall be traded on the Nasdaq Stock Market LLC (such amalgamated entity referred to herein as the “Public Company”).

 

WHEREAS the Corporation desires to complete a financing for its corporate purposes through the issuance of convertible promissory notes, the issuance of which is provided for by this Note Purchase Agreement (“Purchase Agreement”), and the Corporation is duly authorized to create and issue the Note on the terms and conditions set forth herein.

 

NOW THEREFORE it is hereby covenanted, agreed and declared as follows:

 

ARTICLE 1.
INTERPRETATION

 

1.1

Definitions

 

In this Purchase Agreement and in the Note, including the recitals to this Purchase Agreement, unless there is something in the subject matter or context inconsistent therewith, the following words shall have the following meanings, namely:

 

“affiliate” has the meaning given in Section 1(1) of the Business Corporations Act (Ontario); “Ancillary Documents” has the meaning set forth in Section 6.1;

 

“Business Day” means a day which is not a Saturday or Sunday or a civic or statutory holiday in Ontario;

 

“Canadian Pension Plan” means any “pension plan” that is subject to the funding requirements of the Pension Benefits Act (Ontario) or applicable pension benefits legislation in any other Canadian jurisdiction.

 

 

“Change of Control” means:

 

(i) the purchase or acquisition by any Person or group of Persons acting jointly or in concert, of voting control of an aggregate of 50% or more of the outstanding equity of the Corporation;

 

(ii) the sale or other transfer of all or substantially all of the consolidated assets of the Corporation; or

 

(iii) the completion by the Corporation of an amalgamation, arrangement, merger or other consolidation or combination involving the Corporation such that shareholders of the Corporation prior to such amalgamation, arrangement, merger or other consolidation would not beneficially own, or exercise control or direction over, voting securities of the Corporation carrying the right to cast more than 50% of the votes attaching to all voting securities, or immediately following such an event, the directors of the Corporation do not constitute a majority of the board of directors (or equivalent) of the successor or continuing corporation or entity immediately following such event;

 

“Closing” has the meaning set forth in Section 2.2;

 

“Company Value” means USD $150,000,000;

 

“Constating Documents” has the meaning set forth in Section 6.2(a);

 

“Conversion Notice” means a notice in the form attached hereto as Schedule “B”;

 

“Conversion Securities” has the meaning set forth in Section 6.3;

 

“Date of Conversion” has the meaning set forth in Section 4.1(d);

 

“Debt” means all obligations, liabilities and indebtedness of the Corporation and its Subsidiaries which would, in accordance with GAAP, be classified upon a consolidated balance sheet of the Corporation as indebtedness for borrowed money of the Corporation and its Subsidiaries;

 

“Default” means an event that, with the passage of time would result an Event of Default;

 

“Definitive Agreement” has the meaning given to it in the recitals hereto;

 

“director” means a director of the Corporation for the time being and “directors” or “board of directors” or “board” means the board of directors of the Corporation or, if duly constituted and whenever duly empowered, the executive committee of the board of directors of the Corporation for the time being, and reference to action by the directors means action by the directors of the Corporation as a board or action by the said executive committee as such committee;

 

“Employee Stock Option Plan” means the Corporation’s Employee Stock Option Plan established January 6, 2022;

 

 

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect;

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with the Corporation or any of its Subsidiaries under section 414 of the U.S. Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time;

 

“ERISA Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title IV of ERISA (other than a multiemployer plan) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Corporation or any of its Subsidiaries or any ERISA Affiliate or with respect to which the Corporation or any of its Subsidiaries or any ERISA Affiliate may have any liability;

 

“Event of Default” means any event specified in Section 7.1, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act;

 

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Purchase Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code.

 

“Food Safety Laws” means all laws, constitutions, treaties, statutes, codes, orders, decrees, rules, regulations, by-laws and ordinances relating in whole or in part to food safety and the manufacture, sale, packaging, labelling, import, export and distribution of food products.

 

“GAAP” means generally accepted accounting principles in Canada, as adopted and modified (if applicable) by CPA Canada (or any successor thereto), applied on a consistent basis, which are in effect from time to time;

 

“Insolvency Legislation” means legislation in any applicable jurisdiction relating to reorganization, arrangement, compromise or re-adjustment of debt, dissolution or winding-up, or any similar legislation, and specifically includes for greater certainty the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) and the Bankruptcy Code (United States), together with any other similar statutes (including corporate statutes) in Canada or any other applicable jurisdiction in which the Corporation, any of its Subsidiaries operates.

 

“Insolvency Proceeding” is any proceeding by or against any Person under any Insolvency Legislation, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

 

“Interest” means the amount accrued on the balance of the Principal Amount indicated in the Note from time to time outstanding at the Interest Rate;

 

“Interest Rate” means ten percent (10%) per annum;

 

“Issuer Party” has the meaning set forth in Section 7.1(f);

 

“Lien” means any lien, mortgage, charge, hypothecation, pledge, security interest, prior assignment, option, warrant, lease, sublease, right to possession, right of distress, encumbrance, claim, right or restriction which affects, by way of a conflicting ownership interest or otherwise, the right, title or interest in or to any particular property.

 

“Material Adverse Change” means the occurrence of an event which has a material adverse effect on (i) the financial condition of Corporation and its Subsidiaries taken as a whole, (ii) the Corporation’s ability to perform its obligations under this Purchase Agreement or the Note or the validity or enforceability of a material provision of this Purchase Agreement or the Note or (iii) the property, business, operations or liabilities of the Corporation and the Subsidiaries taken as a whole;

 

“Material Contracts” means, collectively:

 

(i)

the Credit Agreement dated August 10, 2023 among the Corporation and Frontwell Capital Partners Inc., as amended, restated, supplemented or otherwise modified from time to time;

 

(ii)

each Shareholder Debt Document;

 

(iii)

material customer contracts, broker agreements and distribution agreements;

 

(iv)

the Definitive Agreement;

 

(v)

material real estate documents; and

 

(vi)

any new contract or agreement with monthly revenue greater than $100,000 or involving a liability or expenditure greater than $100,000, and

 

any other contacts or agreements which, if breached or terminated, could reasonably be expected to result in a Material Adverse Change.

 

“Maturity Date” means June 8, 2024;

 

“Non-Canadian Pension Plan” means any “pension plan”, scheme, fund (including any superannuation fund) or other similar program established, sponsored or maintained outside of Canada by the Corporation or any of its Subsidiaries primarily for the benefit of employees thereof residing outside of Canada, which is subject to statutory funding requirements in advance of the payment of pension benefits thereunder, and which plan is not subject to the funding requirements of the Pension Benefits Act (Ontario) or applicable pension benefits legislation in any other Canadian jurisdiction;

 

 

“Note” means, the USD $3,000,000 convertible promissory note to be issued by the Corporation hereunder on the Closing Date;

 

“Pension Plan” means a Canadian Pension Plan or a Non-Canadian Pension Plan.

 

“Permitted Debt” means, collectively (i) all Debt incurred hereunder and under the Notes, (ii) all Debt identified in Schedule 6.7 (including any Debt owing to Frontwell Capital Partners);

 

“Permitted Lien” means, in respect of the Corporation and any of its Subsidiaries:

 

(i)

encumbrances for taxes, assessments or governmental charges incurred in the ordinary course of business that are not yet due and payable or the validity of which is being actively and diligently contested in good faith by the relevant Person, provided adequate reserves with respect thereto are maintained on the books of the relevant Person in accordance with GAAP;

 

(ii)

construction, mechanics’, carriers’, warehousemen’s and materialmen’s liens and liens in respect of vacation pay, workers’ compensation, employment insurance or similar statutory obligations, provided the obligations secured by such liens are not yet due and payable or the validity of which is being actively and diligently contested in good faith by the relevant Person, provided adequate reserves with respect thereto are maintained on the books of the relevant Person, and, in the case of construction liens, which have not yet been filed or for which the relevant Person has not received written notice of a Lien or which singly or in the aggregate do not materially detract from the value of the asset concerned or the Holder’s security;

 

(iii)

encumbrances arising from court or arbitral proceedings, provided that the claims secured thereby are being contested in good faith by the relevant Person, provided adequate reserves with respect thereto are maintained on the books of relevant Person in accordance with GAAP, execution thereon has been stayed and continues to be stayed and such Lien do not result in an Event of Default;

 

(iv)

good faith deposits made in the ordinary course of business to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, surety, customs, performance bonds and other similar obligations;

 

(v)

deposits to secure statutory obligations or in connection with any matter giving rise to a Lien described in (ii) above;

 

 

(vi)

deposits of cash or securities in connection with any appeal, review or contestation of any Lien or any matter giving rise to a Lien described in (i) or (iii) above;

 

(vii)

zoning restrictions, easements, rights of way, leases or other similar encumbrances or privileges in respect of real property which in the aggregate do not materially affect the value of such property nor impair the use of such property by the relevant Person in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;

 

(viii)

security given by the relevant Person to a public utility or any governmental authority, when required by such utility or governmental authority in connection with the operations of the relevant Person, in the ordinary course of its business, which singly or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the business of the relevant Person;

 

(ix)

any other Lien which the Purchaser approves in writing as a Permitted Lien subsequent to the date hereof; and

 

(x)

Liens listed in Schedule 5.17, and provided that in no event shall any assets or property of the Company or any Subsidiary thereof be subject to such security interests or mortgages.

 

“Person” includes an individual, corporation, company, partnership (whether general or limited), association or trust;

 

“Principal” has the meaning set forth in Section 2.5(a);

 

“Public Company” has the meaning given to it in the recitals hereto;

 

“Qualifying Transaction” means closing of transactions as described in Section 2.08 of the Definitive Agreement;

 

“Recall” means any voluntary or involuntary attempt or instruction to return any product of the Corporation or its Subsidiaries’ business to the control of Corporation or its Subsidiaries, or to otherwise recall, retrieve, withdraw, remove, stop, or limit the distribution of any such product, or to encourage or direct the disposal, destruction, or non-use of any such product, due to a known or potential safety risk associated with the consumption of the product, or the potential violation of Food Safety Laws;

 

“Securities” means common shares in the capital of the Public Company;

 

“Shareholder Debt Documents” means, collectively, each of the note purchase agreements described in Schedule 6.7 and the notes issued thereunder in favor, directly or indirectly, of a shareholder of the Corporation;

 

“Shareholders Agreement” means the Shareholders’ Agreement among the Corporation and the shareholders of the Corporation dated October 1, 2019, as amended, restated, supplemented or otherwise modified from time to time;

 

 

“Shares” means the Class A Common Shares, Class B Common Shares, Class C Common Shares, Class D Common Shares, Class E Common Shares, Class F Common Shares, Class G Common Shares, Class H Common Shares, Class I Common Shares and Class J Common Shares in the capital of the Corporation;

 

“Spot Rate” means, in relation to the conversion of one currency into another currency, the spot rate of exchange for such conversion as quoted by the Bank of Canada at the close of business on the Business Day that such conversion is to be made (or, if such conversion is to be made before close of business on such Business Day, then at approximately close of business on the immediately preceding Business Day);

 

“Subsidiary” means any Person of which more than 50% of the outstanding voting shares or other equity interests (pertaining to the right to appoint or to elect Persons to the board, committee or group who determine the management and policy of such Person) is owned or controlled, directly or indirectly, by or for the Corporation and includes any Person in like relation to a Subsidiary;

 

“Taxes” means all taxes of any kind or nature whatsoever including income taxes, capital taxes, minimum taxes, levies, imposts, stamp taxes, royalties, duties, charges to tax, value added taxes, commodity taxes, goods and services taxes, and all fees, deductions, compulsory loans, withholdings and restrictions or conditions resulting in a charge imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future by any governmental or quasi-governmental authority of or within any jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon and any instalments in respect thereof;

 

“this Purchase Agreement”, “hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar expressions refer to this Purchase Agreement and not to any particular Article, Section, subsection, clause, subdivision or other portion hereof and include any and every instrument supplemental or ancillary hereto;

 

“United States” means the United States of America, its territories and possessions, any state of the United States, and the District of Columbia;

 

“Valuation Cap” means USD $120,000,000.00;

 

“Welfare Plan” means any medical, health, hospitalization, insurance or other employee benefit or welfare plan or arrangement applicable to employees resident in Canada, the United States or any other jurisdiction in which the Corporation or any of its Subsidiaries operates.

 

“Withholding Amount” has the meaning set forth in Section 2.7; and

 

“written direction of the Corporation” means an instrument in writing signed by one of the Chief Executive Officer, the President or the Chairman and also by one of any other officer of the Corporation.

 

 

1.2

Special Accounting Provisions

 

For the purposes of this Purchase Agreement and in respect of the Note and the determinations required to be made under any of the covenants herein contained which relate to the Note and the definitions set forth in Section 1.1, the following shall apply:

 

(a)

whenever any conversion of Canadian currency or of any other currency into United States currency or vice versa is required herein, such conversion shall, unless otherwise provided herein, be determined as of a date not more than ten days prior to the date when such conversion is required to be made, and shall, unless otherwise provided herein, be made at the Spot Rate;

 

(b)

all determinations shall be made in accordance with GAAP and shall give effect to retirements of securities to be effected concurrently with or prior to any proposed action; and

 

(c)

all determinations made hereunder shall be conclusive and binding for all purposes of this Purchase Agreement.

 

1.3

Interpretation

 

In this Purchase Agreement:

 

(a)

words importing the singular number or masculine gender shall include the plural number or the feminine or neuter genders, and vice versa;

 

(b)

all references to Articles and Schedules refer, unless otherwise specified, to Articles of and Schedules to this Purchase Agreement;

 

(c)

all references to Sections refer, unless otherwise specified, to sections, subsections or clauses of this Purchase Agreement and reference to subsections or clauses refer to paragraphs in the same section as the reference or to clauses in the same subsection as the reference; and

 

(d)

words and terms denoting inclusiveness (such as “include” or “includes” or “including”), whether or not so stated, are not limited by and do not imply limitation of their context or the words or phrases which precede or succeed them.

 

1.4

Headings, Etc.

 

The division of this Purchase Agreement into Articles and Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Purchase Agreement or of the Note.

 

 

1.5

Day not a Business Day

 

In the event that any day on or before which any action required to be taken hereunder is not a Business Day, then, unless otherwise expressed, such action shall be required to be taken on or before the requisite time on the next succeeding day that is a Business Day.

 

1.6

Applicable Law

 

This Purchase Agreement and the Note shall be construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and shall be treated in all respects as Ontario contracts.

 

1.7

Monetary References

 

All references to currency herein and in the Note shall be to lawful money of the United States of America, unless otherwise expressed.

 

1.8

Invalidity, Etc.

 

Any provision hereof which is prohibited or unenforceable shall be ineffective only to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof.

 

1.9

Language

 

This document is drawn up in English at the express wish of the parties. C’est le volanté expresse des parties que cette entente soit redigée en anglais.

 

1.10

Successors and Assigns

 

This Purchase Agreement shall enure to the benefit of and be binding upon the Corporation and the Purchaser and their respective successors and assigns, including for certainty in the case of the Corporation, the Public Company.

 

1.11

Schedules

 

Schedule “A” – Form of Note

Schedule “B” – Form of Conversion Notice

Schedule 5.17 – Permitted Liens

Schedule 6.6 – Share Capital

Schedule 6.7 – Debt

Schedule 6.8 – Material Contracts

Schedule 6.10 – Employee Matters

Schedule 6.22 – Non-Arm’s Length Transactions

 

 

ARTICLE 2.
NOTE AND NOTE ISSUANCE

 

2.1

Note Issuance.

 

The Corporation has authorized the issuance and sale of the Note in the principal amount of USD $3,000,000, such Note to be issued at the Closing.

 

2.2

Purchase and Sale of Note.

 

Subject to satisfaction of the conditions precedent set forth in Section 3.1, the Corporation agrees to issue and sell to the Purchaser, and, subject to and in reliance upon the representations, warranties, covenants, terms and conditions of this Purchase Agreement, the Purchaser agrees to purchase from the Corporation, the Note. The purchase by and sale to the Purchaser the Note shall take place at a closing (the “Closing”) to be held electronically or at the offices of the Corporation, after this Purchase Agreement is executed or such other date and at such time as may be mutually agreed upon by the Corporation and the Purchaser. At the Closing, the Corporation will issue and deliver the Note to the Purchaser, which Note shall be dated as of the date of this Purchase Agreement, against payment of the purchase price thereof by wire transfer, or other means of immediately available funds, such payment shall be referred as completed after the funds are released from the bank account of the Purchaser. The Purchaser shall make the payment within 15 calendar days after the Note is issued and delivered to the Purchaser.

 

2.3

Use of Proceeds

 

The Corporation shall use the proceeds of the Note for working capital and operations-related capital expenditures, and the Purchaser is entitled to review and examine the use of proceeds by the Corporation any time while the Principal and accrued Interest is outstanding.

 

2.4

Note Attributes

 

Each Note shall be in the form attached hereto as Schedule “A”. For certainty, any replacement note issued pursuant to Section 9.3 hereof shall (i) be in the form attached here as Schedule “A”, as amended to give effect to the reduction to the Principal Amount (as defined therein), and (ii) from and after the issuance thereof, be deemed to be a “Note” referred to herein for the purposes of this Purchase Agreement.

 

2.5

Repayment of Principal and Interest

 

(a)

Principal

 

Subject to the provisions of this Purchase Agreement, the principal amount (the “Principal”) of the Note outstanding on the day prior to the Maturity Date shall be repaid to the Purchaser in full on the Maturity Date. In addition, all accrued and unpaid Interest on the principal obligations and all fees and other amounts due and payable hereunder shall be paid to the Purchaser on the Maturity Date.

 

 

(b)

Interest

 

The parties hereto agree that Interest shall accrue and be calculated on the Principal of each Note at the Interest Rate from its date of issuance, up to and including the date of repayment or conversion thereof. All such accrued Interest will be:

 

(i)

paid in cash on the date on which such Note is repaid if such Note is repaid in cash pursuant to the terms hereof; or

 

(ii)

converted into Securities on the Date of Conversion.

 

Interest shall accrue on any overdue amounts at the Interest Rate, both before and after demand and before and after default, judgment and execution from the date thereof until payment in full of all amounts owing to the Purchaser hereunder and under the Note have been paid in accordance with the terms of this Purchase Agreement.

 

(c)

Prepayment

 

The Corporation shall not make any optional prepayment of Principal or Interest.

 

2.6

Interest

 

(a)

Interest on Conversion

 

Where the Principal is converted to Securities pursuant to the terms hereof, any Interest payable in connection with the Note shall also be converted to Securities, subject to Section 2.7 below.

 

(b)

Per annum

 

Unless otherwise stated, wherever in this Purchase Agreement or the Note reference is made to a rate of interest “per annum” or a similar expression is used, such interest shall be calculated using the nominal rate method, and not the effective rate method, of calculation and the basis of a 12 month period of 365 days or 366 days, as the case may be.

 

2.7

Withholding Taxes

 

(a)

All payments to be made by or on behalf of the Corporation pursuant hereunder (including the Conversion) or under the Notes are to be made without set-off, deduction, compensation or counterclaim and free and clear of and without deduction or withholding for or on account of any Taxes (which for greater certainty does not include Taxes on the overall income or capital of the Purchaser), except for the deduction of such Taxes as required by applicable laws. If required by applicable laws, the Corporation shall be entitled to deduct or withhold from any amounts payable to the Purchaser, such amount as is required to be deducted or withheld in respect of any Taxes with respect to the payment (a “Withholding Amount”). The Corporation shall duly remit any Withholding Amount to the appropriate governmental authority within the applicable time limits under applicable law. As soon as practicable after the remittance of such Withholding Amount to a governmental authority, the Corporation will deliver to the Purchaser the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Purchaser.

 

 

(b)

If the Corporation deducts or withholds any Withholding Amount (including any Withholding Amount in respect of a Conversion of the Notes as set forth under Article 4), the Corporation shall promptly pay to the Purchaser, in the currency in which such Withholding Amount was paid in accordance with Section 2.7(b) was made, an additional amount as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the Purchaser receives an amount equal to the sum it would have received had no such deduction or withholding been made (“Additional Amount”), together with the relevant receipt addressed to the Purchaser. For the avoidance of doubt, on a Conversion of the Notes as set forth under Article 4, the Corporation shall pay the Withholding Amount applicable in respect of such Conversion, if any, to the applicable governmental authority, shall reduce the number of Securities issuable to the Purchaser by that number of Securities equivalent in value to the Withholding Amount in respect of that Purchaser, and shall pay any applicable Additional Amount in respect of such Conversion to the Purchaser in accordance with Section 2.7(b).

 

(c)

The Corporation will indemnify the Purchaser, within 10 days after demand therefor, for the full amount of any Taxes payable or paid by the Purchaser or required to be withheld or deducted from a payment to such Purchaser and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant governmental authority (for greater certainty, without duplication for additional amounts paid under Section 2.7(b)).

 

(d)

The Purchaser shall, at such times as are reasonably requested by the Corporation, provide the Corporation with any properly completed and executed documentation prescribed by law, or reasonably requested by the Corporation, certifying as to any entitlement of the Purchaser to an exemption from, or reduction in, any withholding Tax with respect to any payments to be made to the Purchaser hereunder or under the Note (including any documentation necessary to establish an exemption from, or reduction of, any Taxes that may be imposed under FATCA). The Purchaser shall, whenever a lapse in time or change in circumstances renders such documentation expired, obsolete or inaccurate in any respect, deliver promptly to the Corporation updated or other appropriate documentation (including any new documentation reasonably requested by the applicable withholding agent) or promptly notify the Corporation of its inability to do so. In addition, the Purchaser, if reasonably requested by the Corporation, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Corporation as will enable the Corporation to determine whether or not the Purchaser is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.7(e) below) shall not be required if in the Purchaser’s reasonable judgment such completion, execution or submission would subject the Purchaser to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of the Purchaser.

 

 

(e)

If a payment made to the Purchaser hereunder or under the Note would be subject to U.S. federal withholding Tax imposed by FATCA if the Purchaser were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), the Purchaser shall deliver to the Corporation at the time or times prescribed by law and at such time or times reasonably requested by the Corporation such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Corporation as may be necessary for the Corporation to comply with their obligations under FATCA and to determine that the Purchaser has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause, “FATCA” shall include any amendments made to FATCA after the date of this Purchaser Agreement.

 

ARTICLE 3.
CONDITIONS PRECEDENT

 

3.1

Conditions Precedent to Closing

 

The obligations of the Purchaser hereunder are subject to the fulfillment or waiver, prior to or concurrently with Closing, of each of the following conditions:

 

(a)

The Corporation shall have delivered, or caused to be delivered, to the Purchaser duly executed copies of:

 

(i)

this Purchase Agreement;

 

(ii)

the Note;

 

(b)

Each of the representations and warranties of the Corporation contained in Article 6 shall be true and complete in all material respects on and as of the date of the Closing;

 

(c)

The Corporation shall have obtained or made all approvals, consents, qualifications and filings necessary to complete the purchase and sale described herein. The Corporation shall have delivered to the Purchaser a certificate of good standing in respect of the Corporation, and any Subsidiaries of the Corporation, each dated no more than thirty (30) days prior to the date of Closing.

 

 

ARTICLE 4.
CONVERSION

 

4.1

Conversion

 

(a)

The outstanding Principal and all accrued and unpaid Interest on the Note may be converted into Securities pursuant to the terms set forth in Section 4.1(b) below (each, a “Conversion”).

 

(b)

Unless otherwise agreed to in writing by the parties, the outstanding Principal and accrued and unpaid Interest on the Note shall automatically be subject to a Conversion into Securities as soon as the Qualifying Transaction occurs as stated in the Plan of Arrangement approved by the Definitive Agreement without any other further action required on the part of the Purchaser and the Note shall be deemed to be surrendered for conversion at such time for purposes of Section 4.1(d).

 

(c)

Each Conversion under the Note shall be effected in accordance with the following:

 

(i)

the outstanding Principal and accrued and unpaid interest of the Note to be converted shall be converted in full into such number of Securities equal to the quotient of:

 

(A) the product of:

 

(I)

the aggregate of all of the Principal outstanding and all accrued and unpaid Interest, multiplied by

 

(II)

an amount equal to Company Value divided by the Valuation Cap, divided by,

 

(B) USD $10.00.

 

(d)

For the purposes hereof, the Note shall be deemed to be surrendered for conversion on the day that the Purchaser delivers the Conversion Notice and the surrendered Note to the Corporation, or if the Note is automatically converted pursuant to Section 0, the date on which such automatic Conversion occurs in accordance therewith (in each case, the “Date of Conversion”).

 

(e)

From and after the Date of Conversion, the Purchaser shall be entitled to be entered in the books of the Corporation as the holder of the number of Securities into which the Note is convertible in accordance with the Section 4.1(a), and, as soon as practicable thereafter (and in any event, within five (5) Business Days), the Corporation shall deliver to the Purchaser a certificate or certificates for such Securities. The certificates representing the Securities to be issued upon conversion of the Note shall bear such restrictive or other legends as may be required by applicable laws.

 

(f)

The Securities issued upon conversion shall rank pari passu in respect of dividends declared in favour of Purchaser on and after the Date of Conversion, from which applicable date they will for all purposes be and be deemed to be issued and outstanding as fully paid and non-assessable Securities.

 

 

4.2

No Requirement to Issue Fractional Securities

 

The Corporation shall not be required to issue fractional Securities upon the conversion of the Note and the Purchaser will not be entitled to compensation for any such fractional Securities. If, as a result of any adjustment, the Purchaser would become entitled to a fractional Security, the Purchaser shall have the right to acquire only the adjusted number of full Securities (computed to the nearest whole number with any numbers above one-half being rounded up).

 

4.3

Adjustments to Securities

 

If and while the Note is outstanding, there is a reclassification of the Securities or a capital reorganization of Corporation or a consolidation, amalgamation, arrangement or merger of the Corporation with or into any other Person or other entity other than the Qualifying Transaction; or a sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to any other Person or other entity or a liquidation, dissolution or winding-up of the Corporation, the Purchaser, to the extent that it has not exercised its right of conversion or the conversion has not automatically occurred, as applicable, as provided for in this Section 4.3 prior to the effective time of such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance or liquidation, dissolution or winding-up, upon the exercise of such right thereafter, shall be entitled to receive and shall accept, in lieu of the number of Securities then sought to be acquired by it, the kind and number of shares or other securities or property of the Corporation or of the Person or other entity resulting from such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, or to which such sale or conveyance may be made or which holders of Securities receive or are entitled to receive pursuant to such liquidation, dissolution or winding-up, as the case may be, that the Purchaser would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance or liquidation, dissolution or winding-up, if, on the record date or at the effective time thereof, as the case may be, the Purchaser had been the registered holder of the number of Securities sought to be acquired by it and to which it was entitled to acquire upon the exercise of the conversion right. To the extent that the Purchaser has not exercised its right of conversion or the conversion has not automatically occurred, the Corporation shall not effect any such consolidation, amalgamation, arrangement or merger, sale or conveyance or similar transaction unless, before the consummation thereof, the successor Person (if other than the Corporation) resulting from such transaction, shall, contemporaneously with any such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, sale or conveyance or liquidation, dissolution or winding-up, deliver a new convertible promissory note in replacement of the Note which shall provide, to the extent possible, for the application of the provisions set forth in this Section with respect to the rights and interests thereafter of the Purchaser to the end that the provisions set forth in this Purchase Agreement and the Note shall thereafter correspondingly be made applicable, as nearly as may reasonably be, with respect to any shares or other securities or property to which the Purchaser is entitled on the exercise of its conversion rights thereafter. The provisions of this Section 4.3 shall similarly apply to successive reorganizations, reclassifications, consolidations amalgamations, arrangements, mergers, sales, conveyances or similar transactions.

 

ARTICLE 5.
COVENANTS

 

The Corporation hereby covenants and agrees with the Purchaser for the benefit of the Purchaser as follows:

 

5.1

Payment of Principal and Interest

 

The Corporation will duly and punctually pay or cause to be paid to the Purchaser the Principal of and Interest accrued on the Note, at the places and in the manner mentioned herein and in the Note, subject to Section 2.7.

 

 

5.2

To Carry out this Purchase Agreement

 

The Corporation will duly and punctually perform and carry out all of the acts or things to be done by it as provided in this Purchase Agreement and the Note.

 

5.3

Carry on Business

 

Subject to the express provisions hereof, the Corporation will, and will cause its Subsidiaries to, carry on and conduct their respective businesses in a proper, efficient and business-like manner and diligently use, operate, maintain, repair and replace their respective properties and plants so as to preserve and protect the earnings, incomes, rents and profits thereof, all in accordance with good business practice; provided that nothing herein contained shall prevent the Corporation or any Subsidiary from ceasing to use or operate any particular property if in the opinion of the directors it shall be advisable and in the best interests of the Corporation to do so. Subject to the express provisions hereof, the Corporation will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights. The Corporation undertakes to ensure that for so long as any amount is outstanding under this Purchase Agreement the Corporation will not enter into a single transaction or a series of transactions, whether related or not, to transfer or otherwise dispose of all or any part of any of its shares in any of its Subsidiaries or sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Corporation and its Subsidiaries (taken as a whole) to any other third party.

 

5.4

Dispositions

 

The Corporation shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise dispose of any of its property, assets or undertaking, except for (i) in the ordinary course of business and (ii) in respect of obsolete or worn-out equipment and (iii) sales of other assets for proceeds not exceeding, in the aggregate, USD $50,000 per annum.

 

5.5

Taxes

 

The Corporation will duly file on a timely basis all Tax returns required to be filed by it pay and cause to be paid all Taxes lawfully levied, assessed or imposed upon or in respect of its property or any part thereof or upon the income and profits of the Corporation and of its Subsidiaries as and when the same become due and payable; provided that the Corporation and its Subsidiaries, acting diligently and in good faith, shall be entitled to contest by appropriate proceedings any such Taxes and, upon such contest, may delay or defer payment or discharge thereof.

 

5.6

Remittances.

 

The Corporation will make all of the remittances required to be made by it to the applicable federal, provincial or municipal governments and keep such remittances up to date.

 

5.7

Pension and Welfare Plans

 

The Corporation shall, and shall cause each of its Subsidiaries to, make all required payments in respect of funding each Pension Plan and Welfare Plan applicable thereto and to otherwise fully comply with all applicable laws governing or affecting such Pension Plans and Welfare Plans.

 

5.8

Inspection of Property

 

The Corporation will, and will cause each of its Subsidiaries to, (i) maintain books and records of account in accordance with GAAP and all applicable laws, and (ii) permit representatives of the Purchaser to (A) visit and inspect any property of any of them and to examine and make abstracts from any books and records of any of them at any reasonable time during normal business hours and upon reasonable request and notice, and subject to the Corporation’s health and safety requirements, and at the Corporation’s expense, and (B) discuss the business, property, condition (financial or otherwise) and prospects of the Corporation with their senior officers and (in the presence of such representatives, if any, as it may designate) with its independent chartered accountants.

 

 

5.9

Comply with Law and Maintain Permits

 

The Corporation will, and will cause each of its Subsidiaries to, comply with applicable laws and obtain and maintain all permits, licenses, consents and approvals necessary to the ownership of its property and to the conduct of its business in each jurisdiction where it carries on business or owns property.

 

5.10

Transactions with Affiliates.

 

The Corporation shall not and shall not permit any of its Subsidiaries to enter into any transaction with any officer, director, employee, shareholder or any Person not dealing at arm’s length or any affiliate of any of the foregoing (specifically excluding any employment or option agreement or intercompany indebtedness or transactions between the Corporation and any of its Subsidiaries) unless such transaction is on terms no less favorable to the Corporation than would be obtainable in an arm’s length transaction.

 

5.11

Material Contracts

 

The Corporation and each of its Subsidiaries shall observe each term, covenant and agreement contained in the Material Contracts in all material respects.

 

5.12

Employee Matters

 

The Corporation shall not, and shall not permit its Subsidiaries to, make any material change in the compensation payable or to become payable to any employee, including any bonuses, wage rates, benefits, severance or termination pay, except as required by applicable law, pursuant to any existing employment agreement as disclosed in writing to the Purchaser. The Corporation shall not, and shall not permit its Subsidiaries to, materially change the benefits to which the employees are entitled under any employee plan or create any materially different employment contract template, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement.

 

5.13

Insurance

 

The Corporation will, and will cause each of its Subsidiaries to, maintain adequate insurance issued by insurers of recognized standing in respect of its material property, as is customary in the case of businesses of established reputation engaged in the same or similar businesses, and will provide the Purchaser with copies of all insurance policies relating thereto if so requested.

 

5.14

Intellectual Property

 

It shall maintain all of its material Intellectual Property, take all actions necessary to defend such Intellectual Property from adverse claims and abide by the material terms of the agreements governing that Intellectual Property licenced by it.

 

5.15

Notices

 

The Corporation will provide the Purchaser with prompt written notice of:

 

(a)

the occurrence of any Default or Event of Default;

 

(b)

any new Material Contracts, together with a copy thereof;

 

 

(c)

any dispute, notice of termination, proposed amendment or other material information given or received under or in connection with any Material Contract;

 

(d)

all claims or proceedings pending or, to its knowledge, threatened against it which may give rise to uninsured liability in excess of USD $100,000 or which could result in a Material Adverse Change;

 

(e)

any allegation or claim made by a third party that the business of the Corporation or its Subsidiaries infringes or misappropriates the Intellectual Property rights of any person;

 

(f)

any allegation or claim of material deficiency, violation or potential violation of Food Safety Laws, made by a third party, including any governmental authority;

 

(g)

any product Recall conducted by or on behalf of the Corporation or its Subsidiaries;

 

(h)

any investigation, inquiry or enforcement proceedings by any governmental authority; and

 

(i)

any of the representations or warranties hereunder or under any of the Ancillary Documents becoming untrue or incorrect.

 

5.16

Fundamental Changes

 

Provide the Purchaser with at least 15 days’ prior written notice, effect any change: (i) of its or any Subsidiaries’ name, (ii) in the jurisdiction of the location of its or any Subsidiaries’ chief executive office or registered office or any material tangible assets, or (iii) to its or any Subsidiaries’ Constating Documents.

 

5.17

Debt and Liens

 

Corporation will in reasonable time and due manner inform the Purchaser of any new liens and debts incurred by the Corporation and/or its Subsidiaries while the Principal and accrued Interest is outstanding.

 

5.18

No Distributions on Shares During Event of Default

 

The Corporation shall not declare or pay any dividend to the holders of its issued and outstanding Shares after the occurrence of an Event of Default unless and until such Default shall have been cured or waived or shall have ceased to exist.

 

5.19

ERISA Plan

 

None of the Corporation, any of its Subsidiaries or any of its or their ERISA Affiliates operate or administer any ERISA Plan.

 

5.20

Use of Proceeds

 

The Corporation shall use the proceeds of the Note solely as permitted by Section 2.3.

 

 

ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF CORPORATION

 

The Corporation represents and warrants to the Purchaser, as follows, each of which representation and warranty is true and correct as of the date hereof and will be true and correct as of the Closing Date.

 

6.1

Organization, Qualifications and Corporate Power

 

The Corporation and each of its Subsidiaries is duly incorporated or formed and validly existing and in good standing under the laws of its jurisdiction of formation and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to be so licensed or qualified would not have a material adverse effect on the business or assets of the Corporation or such Subsidiary, as applicable. The Corporation and each of its Subsidiaries has the corporate power and authority to own and hold its properties and to carry on its business as now conducted. The Corporation has the corporate power and authority to execute, deliver and perform its obligations under this Purchase Agreement and all other certificates, documents and instruments ancillary hereto (collectively, the “Ancillary Documents”) and to issue, sell and deliver each Note and the Conversion Securities.

 

6.2

Authorization of Agreements; Non-Contravention

 

(a)

The execution and delivery by the Corporation of this Purchase Agreement and each Note and all Ancillary Documents, the performance by the Corporation of its obligations hereunder and thereunder and the issuance, sale and delivery of each Note and the Conversion Securities have been duly authorized by all requisite corporate action and will not contravene, violate or conflict with, constitute a breach of or default under, result in the loss of any benefit under, permit the acceleration of any obligation under or create in any party the right to terminate, modify or cancel:

 

(i)

any applicable laws, permits or authorizations applicable to the Corporation or its Subsidiaries;

 

(ii)

any judgment, decree, order, injunction, award or ruling of any governmental authority or arbitration panel to which the Corporation or any of its Subsidiaries is a party or by which the Corporation or any of its Subsidiaries are bound;

 

(iii)

the articles, bylaws or any other constating document of the Corporation or its Subsidiaries (in each case, its “Constating Documents”);

 

(iv)

any provision of any Material Contract or any other indenture, mortgage, agreement, contract or instrument to which the Corporation, or any of its properties or assets is bound,

 

(v)

any government subsidy or incentive;

 

or conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a default under any such Material Contract or other indenture, agreement or other instrument, or result in the creation or imposition of any Lien, or claim of any nature whatsoever upon any of the properties or assets of the Corporation.

 

(b)

None of the issuance, sale or delivery of the Note or the Conversion Securities is subject to any pre-emptive right of shareholders of the Corporation that has not been waived or complied with or to any right of first refusal or other right in favor of any Person that has not been waived or complied with.

 

 

6.3

Validity

 

This Purchase Agreement has been duly executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation, enforceable against the Corporation in accordance with its terms. Each Note, when executed and delivered in accordance with this Purchase Agreement, will constitute the legal, valid and binding obligations of the Corporation, enforceable against the Corporation in accordance with their terms. The Securities issuable upon conversion of the Note (the “Conversion Securities”), when issued, sold and delivered in compliance with the terms and for the consideration expressed in this Purchase Agreement and the Note, will be duly authorized and validly issued, exempt from the registration and prospectus requirements of all applicable securities laws, fully paid and nonassessable. The issuance or sale of the Note or the Conversion Securities will not trigger any anti-dilution adjustments, other than any such adjustments as have been effectively waived in writing prior to the date hereof.

 

6.4

Consents and Approvals

 

No registration or filing with, or consent or approval of or other action by, any federal, provincial or other governmental agency or instrumentality, or any other third party, is or will be necessary for the valid execution, delivery and performance by the Corporation of this Purchase Agreement or the issuance, sale and delivery of the Note, other than filings pursuant to applicable securities laws (all of which filings have been or will be made by the Corporation) in connection with the sale of the Note, if any. Other than as set forth in Schedule 6.4, no third party has or will have any written or oral agreement, option, warrant, participation right, pre-emptive right, right of first refusal, privilege or any other right, commitment or arrangement of any character, kind or nature whatsoever capable of becoming any of the foregoing which would be contravened by the execution, delivery and performance by the Corporation of this Purchase Agreement or the issuance, sale and delivery of the Note.

 

6.5

Title

 

The Corporation and its Subsidiaries have good, valid and marketable beneficial and legal title to their assets, free and clear of any and all Liens and adverse claims created by, through or under the Corporation and its Subsidiaries, other than the Permitted Liens. Other than the Permitted Liens, it has not received notice from any third party claiming an interest in and to any of the assets of the Corporation or any of its Subsidiaries.

 

6.6

Status of Share Capital

 

(a)

All the outstanding share capital of the Corporation has been duly authorized, is validly issued and is fully paid and non-assessable, and no shares of the share capital of the Corporation or other securities of the Corporation have been issued in violation (i) of any law, treaty, regulation, ordinance, decree, judgment, order or similar requirement made or issued under sovereign or statutory authority and applicable to or binding upon the Corporation, (ii) the Constating Documents or (iii) any pre-emptive right of shareholders of the Corporation or any right of first refusal or other right in favor of any Person that was not waived.

 

(b)

The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized share capital of the Corporation are as set forth in the Corporation’s Constating Documents, a complete copy of which has been delivered to the Purchaser.

 

(c)

There are no unanimous shareholder agreements other than the Shareholders Agreement, a complete copy of which, together with all amendments thereto, has been delivered to the Purchaser.

 

(d)

Attached hereto as Schedule 6.6 is a true and correct list of all of the authorized, and the issued and outstanding, stock, shares or other equity interests of the Corporation and the record and beneficial owners of such stock, shares or other equity interests, the numbers of any certificate representing such stock, shares or other equity interests, and the number of shares or other equity interests covered by all outstanding options, warrants, subscriptions or purchase rights of any nature in respect of any such stock, shares or other equity interests.

 

 

(e)

Except as set forth in Schedule 6.6, (i) no options, warrants, subscriptions or purchase rights of any nature to acquire from the Corporation stock, shares or other equity interests in the capital of the Corporation or are authorized, issued or outstanding, nor is the Corporation obligated in any other manner to issue stock, shares or other equity interests in the capital of the Corporation except as contemplated by this Purchase Agreement; (ii) there are no restrictions on the transfer of shares in the capital of the Corporation other than those imposed by applicable securities laws, the Constating Documents and the Shareholders Agreement and as otherwise contemplated by this Purchase Agreement; (iii) the Corporation is not a party to, and to the best of the Corporation’s knowledge, there are, no agreements, understandings, trusts or other collaborative arrangements or understandings concerning the voting of the share capital of the Corporation other than the Shareholders Agreement, and (iv) the Corporation is not a party to, and to the Corporation’s knowledge, there are, no agreements, understandings, trusts or other understandings concerning transfers of the share capital of the Corporation other than the Shareholders Agreement. Notwithstanding the foregoing, the Purchaser understands and agrees that the Corporation may issue additional shares to Corporation’s Employee Stock Option Plan.

 

6.7

Debt

 

Schedule 6.7 lists all outstanding Debt of the Corporation and its Subsidiaries. Other than the Debt in favour of Frontwell Capital Partners Inc., Oxus Capital PTE Ltd., Utica Equipment Finance, Belphar LTD., and Saule Algaziyeva, all Debt of the Corporation is owed, directly or indirectly, to shareholders of the Corporation.

 

6.8

Material Contracts

 

Schedule 6.8 lists all Material Contracts of the Corporation and its Subsidiaries. The Material Contracts are in full force and effect and were entered into and have been performed in accordance with their terms in all material respects. None of the Corporation or any of its Subsidiaries is in default under, or in breach in any material respect of its obligations contained in, any of the Material Contracts. So far as Corporation is aware, no other party is in default under or in breach any material respect of its obligations contained in, any of the Material Contracts, and no party to a Material Contract has given notice of its intention to terminate, amend or modify a Material Contract.

 

6.9

Welfare and Pension Plans

 

The Corporation and each of its Subsidiaries has adopted all Welfare Plans required by applicable law and each of such plans has been maintained in compliance with such laws in all material respects including, without limitation, all requirements relating to employee participation, funding, investment of funds, benefits and transactions with the Corporation and its Subsidiaries and persons related to them. Neither the Corporation nor any Subsidiary has a material contingent liability with respect to any post-retirement benefit under a Welfare Plan. Neither the Corporation nor any Subsidiary maintains a Pension Plan.

 

6.10

ERISA Plans

 

Neither the Corporation nor any of its Subsidiaries or their respective ERISA Affiliates operates or administers any ERISA Plan.

 

 

6.11

Employee Matters

 

None of the Corporation or any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement, except as set forth on Schedule 6.11. No employee of the Corporation or any of its Subsidiaries has been granted the right to continued employment by the Corporation or such Subsidiary or to any material compensation following termination of employment with the Corporation or such Subsidiary. No employee of the Corporation or any Subsidiary, nor any consultant with whom any of them has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, them. The continued employment by the Corporation or its Subsidiary of its respective present employees, and the performance of their respective contracts with its independent contractors, will not result in any such violation, and neither the Corporation nor any of its Subsidiaries has received any notice alleging that such violation has occurred. No officer, key employee or group of employees of the Corporation or its Subsidiaries intends to terminate his, her or their employment with the Corporation or such Subsidiary, as applicable, nor does the Corporation or any its Subsidiaries have a present intention to terminate the employment of any such officer, key employee or group of employees. Each former employee of the Corporation and its Subsidiaries whose employment was terminated thereby has entered into an agreement with the Corporation or Subsidiary providing for the full release of any claims against the Corporation or such Subsidiary, or any related party arising out of such employment.

 

6.12

Intellectual Property

 

(a)

The Corporation and its Subsidiaries has sufficient title and ownership of, or licenses to, all patents, patent applications, trademarks, service marks, trade names, domain names, copyrights, trade secrets, know-how, recipes and formulae, rights relating to social media, logos, domain names, website names and world wide web addresses, information, proprietary rights and processes (collectively, “Intellectual Property”) necessary for its business as now conducted without any violation or infringement of the rights of others.

 

(b)

Schedule 6.12 sets forth a complete list and a description of all Intellectual Property applications and registrations owned by the Corporation and its Subsidiaries. The Corporation and its Subsidiaries own such Intellectual Property free and clear of any Liens (other than Permitted Liens). Such Intellectual Property is subsisting and valid and enforceable, and no action, suit, proceeding, arbitration, investigation, charge, complaint, claim, or demand is pending or, to the knowledge of the Corporation, is threatened, that (i) challenges the validity, enforceability or ownership of such Intellectual Property or (ii) alleges that the conduct of the business by the Corporation or its Subsidiaries infringes on or otherwise violates any rights relating to Intellectual Property of any other person.

 

 

(c)

The Corporation and its Subsidiaries take and have taken commercially reasonable steps to protect, maintain and enforce the Intellectual Property necessary for its business, including in respect of the confidentiality of proprietary information and trade secrets material to the business, such as product recipes. To the knowledge of the Corporation, there has been no unauthorized disclosure of any trade secrets or material proprietary information of the Company or its Subsidiaries.

 

(d)

To the knowledge of the Corporation, the operation of its business as currently conducted and as proposed to be conducted, does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any person. To the knowledge of the Corporation, no person is currently infringing, misappropriating or otherwise violating any of the Corporation or its Subsidiaries’ Intellectual Property or any material Intellectual Property licensed to the Corporation or its Subsidiaries. There have been no pending, or threatened, Intellectual Property claims, proceedings or litigation involving the Corporation.

 

(e)

The transactions contemplated by this Purchase Agreement and the continued operation of the Corporation and its Subsidiaries’ respective businesses as currently contemplated, will not violate or breach the terms of any Intellectual Property license, or entitle any other party to any such Intellectual Property license to terminate or modify it, or otherwise adversely affect any of the Corporation or its Subsidiaries rights under it.

 

6.13

Litigation

 

As of the date of execution of this Purchase Agreement, other than as disclosed in Schedule 6.13, there are no actions (including, without limitation, derivative actions), suits, proceedings or investigations pending and, to the knowledge of the Corporation, there are no proceedings threatened by or against the Corporation or its Subsidiaries at law or in equity in any court or before any other governmental authority which if adversely determined (i) would (alone or in the aggregate) result in a material liability or have a material adverse effect or (ii) seeks to enjoin, either directly or indirectly, the execution, delivery or performance by the Corporation of this Purchase Agreement and the Note issued hereunder or the transactions contemplated thereby. To the knowledge of the Corporation there are no grounds on which any such proceedings might be commenced with any reasonable likelihood of success.

 

6.14

Compliance with Laws

 

(a)

Neither the Corporation nor any of its Subsidiaries is in violation of any federal, provincial, state, municipal or other applicable law, regulation or order of any governmental authority, domestic or foreign, which applies to the Corporation, its Subsidiaries or their respective business.

 

(b)

The Corporation and its Subsidiaries are in compliance with, and have complied with at all times, all Food Safety Laws, including those applicable to current good manufacturing practices, food additives, sanitary transportation, hazard analysis and risk-based preventive controls, supplier verification, protection against the intentional adulteration of food, and food labeling and advertising.

 

 

(c)

The Corporation and its Subsidiaries have not received any written notices of deficiency, violation or potential violation with respect to, any Food Safety Laws, other than with respect to normal-course facility audits of governmental authorities where non-material deficiencies, violations or observations may have been noted by the governmental authority and which were subsequently corrected and resolved.

 

(d)

To the knowledge of the Corporation, the Corporation and its Subsidiaries have not manufactured, sold, packaged, labelled, imported, exported or distributed any food product that is or was “adulterated,” “misbranded,” or otherwise violative within the meaning of any Food Safety Laws, and all such products are and have been in material conformity with all contractual commitments and product warranties.

 

(e)

No food product manufactured, sold, packaged, labelled, imported, exported or distributed by the Corporation is a novel food within the meaning of applicable Food Safety Laws.

 

(f)

There has been no Recall of any food product manufactured, sold, packaged, labelled, imported, exported or distributed by the Corporation or its Subsidiaries, and no facts or circumstances exist that could reasonably be expected to result in a Recall, including, without limitation, any violation of Food Safety Laws.

 

(g)

The Corporation and its Subsidiaries have all material approvals, permits, registrations, and licenses of all Governmental Authorities that are necessary to permit Corporation and its Subsidiaries to carry on their respective businesses in all material respects as currently conducted. All such approvals, permits, registrations, and licenses are in full force and effect. There has been no cancellation, revocation or material violation or material default of any approval, permit, registration, and license, and no proceeding is pending or, to the knowledge of the Corporation, threatened to cancel, revoke or limit any such approval, permit, registration, or license.

 

6.15

Financial Statements

 

The audited consolidated financial statements of the Corporation for the fiscal year ended 2022 and the unaudited consolidated financial statements of the Corporation, for the periods through January 1, 2023 present fairly in all material respects the consolidated financial position of the Corporation, on a consolidated basis as at the dates indicated and the results of their operations and changes in their financial position for the periods specified and reflect all material liabilities (absolute, accrued, contingent or otherwise) of the Corporation, as of the dates thereof and such financial statements have been prepared in conformity with GAAP applied, except as otherwise stated therein, on a consistent basis.

 

 

6.16

Default

 

No Default or Event of Default has occurred and is continuing.

 

6.17

Material Adverse Change

 

No Material Adverse Change has occurred since the Definitive Agreement has been signed.

 

6.18

Solvency

 

None of the Corporation, its Subsidiaries or any of their respective predecessors, where applicable,

 

(a) has committed any act of bankruptcy or initiated or taken steps to initiate any Insolvency Proceeding,

 

(b) (i) is insolvent, (ii) is unable for any reason to unable to meet its obligations as they generally become due, (iii) has ceased paying its current obligations or (iv) is a Person the aggregate of whose property is not, at fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to pay all its obligations due and accruing due, (c) has proposed, or given notice of its intention to propose, a compromise or arrangement to its creditors generally, including pursuant to any Insolvency Legislation, or (d) has any petition for a receiving order in bankruptcy filed against it, made a voluntary assignment in bankruptcy, taken any proceeding with respect to any compromise or arrangement, taken any proceeding to have itself declared bankrupt or wound-up, taken any proceeding to have a receiver appointed of any part of its assets, has had any encumbrancer take possession of any of its property.

 

6.19

Taxes

 

The Corporation and its Subsidiaries has filed all federal, provincial, state and other (including foreign) Tax returns which are required to be filed, and, other than as set forth in Schedule 6.19, have paid all Taxes as shown on said returns, as well as all other Taxes to the extent that they have become due, unless being contested in good faith with appropriate reserves. All Tax liabilities of the Corporation and each Subsidiary are adequately provided for on the Corporation’s or Subsidiary’s books, as applicable, including interest and penalties. No Tax liability has been asserted by taxing authorities for Taxes in excess of those already paid, and no taxing authority has notified the Corporation, or any of its Subsidiaries, of any material deficiency in any federal, state and other Tax returns.

 

6.20

Insurance

 

The Corporation and its Subsidiaries maintains insurance for risks and in amounts customary for prudent companies in the Corporation’s or Subsidiary’s industry and owners of comparable assets with responsible insurers against such risks. Neither Corporation nor any of its Subsidiaries is in default with respect to any of the material provisions contained in any current insurance policy or has failed to give any notice or pay any premium or present any unsettled claim under any current insurance policy in a due and timely fashion.

 

 

6.21

Liabilities

 

Neither the Corporation nor its Subsidiaries has any material liabilities and, to the best of its knowledge no material contingent liabilities, not disclosed in the financial statements of the Corporation, except (i) current liabilities incurred in the ordinary course of business to the date of the financial statements, which have not been, either in any individual case or in the aggregate, materially adverse and (ii) liabilities of a type not required by GAAP to be reflected in financial statements.

 

6.22

Non-Arm’s Length Transactions

 

All agreements, arrangements or transactions between the Corporation and its Subsidiaries, on the one hand, and any affiliate of or other Person not dealing at arm’s length with the Corporation or its Subsidiaries (other than ordinary course arrangements with any employee, management or director of the Corporation or its Subsidiaries), on the other hand, in existence as of Closing are set forth on Schedule 6.22.

 

6.23

Sanctions and Anti-Money Laundering

 

(a)

None of the Corporation, nor any of the Corporation’s Subsidiaries, nor any of their respective directors, officers, employees or affiliates nor, to the best of their collective knowledge, any agents or other persons acting on behalf of any of the foregoing,

 

(i)

is, or is owned or controlled by, a person listed on the “Specially Designated Nationals and Blocked Persons” list maintained by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), or any similar list maintained by the United Nations, the European Union or any other U.S. government entity;

 

(ii)

is, or is owned or controlled by, a person that is the subject of any of the sanctions administered by OFAC, the U.S. Department of State (including, but not limited to, conduct sanctionable under the Iran Sanctions Act or the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010), or any equivalent sanctions or measures imposed by the United Nations, the European Union or any other U.S. government entity (collectively, the “Sanctions”), or has engaged in sanctionable conduct under Sanctions;

 

(iii)

directly or indirectly, has conducted, conducts or is otherwise involved with any business with or involving any government (or any sub-division thereof), or any person, entity or project, targeted by, or located in any country that is the subject of Sanctions;

 

 

(iv)

directly or indirectly supports or facilitates, or plans to support or facilitate or otherwise become involved with, any such person, government, entity or project; or

 

(v)

is or ever has been in violation of or subject to an investigation relating to Sanctions.

 

(b)

The Corporation acknowledges that Canadian federal law and regulations administered by, inter alios, Foreign Affairs and International Trade Canada and the Department of Public Safety Canada (collectively, the “Departments”) prohibit the Corporation from, among other things, engaging in transactions with Persons on the lists created under various federal statutes and regulations (including, but not limited to, the Freezing Assets of Corrupt Foreign Officials Act (Canada), the Special Economic Measures Act (Canada), the United Nations Act (Canada) and under the Criminal Code (Canada)) and blocked Persons and foreign countries and territories subject to Canadian sanctions administered by, inter alios, the Departments (together, the “Canadian Sanctions”). The Corporation represents and warrants that neither it nor any of its directors, officers or affiliates is a Person or is owned or controlled by a Person that is subject to Canadian Sanctions (a “Prohibited Person”) and the Corporation is not acting directly or indirectly on behalf of any Prohibited Person in connection with the transactions contemplated herein.

 

(c)

The operations of the Corporation are and have at all times been conducted in compliance with all anti-money laundering laws and all applicable financial record keeping and reporting requirements, rules, regulations and guidelines applicable to the Corporation (collectively, “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 Corporation with respect to Money Laundering Laws is pending and, to the best of its knowledge, no such actions, suits or proceedings are threatened or contemplated.

 

6.24

Accuracy of Information

 

All factual information heretofore or contemporaneously furnished by or on behalf of the Corporation to the Purchaser in connection with this Purchase Agreement, the Note or the Qualifying Transaction, was true and accurate in all material respects at the time given and the Corporation is not aware of any omission of any material fact which renders such factual information incomplete or misleading in any material way at the time given.

 

 

ARTICLE 7.
DEFAULT

 

7.1

Events of Default

 

Upon the happening of any one or more of the following events (each an “Event of Default”), namely:

 

(a)

breach by the Corporation of any representations, warranties or terms and conditions of this Purchase Agreement;

 

(b)

if the Corporation makes default in payment of the principal or premium, if any, payable on the Note;

 

(c)

if the Corporation makes default in payment of any Interest due on the Note and if such default continues for a period of ten (10) days when the same becomes due under any provision hereof or of the Note;

 

(d)

failure to deliver when due certificates representing any Conversion deliverable upon the conversion of the Note within five (5) Business Days after the Date of Conversion;

 

(e)

this Purchase Agreement shall for any reason, or is claimed by the Corporation to, cease in whole or in any material part to be a legal, valid, binding and enforceable obligation of the Corporation;

 

(f)

if a decree or order of a court having jurisdiction in the premises is entered adjudging the Corporation, any of its Subsidiaries (collectively, the “Issuer Parties”), a bankrupt or insolvent under the Bankruptcy and Insolvency Act (Canada) or any other bankruptcy, insolvency or analogous laws, or issuing sequestration or process of execution against, or against any substantial part of the property of any Issuer Party, or appointing a receiver of, or of any substantial part of the property of any Issuer Party or ordering the winding-up or liquidation of its affairs, and any such decree or order continues unstayed and in effect for a period of 30 days;

 

(g)

if a resolution is passed for the dissolution, winding-up or liquidation of any Issuer Party, or if any Issuer Party institutes proceedings to be adjudicated a bankrupt or insolvent, or consents to the institution of bankruptcy or Insolvency Proceedings against it under the Bankruptcy and Insolvency Act (Canada) or any other bankruptcy, insolvency or analogous laws, or consents to the filing of any such petition or to the appointment of a receiver of, or of any substantial part of, the property of any Issuer Party or makes a general assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they become due or takes corporate action in furtherance of any of the aforesaid purposes;

 

 

(h)

if, after the date of this Purchase Agreement, any proceedings with respect to the Corporation are taken with respect to a compromise or arrangement, with respect to creditors of any Issuer Party generally, under the applicable legislation of any jurisdiction;

 

(i)

any Issuer Party ceases to operate;

 

(j)

the occurrence of an event of default under one or more mortgage, bond, indenture, loan agreement or other document evidencing indebtedness of the Corporation or of any its Subsidiaries, which indebtedness has an aggregate outstanding principal amount of USD $100,000 or more, and such default: (i) results in the acceleration of such indebtedness prior to its stated maturity; or (ii) constitutes a failure to make any payment with respect to any such indebtedness when due and payable after expiration of any applicable grace period;

 

(k)

failure by the Corporation or any of its Subsidiaries to pay one or more final judgment or judgments in an aggregate amount of USD $100,000 or more and which judgments are not paid, discharged or stayed for a period of 30 days;

 

(l)

the occurrence of any action, suit or proceeding against or affecting the Corporation before any court or before other governmental or regulatory entity which, if successful, could reasonably be expected to result in a Material Adverse Change, unless the action, suit, or proceedings is contested diligently and in good faith and, in circumstances where a lower court or tribunal has rendered a decision adverse to it, the Corporation is appealing such decision, and has provided a reserve in respect thereof in accordance with GAAP;

 

(m)

a writ of execution or attachment or similar process in respect of any judgment which, together with all other such writs of execution or attachment or similar process is, in the aggregate, in excess of USD $100,000, is issued or levied against all or a substantial portion of the property of the Corporation or of a Subsidiary in connection with any judgment against the said party and such writ, execution, attachment or similar process is not released, bonded, satisfied, discharged, vacated or stayed within 30 days after its entry, commencement or levy;

 

(n)

a Change of Control occurs other than as a result of the Qualifying Transaction, then in each and every such event the Principal of and Interest on the Note then outstanding and all moneys outstanding hereunder shall become immediately due and payable to the Purchaser and the Corporation shall forthwith pay to the Purchaser such Principal, accrued and unpaid Interest and all other moneys outstanding hereunder, together with Interest borne at the Interest Rate on such Principal, Interest and such other moneys from the date of the Event of Default arising until payment is received by the Purchaser.

 

The Corporation shall give written notice to the Purchaser immediately upon the Corporation becoming aware of the occurrence of an Event of Default, containing reasonable details of that Event of Default, and shall provide such other information as is reasonably requested in writing by the Purchaser in respect of such Event of Default.

 

 

ARTICLE 8.
NOTICES

 

8.1

Notice to Corporation

 

(a)

Notices to the Corporation shall be in writing and may be delivered:

 

(i)

Personally by leaving them with the party, or at the offices of the party, to whom they are addressed at that party’s address hereinafter given, and notices so served shall be deemed to have been received by the addressee thereof on the day of delivery, unless actually delivered on a day which is not a Business Day or after 5:00 o’clock p.m. on the day of delivery, in which case notice shall be deemed to be received on the next ensuing Business Day;

 

(ii)

by electronic mail or any other like method by which a message may be sent directly to the party to whom they are to be delivered at that party’s address hereinafter given, and notices so sent shall be deemed to have been received by the addressee thereof on the Business Day following the day of transmission; and

 

(iii)

by mailing them first class (air mail if to or from a country other than Canada) registered post, postage prepaid, to the party to whom they are to be delivered, in which case notices mailed shall be deemed to be received by the addressee thereof on the fifth Business Day following the day of mailing thereof.

 

(b)

The address of the Corporation shall be as follows:

 

Borealis Foods Inc.
1540 Cornwall Rd., Suite 104
Oakville, ON
L6J7 W5
Attention: Reza Soltanzadeh, President
E-mail: rs@borealisfoods.ca

 

8.2

Notice to Purchasers

 

Any notice, direction or other communication to be given under this Purchase Agreement shall be in writing and given by delivering it by personal delivery or courier or sending it by electronic mail and addressed to the addresses set forth above for the Corporation, and to the address for the Purchaser is:

 

GSS Overseas LTD
Address: 3rd Floor, Yamraj Building,
Market Square P.O. Box 3175 Road Town,
Tortola British Virgin Islands

Attention: Shukhrat Ibragimov

 

 

A notice is deemed to be given and received (i) if sent by Personal delivery or courier, on the date of delivery if it is a Business Day and the delivery was made prior to 5:00 p.m. (local time in place of receipt) and otherwise on the next Business Day, or (ii) if sent by electronic mail, on the Business Day following the date of transmission. The Purchaser may change its address for service or agent for service from time to time by providing a notice in accordance with the foregoing. Any subsequent notice must be sent to the party at its changed address. Any element of the Purchaser’s address that is not specifically changed in a notice will be assumed not to be changed.

 

8.3

Change of Address

 

Any party to this Purchase Agreement may change its address by notice delivered in accordance with this Purchase Agreement.

 

ARTICLE 9.
MISCELLANEOUS

 

9.1

Finder’s Fee

 

Other than as disclosed in Schedule 9.1, each party represents that it neither is nor will be obligated for any finder’s or broker’s fee or commission in connection with the transactions contemplated by this Purchase Agreement. The Corporation agrees to indemnify and hold harmless the Purchaser from any liability for any commission or compensation in the nature of a finder’s or broker’s fee (and any asserted liability) for which the Corporation or any of its officers, employees or representatives is responsible.

 

9.2

Subordination

 

The indebtedness evidenced by the Note is hereby expressly subordinated in right of payment to the prior payment in full of all the Corporation’s indebtedness to Frontwell Capital Partners and Belphar Ltd., but all other unsecured indebtedness of the Corporation is ranked pani passu to the right of payment in full of all the Corporation’s indebtedness to the Purchaser. Purchaser agrees to execute a subordination agreement in a form acceptable to Frontwell Capital Partners concurrently with the execution hereof.

 

9.3

Replacement of Note

 

Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of the Note, the Corporation will issue a new Note, of identical tenor and amount and dated the date to which interest has been paid, in lieu of such lost, stolen, destroyed or mutilated Note and the affidavit of the Purchaser setting forth the circumstances with respect to such loss, theft or destruction shall be accepted as satisfactory evidence of the loss, theft, destruction or mutilation of such Note.

 

 

9.4

Expenses

 

Each party will pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Purchase Agreement.

 

9.5

Amendment

 

Any term of this Purchase Agreement and the Note may be amended and the observance of any term of this Agreement and the Note may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Corporation and the Purchaser.

 

9.6

Severability

 

If the whole or any portion of this Purchase Agreement or the application thereof to any circumstance will be held invalid or unenforceable to an extent that does not affect the operation of this Purchase Agreement in question in a fundamental way, the remainder of this Purchase Agreement, or its application to any circumstance other than that to which it has been held invalid or unenforceable, will not be affected thereby and will be valid and enforceable to the fullest extent permitted by applicable law.

 

9.7

Execution

 

This Purchase Agreement may be simultaneously executed by electronic signature and in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument.

 

9.8

Time is of the Essence

 

Time shall be of the essence in this Purchase Agreement.

 

9.9

Entire Agreement

 

This Purchase Agreement, together with the Note and the Ancillary Documents, constitutes the entire agreement between the Corporation and the Purchaser with respect to the subject matter hereof. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the parties with respect thereto except as expressly set forth in this Purchase Agreement, the Note and the and the Ancillary Documents.

 

 

IN WITNESS whereof the parties hereto have executed these presents under their respective corporate seals and the hands of their proper officers in that behalf.

 

	CORPORATION:
	BOREALIS FOODS INC.
	/s/ Reza Soltanzadeh
	By:	Reza Soltanzadeh
	Its:	President
	Date:	1/30/2024
	PURCHASER:
	GSS Overseas LTD.
	/s/ Shukhrat Ibragimov
	By:	Shukhrat Ibragimov
	Its:	President
	Date:	1/30/2024

 

 

33

 

 

Exhibit 99.2

 

 

 

 

 

 

Consolidated Financial Statements

 

Borealis Foods, Inc. and Subsidiaries

 

Years Ended December 31, 2023 and 2022

with Report of Independent Auditors

 

 

 

 

 

 

 

 

 

Borealis Foods, Inc. and Subsidiaries

Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

 

Contents

 

Report of Independent Registered Public Accounting Firm	1
Consolidated Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity	4
Consolidated Statements of Cash Flows	5
Notes to the Consolidated Financial Statements	6-24

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Borealis Foods, Inc. and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Borealis Foods, Inc and Subsidiaries (“the Company”) as of the year-ended December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, 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.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the substantial amount of debt coming due within the next 12 months and negative cash flow position along with other conditions as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated 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 and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, 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. 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.

 

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.

 

Critical Audit Matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

We have served as the Company’s auditor since 2022.

 

/s/ Berkowitz Pollack Brant

 

West Palm Beach, FL

 

April 15, 2024

 

 

 

Borealis Foods, Inc. and Subsidiaries
Consolidated Balance Sheets

 

		December 31,
		2023				2022
Assets
Current assets:
Cash		$	7,615,630				5,146,616
Accounts receivable, net of allowance for credit losses of $224,433 and $113,383 as of December 31, 2023 and 2022, respectively			1,775,756				2,592,757
Inventories, net			6,945,028				6,284,665
Prepaid expenses			845,878				1,816,889
Total current assets			17,182,292				15,840,927
Property, plant and equipment, net			46,408,540				46,841,749
Right-of-use asset, net			108,469				--
Goodwill			1,917,356				1,917,356
Other non-current assets			169,685				171,029
Total asset		$	65,786,342			$	64,771,061
Liabilities and Stockholders’ (deficit) equity
Current liabilities:
Accounts payable and accrued expenses		$	10,887,730			$	8,711,002
Due to related parties			7,825,790				8,325,791
Line of credit			--				630,000
Convertible notes payable, current portion			47,300,000				24,800,000
Notes payable, current portion, net of unamortized loan costs			681,121				--
Operating lease liability, current portion			43,794				--
Finance leases payable, current portion			565,353				552,379
Total current liabilities			67,303,788				43,019,172
Line of credit			--				10,000,000
Convertible note payable, net of current portion			3,000,000				3,000,000
Notes payable, net of current portion			13,509,189				--
Operating lease liability, net of current portion			71,119				--
Finance leases payable, net of current portion			1,683,308				2,194,876
Deferred tax liability			1,566,233				1,917,356
Total liabilities			87,133,637				60,131,404
Stockholders’ (deficit) equity:
Common stock, no par value			--				--
Additional paid-in capital			44,118,081				42,625,786
Accumulated deficit			(65,465,376	)			(37,986,129	)
Total stockholders’ (deficit) equity			(21,347,295	)			4,639,657
Total liabilities and stockholders’ (deficit) equity		$	65,786,342			$	64,771,061

 

See accompanying notes.

 

 

Borealis Foods, Inc. and Subsidiaries
Consolidated Statements of Operations

 

		Years Ended December 31,
		2023				2022
Revenues, net		$	29,984,968			$	25,296,594
Cost of goods sold			31,288,687				32,367,494
Gross loss		$	(1,303,719	)		$	(7,070,900	)
Selling, general and administrative expenses			18,645,431				15,991,560
Loss from operations		$	(19,949,150	)		$	(23,062,460	)
Other income (expense):
Loss on disposal of assets		$	(962,665	)			--
Gain on sale of asset			--				50,000
Other income, net			373,120				1,945
Interest expense		$	(7,276,583	)		$	(3,215,822	)
Total other income (expense)		$	(7,866,128	)		$	(3,163,877	)
Net loss before income taxes		$	(27,815,278	)		$	(26,226,337	)
Income tax benefit (expense)			336,031			$	(55,588	)
Net Loss		$	(27,479,247	)		$	(26,281,925	)

 

See accompanying notes.

 

 

Borealis Foods, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
Years Ended December 31, 2023 and 2022

 

		Class A Common Stock								Class B Common Stock								Class C Common Stock								Class D Common Stock								Additional
		Number of				Common				Number of				Common				Number of				Common				Number of				Common				Paid-In				Accumulated
		Shares				Stock				Shares				Stock				Shares				Stock				Shares				Stock				Capital				Deficit				Total
Balance at December 31, 2021			100,000,000				--				52,137,499				--				6,345,000				--				--				--				39,788,546				(11,704,204	)			28,084,342
Expense related to stock options (Note 9)			--				--				--				--				--				--				--				--				514,489				--				514,489
Issuance of Class B common stock (Note 1)			--				--				3,871,250				--				--				--				--				--				2,322,751				--				2,322,751
Net loss			--				--				--				--				--				--				--				--				--				(26,281,925	)			(26,281,925	)
Balance at December 31, 2022			100,000,000				--				56,008,749				--				6,345,000				--				--				--				42,625,786				(37,986,129	)			4,639,657
Expense related to stock options (Note 9)			--				--				--				--				--				--				--				--				492,295				--				492,295
Issuance of Class B common stock (Note 1)			--				--				1,109,025				--				--				--				--				--				1,000,000				--				1,000,000
Net loss			--				--				--				--				--				--				--				--				--				(27,479,247	)			(27,479,247	)
Balance at December 31, 2023			100,000,000			$	--				57,117,974			$	--				6,345,000			$	--				--			$	--			$	44,118,081			$	(65,465,376	)		$	(21,347,295	)

 

Class A shares, no par value, unlimited number of shares authorized
Class B shares, no par value, unlimited number of shares authorized
Class C shares, no par value, unlimited number of shares authorized
Class D shares, no par value, unlimited number of shares authorized

 

Shares of Class A, Class B, Class C, and Class D common stock have identical rights.

 

See accompanying notes.

 

 

Borealis Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

 

		December 31,
		2023				2022
Cash flows from operating activities
Net loss		$	(27,479,247	)			(26,281,925	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of assets			962,665				--
Gain on sale of asset			--				(50,000	)
Non-cash compensation expense related to stock options			492,295				514,489
Common stock issued to marketing representative			1,000,000				--
Depreciation and amortization			3,936,655				3,451,405
Amortization of loan costs			121,496				--
Provision for credit losses			111,050				113,383
Provision for inventory reserve			(11,367	)			(607,326	)
Deferred income taxes			(351,123	)			--
Changes in operating assets and liabilities:
Accounts receivable			705,951				(1,572,354	)
Inventories			(648,996	)			421,338
Operating lease			6,444				--
Prepaid expenses and other			972,355				(1,505,248	)
Accounts payable and accrued expenses			2,176,727				1,462,771
Net cash used in operating activities			(18,005,095	)			(24,053,467	)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment, net			--				50,000
Purchases of property, plant and equipment, net			(4,466,111	)			(3,379,324	)
Net cash used in investing activities			(4,466,111	)			(3,329,324	)
Cash flows from financing activities
Net payments (to) from related parties			(500,000	)			3,703,504
Proceeds on common stock subscriptions			--				1,000,000
Proceeds from convertible notes payable			27,000,000				24,800,000
Payments on convertible notes payable			(4,500,000	)			(156,000	)
Proceeds from notes payable			15,000,000				--
Payments on loan fees			(931,186	)			--
Payments on finance leases payable			(498,594	)			(353,448	)
Net change in line of credit			(10,630,000	)			630,000
Net cash provided by financing activities			24,940,220				29,624,056
Net change in cash			2,469,014				2,241,265
Cash, beginning of year			5,146,616				2,905,351
Cash, end of year			7,615,630				5,146,616
Supplemental cash flow data
Cash paid during the year for:
Interest			2,912,879				3,104,939
Non-cash investing and financing activities
Conversion of notes payable into Class B shares			--				2,322,751

 

See accompanying notes.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies

 

The accompanying unaudited condensed consolidated financial statements include the financial statements of Borealis Foods, Inc. (“Borealis”), and its subsidiaries: Palmetto Gourmet Foods Inc. (“PGF”), Palmetto Gourmet Foods Real Estate I, Inc. (“PGF RE I”), and Palmetto Gourmet Foods Real Estate II, Inc. (“PGF RE II”) (collectively the “Company”).

 

Borealis, a Canadian corporation, is a food technology integrator that focuses on developing high-quality, affordable, sustainable, and nutritious ready-to-eat meals. A mission-driven entity, the Company is committed to leveraging its products to address national and global food security and nutrition challenges.

 

PGF is a growth-stage food manufacturing company specializing in the production of sustainable, nutritious, and affordable ramen noodles. PGF has invested significant time and resources in developing its proprietary recipes and fabricating production equipment to meet stringent product specifications.

 

PGF RE I and PGF RE II are holding companies that rent their fixed assets to PGF.

 

Intercompany balances and transactions have been eliminated in consolidation.

 

Going Concern

 

The financial statements have been prepared assuming that the Company will continue as a going concern. The Company suffered recurring losses from operations through December 31, 2023 that raised substantial doubt about its ability to continue as a going concern.

 

The Company was in a net loss position and had negative cash flows from operations for the years ended December 31, 2023 and 2022. Additionally, the Company had total current debt obligations of approximately $56,443,000 as of December 31, 2023 compared to total cash of $7,615,000.

 

In February 2024 the Company completed a business combination with Oxus Acquisition Corp (“OXUS”) resulting in approximately $50,300,000 of convertible debt converting to equity (Note 10). Also, the Company expects lower operating expenses in 2024 with the completion of the merger as the Company incurred approximately $5,414,000 of transaction related costs in 2023.

 

Substantial doubt continues to exist about the ability of the Company to continue as a going concern within one year from April 1, 2024, the date that the consolidated statements were available to be issued.

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and the Company’s functional currency is the US Dollar. Certain prior period amounts have been reclassified to conform to current-period presentation.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Estimates

 

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash Equivalents

 

The Company classifies all highly liquid securities with stated maturities of three months or less from the date of purchase as cash equivalents.

 

Inventories, net

 

Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined using the first-in, first-out method. The cost of finished goods is measured at weighted average cost.

 

A reserve is recorded for any food inventory that is expired (or expected to expire before sale) and any raw materials for projects that have been discontinued.

 

Prepaid Expenses

 

Prepaid expenses include approximately $846,000 and $1,817,000 composed primarily of deposits on inventory purchases and property, plant and equipment purchases as of December 31, 2023 and 2022, respectively.

 

Property, Plant and Equipment, net

 

Property, plant and equipment are stated at cost. For financial statement purposes, depreciation is calculated using the straight-line method over the estimated useful lives of the assets.

 

Building and improvements		10-30 years
Furniture, fixtures and equipment		3-12 years

 

Construction in progress includes the cost of property, plant and equipment being constructed or otherwise not yet in service. Costs include materials, labor, capitalized interest, engineering and testing costs, and other costs necessary to get the assets ready for their intended use.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Loan Costs

 

The costs of obtaining equipment leases and debt issuance costs are amortized over the term of the respective obligation, using the straight-line method. GAAP requires that the effective yield method be used to amortize debt issuance costs; however, the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method. Amortization of loan costs is included as a component of interest expense in the accompanying consolidated statements of operations. Loan costs are shown as reduction of related debt balances for financial presentation.

 

Goodwill

 

The Company’s goodwill resulted from a prior year acquisition. Goodwill is not amortized but is reviewed annually for impairment or more frequently as events or circumstances indicate its carrying amount may not be recoverable. No impairment losses were recorded for the years ended December 31, 2023 and 2022.

 

Amounts Due to Related Parties

 

During 2022, amounts due to two related parties totaling $2,322,751 were converted to 3,871,250 Class B shares. Amounts due to related parties (Company stockholders and entities controlled by Company stockholders) at December 31, 2023 and December 31, 2022 totaling $7,325,790 are due on demand and bear interest at 10% annually. A note payable to Roya Foods, Inc. (a stockholder) totaled $500,000 and $1,000,001 at December 31, 2023 and 2022, respectively, and bears interest at 10% annually. The note matures on December 31, 2024.

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

Revenue and Cost Recognition and Accounts Receivable

 

The Company’s revenue is primarily generated from the sale of food products. These sales contain a single performance obligation. Revenue is recognized at a point in time and the Company recognizes revenue upon shipment of goods when ownership, risk, and rewards transfer to the customer. Certain of the Company’s contracts with customers include variable consideration consisting of payment discounts and promotions. These programs include rebates, temporary on-shelf price reductions, off-invoice discounts, retailer advertisements, product coupons, slotting fees and other trade activities. Provision for discounts and incentives are recorded in the same period in which the related revenues are recognized. Gross revenues for the years ended December 31, 2023 and 2022 were approximately $31,377,000 and $27,432,000 respectively.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Revenue and Cost Recognition and Accounts Receivable (continued)

 

Total payment discounts and promotions were approximately $1,392,000 and $2,135,000, resulting in net revenues of approximately $29,985,000 and $25,297,000 for the years ended December 31, 2023 and 2022, respectively.

 

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. The incremental cost to obtain contracts was not material.

 

Accounts receivable related to product sales typically have payment terms of 30 days. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The allowance for credit losses reflects the Company’s estimate of probable losses related to its accounts receivable. Collections from customers are continuously monitored and an allowance for credit losses is maintained based on historical experience adjusted for current conditions and reasonable forecasts taking into account geographical and industry-specific economic factors. The Company also considers specific customer collection issues. Since the Company’s accounts receivable are largely similar, the Company evaluates its allowance for credit losses as one portfolio segment. At origination, the company evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit ratings, probabilities of default, industry trends and other internal metrics. On a continuing basis, data for each major customer is regularly reviewed based on past-due status to evaluate the adequacy of the allowance for credit losses; actual write-offs are charged against the allowance.

 

The Company incurred significant production training and inventory waste expenses in 2023 and 2022, totaling approximately $2,727,000 and $12,184,000 respectively, due to PGF adding production capabilities during both years. During 2023 and 2022, the Company capitalized approximately $0 and $5,568,000 respectively, of these expenses as part of equipment costs. During 2023 and 2022, the Company included approximately $2,727,000 and $6,616,000 respectively, in selling, general and administrative expenses in the accompanying consolidated statements of operations as it was not directly attributable to finished goods production.

 

The Company’s cost of goods sold represent materials, direct labor costs, and allocated overheads associated with the sale of finished goods to customers.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Advertising

 

Costs associated with advertising are expensed as incurred and are included in selling, general and administrative expenses. Advertising costs expensed in 2023 and 2022 were approximately $2,238,000 and $127,000 respectively.

 

In April 2023, the Company entered into a multi-year agreement for a marketing representative to assist in the recipes for three co-branded private label ramen noodles as well as be utilized in marketing of the Company for their name, image, likeness and voice. This agreement includes a service fee, an investment stake in the Company, and a royalty agreement on future co-branded sales. The service fee under this agreement is expensed on a straight-line basis under the terms of the contract. Prepayments made under the agreement are included in prepaid expenses. No sales subject to the royalty agreement were made for the year ended December 31, 2023. The marketing representative has a world-wide reputation within the gourmet food industry. We believe this agreement will allow us to increase our presence in the ramen noodle market.

 

Research and Development Costs

 

Research and development costs have been expensed in the period incurred. Research and development costs consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, share-based compensation, scale-up expenses, depreciation and amortization expenses on research and development assets, and facility lease costs. Scale-up expenses include material waste costs, production personnel costs, and related expenses. Research and development efforts are focused on enhancements to our existing product formulations and production processes in addition to the development of new products. The Company expects to continue investing in research and development over time, as research and development and innovation are core elements of our business strategy, and the Company believes they represent a critical competitive advantage. The Company believes continued innovation will capture a larger share of consumers through additional revenue streams. Research and development expenses for the years ended December 31, 2023 and 2022 were approximately $460,000 and $0, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

 

Business Development Costs

 

Business development expenses include all costs associated with directly growing and expanding a business segment, such as advertising, market research, and training. These costs include staff salaries, travel expenses, and consulting expenses that the Company incurs while searching for new opportunities and maintaining current relationships. Business development expenses for the years ended December 31, 2023 and 2022 were approximately $819,000 and $0, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Transaction Costs

 

On February 23, 2023, the Company signed a definitive business combination agreement with Oxus Acquisition Corp. (“Oxus”). In connection with this agreement, the Company has incurred transaction costs of approximately $5,414,000 and $0 for the years ended December 31, 2023 and 2022, respectively. Transaction costs have been expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. The transaction closed on February 7, 2024. See subsequent events (Note 10) for additional details.

 

Concentration of Risk

 

The Company maintains cash balances at financial institutions in excess of federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. The Company holds cash at well-known banks and does not believe that it is exposed to any significant credit risks on its cash.

 

The Company extends unsecured credit to its customers in the ordinary course of business. Payment terms are generally net 30 days with discounts amounting up to 2% for early payments. Accounts receivable are written off when they are determined to be uncollectible based on the financial stability of its customers and existing economic conditions.

 

Sales to one customer accounted for approximately 57% and sales to two customers accounted for approximately 72% of net revenues for the years ended December 31, 2023 and 2022, respectively. Accounts receivable from two customers amounted to approximately 50% and 83% of total accounts receivable as of December 31, 2023 and 2022, respectively. Substantially all of the Company’s 2023 and 2022 sales occurred in the United States and Canada.

 

Purchases from 10 vendors accounted for approximately 50% and 59% of purchases during 2023 and 2022, respectively. Accounts payable to these vendors totaled approximately $430,000 and $2,565,000 as of December 31, 2023 and 2022, respectively.

 

Fair Value Measurements

 

In accordance with US GAAP, the Company defines fair value as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Fair Value Measurements (continued)

 

market participants would use in pricing the asset or liability based on the best information available.

 

In accordance with US GAAP, the Company defines fair value as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

 

The hierarchy is broken down into three levels based on the reliability of inputs as follows:

 

Level 1:

Observable inputs, such as quoted market prices in active markets for the identical asset or liability that are accessible at the measurement date.

 

Level 2:

Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.

 

Level 3:

Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.

 

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The Company does not have assets measured at fair value on a recurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

 

The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, and accounts payable approximate their fair values due to the short-term nature of these instruments.

 

There is no material difference between the carrying amounts and fair values of the Company’s debt obligations, including due to related parties, notes payable, line of credit, lease liabilities and convertible notes payable, as interest rates approximate current market rates for similar types of debt instruments (Level 2).

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Fair Value Measurements (continued)

 

Disclosures about the fair value of financial instruments are based on pertinent information available to management as of December 31, 2023 and 2022. Although management is not aware of any factors that would significantly affect the reasonableness of the fair value amounts, such amounts were not comprehensively revalued for purposes of these consolidated financial statements for the years ended December 31, 2023 and 2022, and current estimates of fair value may differ significantly from the amounts presented herein.

 

Stock Based Compensation

 

The Company accounts for its stock-compensation arrangements at fair value in accordance with ASC 718 – Compensation – Stock Compensation. Compensation cost relating to share-based payment transactions is recognized in the Company’s consolidated financial statements based on the estimated fair value of the instruments issued. The Company measures the cost of employees’ services in exchange for stock awards based on the grant-date fair value of the award using the Black Scholes model and recognizes the cost over the period the employee is required to provide services for the award, which is the vesting period. The Company accounts for forfeitures as they occur.

 

Recently Adopted Accounting Pronouncements

 

On January 1, 2023, the company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized costs, including trade receivables, loan receivables, and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected using an allowance for credit losses. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

Recent Accounting Pronouncements

 

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The provisions of this ASU are intended to enhance the transparency and decision usefulness of income tax disclosures to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The standard is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company does not expect the impact of the adoption of this ASU to be material to its consolidated financial statements or disclosures.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

1. Description of Business and Summary of Significant Accounting Policies (continued)

 

Recent Accounting Pronouncements (continued)

 

Management does not believe that any other recently issued accounting standards that are not yet effective are likely to have a material impact on the Company’s consolidated financial statements.

 

2. Accounts Receivable Financing Agreement

 

During a portion of 2023 and 2022, PGF had a purchase agreement with a financial institution to sell (factor) its accounts receivable from certain customers, with recourse. When invoices were factored, the financial institution advanced 80% of the balance of the customer’s accounts receivable to PGF. For any receivables not collected by the financial institution, PGF paid 1.25% interest for each 15-day period not collected with an additional 1% for each 10-day period not collected for invoices exceeding 90 days of the invoice date, up to the amount factored. The Company was contingently liable for approximately $0 and $1,642,000 of factored accounts receivable as of December 31, 2023 and 2022, respectively. Total interest expense recognized in 2023 and 2022 relating to this arrangement was approximately $218,000 and $582,000 respectively. During 2023, this purchase agreement was terminated and the Company was no longer contingently liable as the amounts outstanding were paid off.

 

3. Inventories, net

 

Inventories were as follows:

 

		December 31,
		2023				2022
Raw materials		$	5,190,811			$	4,397,272
Finished goods			1,942,850				2,087,393
Reserve for obsolete inventory			(188,633	)			(200,000	)
		$	6,945,028			$	6,284,665

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

4. Property, Plant and Equipment, net

 

Property, plant and equipment were as follows:

 

		December 31,
		2023				2022
Building and improvements		$	10,108,917			$	10,108,915
Furniture, fixtures and equipment			42,594,605				40,938,289
Construction in progress			5,078,103				3,517,418
			57,781,625				54,564,622
Less, accumulated depreciation		$	(11,373,085	)		$	(7,722,873	)
		$	46,408,540			$	46,841,749

 

Depreciation and amortization expense recorded in 2023 and 2022 was approximately $3,937,000 and $3,451,000, respectively, which is included as a component of cost of goods sold.

 

During the years ended December 31, 2023 and 2022, interest capitalized to property, plant and equipment under construction was approximately $266,000 and $849,000, respectively.

 

5. Debt

 

During 2022, the Company entered into a $630,000 revolving line of credit facility with a financial institution. Interest accrues at 5.75% annually on the outstanding balance and there is a 1.75% monthly administrative fee calculated using the highest outstanding advance during the applicable monthly period. The line of credit facility is collateralized by substantially all of PGF RE II’s assets. There was approximately $630,000 outstanding under this line of credit facility at December 31, 2022. Effective May 31, 2023, the Company has paid in full the balance at December 31, 2022 of approximately $630,000 and the credit facility was subsequently terminated.

 

In 2022, the Company issued $20,000,000 of convertible notes payable that, after an extension was negotiated, mature in February 2024 (unless converted) and bear interest at 10% annually. On or before the earlier of the maturity date or a “qualified financing event”, as defined in the note agreements, the outstanding principal and interest may be converted, at the option of the holder, into common shares of the Company. The number of shares of common stock received in the conversion will equal the quotient of (i) the outstanding principal and interest as of the date immediately before the completion of the qualified financing event, divided by (ii) an amount equal to the “valuation cap” divided by the “fully diluted basis” (terms as defined in the agreements) and discounted by five (5%) percent. The notes were converted into equity with the consummation of the business combination with Oxus.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

5. Debt (continued)

 

In 2022, the Company issued $4,800,000 in convertible notes payable. During 2023, $4,500,000 of these notes matured without conversion and were repaid by the Company. The remaining $300,000 of convertible notes payable bear interest at 10% annually and, after an extension was negotiated, mature in February 2024 (unless converted). The outstanding principal and interest under the remaining convertible notes may be converted, at the option of the holder, into the same equity as issued upon the Company’s issuance of preferred or common stock of at least $10,000,000 (“qualified financing event”), either as a single round or a lead round, at 80% of the per share price paid during the qualified financing event. The notes were converted into equity with the consummation of the business combination with Oxus.

 

In 2023, the Company issued $27,000,000 of convertible notes payable, of which $27,000,000 matures in 2024 (unless converted) and bear interest at 10% annually. On or before the earlier of the maturity date or a “qualified financing event”, as defined in the note agreements, the outstanding principal and interest may be converted, at the option of the holder, into common shares of the Company. The number of shares of common stock received in the conversion will equal the quotient of (i) the outstanding principal and interest as of the date immediately before the completion of the qualified financing event, divided by (ii) an amount equal to the “valuation cap” divided by the “fully diluted basis” (terms as defined in the agreements) and discounted by five (5%) percent. The notes were converted into equity with the consummation of the business combination with Oxus.

 

In 2021, the Company issued a $3,000,000 convertible note that matures in 2026 (unless converted) and bears interest at 3% annually. Accrued interest is payable monthly. The outstanding principal and interest under the convertible note may be converted, at the option of the holder, into the same equity as issued upon the Company’s issuance of preferred or common stock of at least $10,000,000 (“qualified financing event”), either as a single round or a lead round, at 85% of the per share price paid during the qualified financing event.

 

If a qualified financing event occurs during the term of the convertible notes and the holders elect to not convert the note, the note will no longer be convertible and the outstanding principal and interest will become due on the maturity date.

 

If no qualified financing event occurs as of the maturity date of the note or a sale of Borealis Foods, Inc. is consummated (subject to the definitions outlined in the convertible note agreement), the holders may elect for the total principal and interest to become due or convert the note into Class C common stock of Borealis Foods, Inc. at a conversion price equal to the quotient of nine times earnings before interest, taxes, depreciation, and amortization divided by the aggregated number of outstanding common shares of Borealis Foods, Inc. at the maturity date.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

5. Debt (continued)

 

During 2021, the Company entered into a $10,000,000 revolving line of credit facility with a financial institution. Interest accrues at 10% annually on the outstanding balance and 1% annually on the unused portion of the facility. Effective December 31, 2022, this revolving line of credit facility was reduced to $8,000,000 and the interest rate was increased to 12%, effective as of May 1, 2023. The line of credit facility is collateralized by substantially all of the Company’s assets. The line of credit was paid in full and terminated on August 10, 2023.

 

On August 10, 2023, the Company entered into a $25,000,000 financing agreement with a maturity date in August 2026. Under this agreement, the Company has a $15,000,000 term facility which was used to pay off the existing line of credit. Principal payments of $83,000, plus accrued interest, are due monthly beginning in March 2024 with a lump sum payment of $12,500,000 due at maturity. Interest accrues at the prime rate plus an applicable margin of 4.75% annually on the outstanding balance. In conjunction with this agreement, loan fees of approximately $931,000 were capitalized in 2023. Amortization expense of approximately $121,000 was recorded on these fees in 2023.

 

In addition to the term facility, the Company obtained a $10,000,000 line of credit to fund working capital needs in support of its growth strategy. Interest accrues at the prime rate plus the applicable margin of 4.50%. Interest is due and payable monthly beginning in September 2023. The line of credit includes an unused line fee of 0.25% per annum beginning on closing date through six months and increases to 0.50% per annum thereafter. As of December 31, 2023 this line of credit had $0 drawn upon it.

 

Debt balances outstanding as of December 31, 2023 are due as follows: $48,300,000 in 2024; $1,000,000 in 2025; and $16,000,000 in 2026.

 

6. Income Taxes

 

The Company accounts for income taxes using the liability method. Deferred income tax assets and liabilities are determined based on differences between the financial statement and income tax basis of the respective assets and liabilities, using enacted tax rates in effect for the years when the differences are expected to reverse.

 

Borealis is taxed under Canadian tax laws at a rate of 26.5%. Borealis does not file a consolidated tax return. PGF, PGF RE I, and PGF RE II (the “United States subsidiaries”) are taxed as C corporations, with a statutory rate of 21%.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

6. Income Taxes (continued)

 

For the years ended December 31, 2023 and 2022, the benefit (provision) for income taxes consisted of the following:

 

		2023				2022
Current:
United States		$	(15,092	)		$	(27,737	)
Foreign							(27,851	)
			(15,092	)			(55,588	)
Deferred:
United States		$	(13,593,974	)		$	(6,160,797	)
Foreign		$	(1,218,393	)		$	(411,981	)
Valuation allowance for unrealizable net deferred tax assets			15,163,490				6,572,778
			351,123				--
Benefit (Provision) for income taxes		$	336,031			$	(55,588	)

 

Deferred income tax assets are recognized to the extent it is probable that the temporary differences and unused net operating tax losses will be realized. The realization of deferred income tax assets is reviewed each reporting period and includes the consideration of historical operating results, projected future taxable income (exclusive of reversing temporary differences and carryforwards), the scheduled reversal of deferred income tax liabilities, and potential tax planning strategies.

 

At December 31, 2023 and 2022, deferred income tax assets and liabilities consisted of the following:

 

		2023				2022
Net operating losses carried forward		$	18,480,361			$	12,826,929
Other deferred tax assets			371,565				216,293
Deferred income tax assets			18,851,926				13,043,222
Property, plant and equipment			(5,254,669	)			(3,560,082	)
Deferred income tax liabilities			(5,254,669	)			(3,560,082	)
Valuation allowance for unrealizable net deferred tax assets			(15,163,490	)			(11,400,496	)
Net deferred income taxes		$	(1,566,233	)		$	(1,917,356	)

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

6. Income Taxes (continued)

 

Due to net operating losses, the Company was in a net deferred tax asset position, but because of the uncertainty of realization, the Company has fully reserved the net deferred income tax asset as of December 31, 2023.

 

The effective income tax rate differs from the federal statutory income tax rate for 2023 and 2022 as follows:

 

		2023				2022
Tax (benefit) at the statutory rate			21.00	%			21.00	%
State rate (net of federal benefit)			2.50	%			3.60	%
Change in valuation allowance for net deferred taxes			(26.7	)%			(25.1	)%
Foreign tax rate difference			2.00	%			0.30	%
All other			0	%			0	%
Effective rate			(1.2	)%			(0.2	)%

 

PGF, PGF RE I, and PGF RE II (United States subsidiaries) had net operating loss carryforwards of approximately $18,480,000 for federal and state income tax reporting purposes at December 31, 2023. Net operating loss carryforwards for federal income tax purposes do not expire under United States tax laws. Net operating loss carryforwards for state income tax reporting purposes begin to expire in 2039.

 

Transactions for which tax deductibility or the timing of tax deductibility is uncertain are analyzed by management based on their technical merits. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income taxes. Management has determined that the Company does not have any uncertain tax positions or associated unrecognized tax benefits that materially impact the consolidated financial statements or related disclosures. As a result, at December 31, 2023 and 2022, the Company did not have a liability for unrecognized tax benefits, interest or penalties under United States or Canadian tax law. The Company paid no penalties during 2023 and 2022.

 

The Company files income tax returns in the Canadian and U.S. federal jurisdictions, and in South Carolina. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2020. There are no tax examinations currently in progress.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

7. Leases

 

The Company leases certain manufacturing equipment and office space from third-parties. The determination of whether an arrangement is a lease is made at the lease’s inception. In accordance with US GAAP, a contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. The Company accounts for leases based on their classification as operating leases or finance leases as prescribed by US GAAP.

 

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease obligations represent the Company’s obligation to make lease payments over that term. ROU assets and lease obligations are recognized at the lease commencement date based on the present value of lease payments calculated using the implicit rate when it is readily determinable. In the absence of an implicit rate, management may use the Company’s incremental borrowing rate based on the information available at lease commencement. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

 

ROU assets are recorded net of accumulated amortization of approximately $1,154,000 at December 31, 2023. The Company recognized approximately $482,000 and $288,000 of interest expense on its financing lease obligations during the years ended December 31, 2023 and 2022, respectively.

 

For the years ended December 31, 2023 and 2022, the company recognized rent expense associated with leases as follows:

 

		2023				2022
Operating lease cost:
Fixed rent expense		$	51,088				--
Finance lease cost:
Amortization of ROU assets			636,034				517,624
Net lease cost		$	687,122			$	517,624
Lease cost - SG&A		$	51,088				--
Lease cost - Depreciation and Amortization			636,034				517,624
Net lease cost		$	687,122			$	517,624

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

7. Leases (continued)

 

ROU assets and lease liabilities consist of the following as of December 31, 2023:

 

		2023				2022
Operating leases - ROU assets:
Operating lease, ROU assets, gross		$	179,849			$	-
Accumulated amortization			(71,380	)			-
Operating leases - ROU assets, net		$	108,469			$	-
Operating lease liabilities:
Operating leases, current portion		$	43,794			$	-
Operating leases, non-current portion			71,119				-
Total operating lease liabilities		$	114,913			$	-
Finance leases, ROU assets:
Property and equipment, gross		$	3,180,169				3,180,169
Accumulated depreciation			(1,153,657	)			(517,624	)
Finance leases, ROU assets, net		$	2,026,512				2,662,545
Finance lease liabilities:
Finance leases payable, current portion		$	565,353			$	552,379
Finance leases payable, non-current portion			1,683,308				2,194,876
Total finance lease liabilities:		$	2,248,661			$	2,747,255

 

Future minimum payments due under operating and finance leases as of December 31, 2023 consisted of the following:

 

		Operating				Finance
Years Ending December 31,		Leases				Leases
2024		$	53,335			$	982,642
2025			54,050				850,506
2026			22,521				824,488
2027			--				550,873
Total			129,906				3,208,509
Less: effect of discounting			(14,993	)			(959,848	)
Lease liability recognized		$	114,913			$	2,248,661

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

7. Leases (continued)

 

As of December 31, 2023 the weighted average remaining lease term and weighed average discount rate for finance leases was 3.14 years and 18.53%, respectively.

 

As of December 31, 2023 the weighted average remaining lease term and weighed average discount rate for operating leases was 2.4 years and 10.00%, respectively.

 

8. Contingencies

 

From time to time, the Company is involved in legal proceedings in the normal course of business. Management does not believe that the final resolution of any such legal proceedings will have a material effect on the consolidated financial position or results of operations of the Company.

 

9. Stock Option Plan

 

During 2022, the Company created a stock option plan (the “Plan”) that provides for the granting of options to certain employees for the purchase of the Company’s class D common stock. The Plan provides for the grant of stock options for eligible employees as determined by the Board of Directors and does not guarantee employment rights. As of the year ended December 31, 2023, the Company has granted options to purchase 3,666,426 shares of the Company’s common stock at an exercise price of $0.0001 per share. The weighted-average grant date fair values of options granted was $0.60 per share. The fair values of the stock-based awards granted were calculated with the following assumptions:

 

Risk-free interest rate			1.73 - 3.81	%
Expected term (years)			5 - 10
Expected volatility			80.00	%
Dividend yield			0.00	%

 

For the years ended December 31, 2023 and 2022, the Company recorded approximately $492,000 and $514,000, respectively, of stock-based compensation expense. As of December 31, 2023, there was approximately $1,210,000 in total unrecognized compensation expense related to non-vested employee stock options granted under the Plan, which is expected to be recognized over a term of five to ten years.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

9. Stock Option Plan (continued)

 

Stock option activity for the years ended December 31, 2023 and 2022 is summarized as follows:

 

		Shares				Weighted Average Exercise Price				Weighted Remaining Contractual Life (Years)
Options outstanding at December 31, 2021		--				--				--
Granted			3,468,760				0.0001				--
Exercised			--				--				--
Expired or forfeited			--				--				--
Options outstanding at December 31, 2022			3,468,760				0.0001				9.03
Granted			227,666				0.0001				--
Exercised			--				--				--
Expired or forfeited			(30,000	)			--				--
Options outstanding at December 31, 2023			3,666,426				0.0001				8.10
Options exercisable at December 31, 2023			384,760				0.0001				8.49
Options expected to vest at December 31, 2023			3,281,666				0.0001				8.05

 

As of December 31, 2023, a total of 3,666,426 time-based options had been granted, of which 384,760 are fully vested and 3,281,666 fully vest after 5 years of service.

 

10. Subsequent Events

 

The Company evaluated events and transactions after December 31, 2023 through April 1, 2023, the date the consolidated financial statements were available to be issued, for subsequent events requiring disclosure in these financial statements. The Company identified the following subsequent events:

 

In January 2024, the Company issued a $3,000,000 convertible note payable that matures in 2024 (unless converted) and bears interest at 10% annually. Accrued interest is payable upon maturity, or converted into equity. The convertible note may be converted into securities, at the option of the holder, based upon a formula considering the outstanding principal and interest and the Company’s value, including a valuation cap. The note was subsequently converted as referenced below.

 

 

Borealis Foods, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

 

10. Subsequent Events (continued)

 

On February 7, 2024 (the “Closing Date”), Borealis Foods Inc., a corporation incorporated under the laws of Canada (“Borealis”), Oxus Acquisition Corp., a Cayman Islands exempted company (“Oxus”), and 1000397116 Ontario Inc., an Ontario corporation and a wholly owned subsidiary of Oxus (“Newco”), consummated the transactions (collectively, the “Transaction”) contemplated by the Business Combination Agreement, dated as of February 23, 2023, by and among Borealis, Oxus, and Newco (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “Business Combination Agreement”) by means of a statutory arrangement (the “Arrangement”) under the Canada Business Corporations Act and the Business Corporations Act (Ontario), implemented in accordance with the terms and conditions set forth in the Business Combination Agreement.

 

Pursuant to the terms of the Business Combination Agreement, among other things: (i) Oxus domesticated and continued as a corporation under the laws of Ontario, Canada (“New Oxus”); and (ii) pursuant to the Plan of Arrangement, (a) Newco and Borealis amalgamated (the “Borealis Amalgamation”, and the amalgamated corporation resulting therefrom, “Amalco”), with Amalco surviving the Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (b) following the Borealis Amalgamation, New Oxus and Amalco amalgamated (the “New Borealis Amalgamation,” and together with the Borealis Amalgamation, the “Amalgamations,” and the corporation resulting therefrom, “New Borealis,” as a corporation amalgamated under the Business Corporations Act (Ontario)), with New Borealis surviving the New Borealis Amalgamation. New Borealis will continue under the name “Borealis Foods Inc.”

 

In connection with the Transaction, New Oxus issued an aggregate of 21,378,890 common shares of New Oxus (“New Oxus Common Shares”), which, upon completion of the New Borealis Amalgamation, survived and continued as common shares of New Borealis (the “New Borealis Common Shares,” and the holders thereof upon completion of the Transaction, the “New Borealis Shareholders”).

 

Upon the closing of the Transaction (the “Closing”), the following occurred:

 

1)

The common shares of Borealis (“Borealis Common Shares”) were exchanged for shares of New Borealis Common Shares equal to the quotient of (a) $150,000,000 minus Borealis’ Closing Net Indebtedness, as agreed to by the parties, of $17,000,000, which equals $133,000,000, divided by (b) $10.00 (the “Aggregate Transaction Consideration”).

 

2)

Each Borealis Common Share was exchanged for 0.0661 of a New Borealis Common Share, which is equal to the quotient obtained by dividing the Aggregate Transaction Consideration by the aggregate number of Borealis Common Shares issued and outstanding immediately prior to the Borealis Amalgamation.

 

3)

As of the Closing Date, the Aggregate Transaction Consideration was 13,300,000 New Oxus Common Shares, and was based on 201,206,834 Borealis Common Shares issued and outstanding, with an exchange rate of 0.0661, which the process is described in the final prospectus and definitive proxy statement, dated January 16, 2024 (the “Proxy Statement/Prospectus”) filed by Oxus with the Securities and Exchange Commission (the “SEC”).

 

As a result of the consummation of the business combination agreement, $50,300,000 of outstanding convertible debt, plus accrued interest on the debt of $4,064,766, was converted into equity of New Borealis.

 

As part of the business combination agreement, significant transaction costs were incurred by the Company. Notes payable of $13,035,374 were issued for the debt and mature in 2025. Interest on the notes accrue at 0% - 10% annually.

 

Exhibit 99.3

 

BOREALIS FOODS INC.

(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2023

 

TABLE OF CONTENTS

 

		Page
PART I. FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm (PCAOB ID: 688)		F-2
Financial Statements
Balance Sheets as of December 31, 2023 and 2022		F-3
Statements of Operations for the Year Ended December 31, 2023 and 2022		F-4
Statements of Changes in Shareholders’ Deficit for the Year Ended December 31, 2023 and 2022		F-5
Statements of Cash Flows for the Year Ended December 31, 2023 and 2022		F-6
Notes to Financial Statements		F-7

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors of

 

Borealis Foods Inc. (formerly known as Oxus Acquisition Corp.)

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Borealis Foods Inc. (formerly known as Oxus Acquisition Corp.) (the “Company”) as of December 31, 2023 and 2022, the related statements of operations, changes in shareholders’ deficit and cash flows for the years ended December 31, 2023 and 2022, 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 December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company was a Special Purpose Acquisition Corporation that was formed for the purpose of completing a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities. The Company entered into a definitive merger agreement with a business combination target on February 23, 2023; which was completed on February 7, 2024. As also described in Note 1, uncertainties related to the combined company such as historical performance and its estimated liquidity needs raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.

 

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 audits 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. 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.

 

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/ Marcum LLP

 

Marcum LLP

 

We have served as the Company’s auditor since 2021.

 

New York, NY

 

April 15, 2024

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

BALANCE SHEETS

 

		December 31, 2023				December 31, 2022
ASSETS
Current Assets
Cash		$	93,115			$	680,792
Prepaid expenses, current			29,600				236,002
Total Current Assets			122,715				916,794
Marketable securities held in Trust Account			21,921,321				178,532,948
TOTAL ASSETS		$	22,044,036			$	179,449,742
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accrued expenses		$	3,432,370			$	842,513
Promissory note - related party			3,988,000				1,500,000
Related party payable			66,854				158,640
Total Current Liabilities			7,487,224				2,501,153
Commitments and Contingencies
Class A ordinary shares, par value $0.0001; subject to possible redemption, 1,939,631 shares as of December 31, 2023 and 17,250,000 shares as of December 31, 2022, respectively, at redemption value			21,921,321				178,532,948
Shareholders’ Deficit
Preferred shares, $0.0001 par value; 5,000,000 shares authorized; none issued or outstanding			—				—
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 1,800,000 issued and outstanding as of December 31, 2023 and 300,000 issued and outstanding as of December 31, 2022 (excluding 1,939,631 shares subject to possible redemption as of December 31, 2023 and 17,250,000 shares subject to possible redemption as of December 31, 2022, respectively)			180				30
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 2,812,500 shares issued and outstanding as of December 31, 2023 and 4,312,500 shares issued and outstanding as of December 31, 2022			281				431
Additional paid-in capital			—				—
Accumulated deficit			(7,364,970	)			(1,584,820	)
Total Shareholders’ Deficit			(7,364,509	)			(1,584,359	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT		$	22,044,036			$	179,449,742

 

The accompanying notes are an integral part of the financial statements.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

STATEMENTS OF OPERATIONS

 

		For the Year Ended December 31, 2023				For the Year Ended December 31, 2022
Operating expenses		$	5,130,993			$	2,886,611
Loss from operations			(5,130,993	)			(2,886,611	)
Other income (expense):
Dividend income			2,201,765				2,578,984
Interest income			5,159				4,010
Foreign exchange (loss) / gain			(17,334	)			1,073
Net loss		$	(2,941,403	)		$	(302,544	)
Basic and diluted weighted average redeemable Class A ordinary shares outstanding			4,463,896				17,250,000
Basic and diluted net loss per redeemable Class A ordinary share		$	(0.32	)		$	(0.01	)
Basic and diluted weighted average non-redeemable ordinary shares outstanding			4,612,500				4,612,500
Basic and diluted net loss per non-redeemable ordinary share		$	(0.32	)		$	(0.01	)

 

The accompanying notes are an integral part of the financial statements.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

 

		For the Year Ended December 31, 2023
		Class A Ordinary Shares								Class B Ordinary Shares								Additional Paid-in				Accumulated				Total Shareholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit
Balance – January 1, 2023			300,000			$	30				4,312,500			$	431			$	—			$	(1,584,820	)		$	(1,584,359	)
Remeasurement of Class A ordinary shares to redemption amount			—				—				—				—				—				(2,838,747	)			(2,838,747	)
Conversion of Class B ordinary shares to Class A ordinary shares			1,500,000				150				(1,500,000	)			(150	)			—				—				—
Net loss			—				—				—				—				—				(2,941,403	)			(2,941,403	)
Balance – December 31, 2023			1,800,000			$	180				2,812,500			$	281			$	—			$	(7,364,970	)		$	(7,364,509	)

 

		For the Year Ended December 31, 2022
		Class A Ordinary Shares								Class B Ordinary Shares								Additional Paid-in				Accumulated				Total Shareholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit
Balance – January 1, 2022			300,000			$	30				4,312,500			$	431			$	1,708,296			$	(407,624	)		$	1,301,133
Remeasurement of Class A ordinary shares to redemption amount			—				—				—				—				(1,708,296	)			(874,652	)			(2,582,948	)
Net loss			—				—				—				—				—				(302,544	)			(302,544	)
Balance – December 31, 2022			300,000			$	30				4,312,500			$	431			$	—			$	(1,584,820	)		$	(1,584,359	)

 

The accompanying notes are an integral part of the financial statements.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

STATEMENTS OF CASH FLOWS

 

		For the Year Ended December 31, 2023				For the Year Ended December 31, 2022
Cash Flows from Operating Activities:
Net loss		$	(2,941,403	)		$	(302,544	)
Dividend income			(2,201,765	)			(2,578,984	)
Foreign exchange loss/(gain)			17,334				(1,073	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Accrued expenses			2,580,737				604,049
Prepaid expenses			206,402				172,834
Net cash used in operating activities			(2,338,695	)			(2,105,718	)
Cash flows from Investing Activities:
Deposit into the Trust Account			(636,982	)			—
Cash withdrawn from trust account in connection with redemptions of Class A ordinary shareholders			159,450,374				—
Net cash provided by investing activities			158,813,392				—
Cash flows from Financing Activities:
Proceeds from promissory note - related party			2,488,000				1,500,000
Repayment of related party payable			(100,000	)			—
Proceeds from related party			—				163,126
Payment for redemptions of Class A ordinary shares			(159,450,374	)			—
Net cash (used in) provided by financing activities			(157,062,374	)			1,663,126
Net Change in Cash:			(587,677	)			(442,592	)
Cash - Beginning			680,792				1,123,384
Cash - Ending		$	93,115			$	680,792
Supplemental disclosure of non-cash investing and financing activities:
Remeasurement for Class A ordinary shares subject to redemption		$	2,838,747			$	2,582,948

 

The accompanying notes are an integral part of the financial statements.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS

 

Oxus Acquisition Corp. (the “Company”) is a blank check company incorporated in the Cayman Islands on February 3, 2021. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination.

 

As of the balance sheet date, the Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

 

As of December 31, 2023 the Company had not commenced any operations. All activity for the period from February 3, 2021 (inception) through December 31, 2023, relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below, and since the offering identifying and evaluating prospective acquisition targets for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income or dividend income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.

 

On February 7, 2024, the Company completed its Business Combination and has since been an operating entity (refer to Note 9).

 

On September 8, 2021, the Company closed its Initial Public Offering of 15,000,000 units at $10.00 per unit (the “Units” and, with respect to the ordinary shares included in the Units, the “Public Shares”) which is discussed in Note 3 and the sale of 8,400,000 warrants (each, a “Private Warrant” and collectively, the “Private Warrants”) at a price of $1.00 per Private Warrant in a private placement to the Company’s sponsor, Oxus Capital Pte. Ltd (the “Sponsor”) and its underwriters that closed simultaneously with the closing of the Initial Public Offering (as described in Note 4). The Company has listed the Units on the Nasdaq Capital Market (“Nasdaq”).

 

Transaction costs amounted to $3.70 million consisting of $3.00 million in cash of underwriting fees and $0.70 million of other offering costs.

 

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company must complete a Business Combination with one or more operating businesses or assets that together have an aggregate fair market value equal to at least 80% of the net assets held in the Trust Account (defined below) (net of amounts disbursed to management for working capital purposes, if permitted, and excluding the amount of any deferred underwriting commissions) at the time of the Company’s signing a definitive agreement in connection with its initial Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires an interest in the target business or assets sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

 

Upon the closing of the Initial Public Offering on September 8, 2021, the Company deposited $153.00 million ($10.20 per Unit) from the proceeds of the Initial Public Offering in the trust account (the “Trust Account”), located in the United States and invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.

 

 

BOREALIS FOODS INC.

(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)

 

On September 13, 2021, the underwriters exercised their over-allotment option in full (see Note 4), according to which the Company consummated the sale of an additional 2,250,000 Units, at $10.00 per Unit, and the sale of an additional 900,000 Private Warrants, at $1.00 per Private Warrant, generating total gross proceeds of $23.40 million. The proceeds from the sale of the additional Units were deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $175.95 million, and incurring additional cash underwriting discount of approximately $0.45 million.

 

The Company will provide its holders of the outstanding Public Shares (the “public shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.20 per Public Share, plus any pro rata income earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The Public Shares subject to redemption will be recorded at redemption value and classified as temporary equity upon the completion of the Initial Public Offering in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”.

 

The Company will only proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 either prior to or upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a shareholder vote is not required by applicable law or stock exchange rules and the Company does not decide to hold a shareholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association, as amended (the “Memorandum and Articles of Association”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, shareholder approval of the transaction is required by applicable law or stock exchange rules, or the Company decides to obtain shareholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks shareholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5), and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each public shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or do not vote at all.

 

Notwithstanding the above, if the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% or more of the Public Shares, without the prior consent of the Company.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)

 

The Sponsor has agreed (a) to waive its redemption rights with respect to its Founder Shares (as defined at Note 5) and Public Shares held by it in connection with the completion of a Business Combination and (b) not to propose an amendment to the Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemption in connection with the Company’s initial Business Combination or to redeem 100% of its Public Shares if the Company does not complete a Business Combination or (ii) with respect to any other provision relating to shareholders’ rights or pre-initial Business Combination activity, unless the Company provides the public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

 

The Company initially had until March 8, 2023 to complete a Business Combination, which was extended until December 8, 2023 (the “Combination Period”) after the approval obtained at an extraordinary meeting of shareholder held on March 2, 2023 (the “Extension”). On December 5, 2023, the Company filed an amendment (the “Charter Amendment”) to the Company’s Charter with the Registrar of Companies in the Cayman Islands to extend the date by which the Company must consummate its initial Business Combination from December 8, 2023 to June 8, 2024. If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including income earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining shareholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

 

The Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares (as defined at Note 5) if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period.

 

In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (1) $10.20 per Public Share and (2) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)

 

On February 23, 2023, the Company entered into a Business Combination agreement by and among the Company, 1000397116 Ontario Inc., a corporation incorporated under the laws of the province of Ontario, Canada (“Newco”) and a wholly-owned subsidiary of the Company, and Borealis Foods Inc (“Borealis”) (as may be amended and/or restated from time to time, the “Business Combination Agreement”). Pursuant to the Business Combination Agreement, among other things: (a) the Company will domesticate and continue as a corporation existing under the laws of the province of Ontario, Canada (the “Continuance” and, the Company as the continuing entity, “New Oxus”); (b) on the closing date, Newco and Borealis will amalgamate in accordance with the terms of the plan of arrangement (the “Borealis Amalgamation” and Newco and Borealis as amalgamated, “Amalco”), with Amalco surviving the Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (c) on the closing date, immediately following the Borealis Amalgamation, Amalco and New Oxus will amalgamate (the “New Oxus Amalgamation,” and together with the Continuance, the Borealis Amalgamation and other transactions contemplated by the Business Combination, the plan of arrangement and the ancillary agreements, the “Transaction”), with New Oxus surviving the New Oxus Amalgamation.

 

The Business Combination Agreement was unanimously approved by Oxus’ and Borealis’ respective board of directors. Under the Business Combination Agreement, the shareholders of Borealis (“Borealis Shareholders”) will receive from New Oxus, in the aggregate, a number of shares of New Oxus equal to (a) the Borealis Value (as defined below) divided by (b) $10.00. The Borealis Value will be equal to $150 million less net indebtedness (aggregate consolidated amount of indebtedness of Borealis minus cash) (the “Borealis Value”).

 

On March 2, 2023, at the extraordinary general meeting of shareholders in connection with the Extension, the holders of 15,300,532 Class A ordinary shares of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.41 per share, for an aggregate redemption amount of approximately $159.34 million, leaving approximately $20.3 million in the Trust Account.

 

On August 11, 2023, the Company, and Borealis, entered into an amendment (the “Amendment” ) to the Business Combination Agreement, to amend and restate certain terms of the Business Combination Agreement, including (i) Section 7.18(a), to change the number of awards of shares of New SPAC Shares to be granted under the New SPAC Equity Plan from 15% to 5%; (ii) to delete the form of the Plan of Arrangement attached as Exhibit B to the original Business Combination Agreement and replace it with the form attached as Exhibit A to the Amendment (the “Plan of Arrangement (Amended)”); and (iii) to delete the form of the New SPAC Bylaws attached as Exhibit G to the Business Combination Agreement and replace it with the form attached as Exhibit B to the Amendment (the “New SPAC Bylaws (Amended)”). The Plan of Arrangement (Amended) includes, among other things, certain changes to reflect a plan of arrangement under section 192 of the CBCA and section 182 of the OBCA and certain changes to provisions relating to the New Oxus Amalgamation, and the effects of such amalgamation. The New SPAC Bylaws (Amended) includes additional provisions relating to the appointment of an audit committee, and clarification on the quorum requirements for a meeting of shareholders.

 

On August 14, 2023, the Company filed a registration statement on (“Form S-4”) with the SEC relating to the proposed Business Combination with Borealis.

 

On October 24, 2023, the Company filed an amendment to Form S-4 (“Amendment 1”) with the SEC relating to the proposed business combination with Borealis. On November 13, 2023, the Company filed another amendment to Form S-4 (“Amendment 2”) with the SEC relating to the proposed business combination with Borealis.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)

 

On November 8, 2023, the Company’s shareholders filed a preliminary proxy statement announcing an extraordinary general meeting (the “Extraordinary General Meeting”) to consider and vote upon the following proposals:

 

(a)

as a special resolution, to amend the Company’s Second Amended and Restated Memorandum and the Charter pursuant to an amendment to the Charter in the form set forth in Annex A of the filed proxy statement to extend the date by which the Company must (1) consummate a Business Combination, (2) cease its operations except for the purpose of winding up if it fails to complete such Business Combination, and (3) redeem all of the Class A ordinary shares, included as part of the units sold in the Company’s Initial Public Offering if it fails to complete such Business Combination, for up to an additional six months, from the December 8, 2023 to up to June 8, 2024, or such earlier date as determined by the Company’s board of directors; and

 

(b)

as an ordinary resolution, to approve the adjournment of the Extraordinary General Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Extension Proposal (the “Adjournment Proposal”), which will only be presented at the Extraordinary General Meeting if, based on the tabulated votes, there are not sufficient votes at the time of the Extraordinary General Meeting to approve the Extension Proposal, in which case the Adjournment Proposal will be the only proposal presented at the Extraordinary General Meeting.

 

On December 5, 2023, in connection with the Second Extraordinary General Meeting, the Company filed the Charter Amendment to extend the date by which the Company must consummate its initial Business Combination from December 8, 2023 to June 8, 2024, or such earlier date as determined by the Company’s board of directors (the “Extended Date”). The Company’s shareholders approved the Charter Amendment at the Extraordinary General Meeting on December 5, 2023.

 

On December 5, 2023, at the Second Extraordinary General Meeting, the holders of 9,837 Class A ordinary shares of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $11.20 per share, for an aggregate redemption amount of approximately $0.11 million, leaving approximately $21.73 million in the Trust Account.

 

On January 16, 2024, the Company’s S-4 registration statement was declared effective.

 

On February 2, 2024, the Company held an extraordinary general meeting (the “Third Extraordinary General Meeting”) whereby shareholders holding 1,886,751 Class A ordinary shares of the Company exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s trust account. As a result, approximately $21.42 million (approximately $11.35 per share) was removed from the Company’s trust account to pay such shareholders.

 

On February 7, 2024 (the “Closing Date”), Borealis, the Company, and Newco, consummated the Transaction, following the approval at the Third Extraordinary General Meeting.

 

Shareholder Support Agreements

 

Concurrently with the execution and delivery of the Business Combination Agreement, Oxus, Borealis and certain Borealis Shareholders entered into an agreement, pursuant to which, among other things, such Borealis Shareholders have agreed to vote their Borealis shares in favor of the Transaction and not sell or transfer their Borealis shares (the “Shareholder Support Agreements”).

 

Sponsor Support Agreement

 

Concurrently with the execution and delivery of the Business Combination Agreement, Oxus, Borealis and the Sponsor entered into an agreement, pursuant to which, among other things, Sponsor agreed to (A) vote its founder shares in favor of the Transaction and the Oxus Proposals, (B) not redeem its founder shares, (C) waive certain of its anti-dilution rights, (D) convert the Sponsor Convertible Notes, and (E) forfeit certain Sponsor founder shares as a part of incentive equity compensation for directors, officers and employees of New Oxus (subject to terms and conditions set forth in such agreement) (the “Sponsor Support Agreement”).

 

Registration Rights Agreement

 

In connection with the closing date (the “Closing”), Oxus and certain Borealis Shareholders and certain shareholders of Oxus (the “Holders”) will enter into an agreement, pursuant to which Oxus will be obligated to file a registration statement to register the resale of certain securities of Oxus held by the Holders. The Registration Rights Agreement will also provide the Holders with “piggy-back” registration rights, subject to certain requirements and customary conditions (the “Registration Rights Agreement”).

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)

 

Lock-Up Agreements

 

In connection with the Closing, Oxus and certain directors/officers/five percent (5%) or greater shareholders of Borealis (the “Subject Party”) will enter into agreements, pursuant to which (A) fifty percent (50%) of the shares of New Oxus held by the Subject Party (the “Restricted Securities”) will be locked-up during the period commencing from the Closing and ending on the earlier to occur of (i) twelve (12) months after the date of the Closing and (ii) the date on which the closing price of common shares of New Oxus equals or exceeds $12.00 per share (as adjusted to take into account any stock split, stock dividend, reverse stock split, recapitalization or similar event) for any twenty (20) trading days within a thirty (30)-trading day period starting after the Closing, and (B) fifty percent (50%) of the Restricted Securities will be locked-up during the period commencing from the Closing and ending on twelve (12) months after the date of the Closing, subject to certain specifications and exceptions (the “Lock-Up Agreements”).

 

Liquidity and Going Concern

 

As of December 31, 2023, the Company had $0.09 million in its operating bank account, $21.92 million of marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary shares in connection therewith and a working capital deficiency of $7.36 million.

 

In February 2024, the Company completed its Business Combination, resulting in approximately $50.3 million of convertible debt converting to equity. Also, the Company expects lower operating expenses in 2024 with the completion of the merger.

 

In connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, Presentation of Financial Statements - Going Concern, the historical operating results raise substantial doubt about the Company’s ability to continue as a going concern. The Company is taking proactive measures to address this concern and believes that the actions discussed below are likely to mitigate the doubt raised by its historical performance and meet its estimated liquidity needs for at least one year from the issuance date of these financial statements. Nevertheless, the Company cannot guarantee the success of these actions or their ability to generate the expected liquidity as currently planned.

 

The Company’s ability to continue as a going concern is contingent upon various factors, including its ability to meet financial requirements, secure additional capital, and execute successful future operations. The financial statements have not been adjusted to reflect the possible effects of the Company not continuing as a going concern.

 

Management intends to finance the Company’s operations through advances from existing lines of credit until such time as a merger or other investment can be secured. However, there are currently no formal agreements in place for such funding or issuance of securities, and there can be no assurance of their availability in the future. Nonetheless, management believes that this strategy provides a viable opportunity for the Company to continue as a going concern.

 

Substantial doubt continues to exist about the ability of the Company to continue as a going concern within one year from the filing date.

 

Risks and Uncertainties

 

Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)

 

Risks and Uncertainties (Continued)

 

Various social and political circumstances in the U.S. and around the world (including wars and other forms of conflict, including rising trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in the U.S. and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may also contribute to increased market volatility and economic uncertainties or deterioration in the U.S. and worldwide. Specifically, the rising conflict between Russia and Ukraine, and resulting market volatility could adversely affect the Company’s ability to complete a Business Combination. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions against Russia. The recent military conflict between Israel and militant groups led by Hamas has also caused uncertainty in the global markets. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on the Company’s ability to complete a Business Combination and the value of the Company’s securities.

 

Inflation Reduction Act of 2022

 

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. Because the Company may acquire a domestic corporation or engage in a transaction in which a domestic corporation becomes our parent to our affiliate and our securities trade on a U.S. stock exchange, the Company may become a “covered corporation” within the meaning of the IR Act. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchase. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.

 

Emerging Growth Company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as amended by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

 

This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Estimates made in preparing these financial statements include, among other things, the fair value measurement of shares transferred by the Sponsor to independent director nominees and fair value of shares to be transferred on completion of the Business Combination as per the Incentive agreements entered by the Sponsor and officers of the Company. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company had $0.9 million and $0.68 million in cash as of December 31, 2023, and December 31, 2022, respectively. The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2023, and December 31, 2022, respectively.

 

Marketable Securities Held in Trust Account

 

The Company’s marketable securities held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of marketable securities held in Trust Account are included in dividend income in the accompanying statements of operations. The estimated fair values of marketable securities held in Trust Account are determined using available market information. On December 31, 2023, and December 31, 2022, the Company had $21.87 million and $178.53 million, respectively, of marketable securities held in the Trust Account that were held in a money market fund for which the underlying assets are U.S. Treasury Securities. As of December 31, 2023 the amount $21.92 million includes deposit in transit of $0.05 million.

 

Ordinary Shares Subject to Possible Redemption

 

All of the 17,250,000 Class A ordinary shares sold as parts of the Units in the Initial Public Offering contain a redemption feature. In accordance with the ASC 480-10-S99-3A “Classification and Measurement of Redeemable Securities”, redemption provisions not solely within the control of the Company requires the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable Class A ordinary shares resulted in charges against additional paid-in capital and accumulated deficit.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Ordinary Shares Subject to Possible Redemption (Continued)

 

As of December 31, 2023 and December 31, 2022, the Class A ordinary shares subject to possible redemption reflected on the balance sheets are reconciled in the following table:

 

		December 31, 2023				December 31, 2022
Balance brought forward		$	178,532,948			$	175,950,000
Plus:
Remeasurement of carrying value to redemption value			2,838,747				2,582,948
Redemption of Class A ordinary shares			(159,450,374	)			-
Class A ordinary shares subject to possible redemption		$	21,921,321			$	178,532,948

 

Offering Costs Associated with the Initial Public Offering

 

The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A – “Expenses of Offering”. Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that are directly related to the Initial Public Offering. The Company recorded $3.87 million of offering costs as a reduction of temporary equity and $0.28 million of offering costs as a reduction of permanent equity upon the completion of the Initial Public Offering ($3.45 million related to underwriters’ commissions and $0.70 million related to other offering expenses).

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

Net Loss Per Ordinary Share

 

The Company applies the two-class method in calculating earnings per share. The contractual formula utilized to calculate the redemption amount approximates fair value. The Class feature to redeem at fair value means that there is effectively only one class of share. Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation. Net loss per ordinary share is computed by dividing the pro rata net loss between the redeemable ordinary share and the non-redeemable ordinary share by the weighted average number of ordinary share outstanding for each of the periods. The calculation of diluted loss per ordinary share does not consider the effect of the warrants issued in connection with the Initial Public Offering since the exercise of the warrants is contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

 

		For the Year Ended December 31, 2023				For the Year Ended December 31, 2022
Ordinary shares subject to possible redemption
Numerator:
Net loss allocable to Class A ordinary shares subject to possible redemption		$	(1,446,622	)		$	(238,714	)
Denominator:
Weighted average redeemable Class A ordinary shares, basic and diluted			4,463,896				17,250,000
Basic and diluted net loss per share, redeemable Class A ordinary shares		$	(0.32	)		$	(0.01	)
Non-redeemable ordinary shares
Numerator:
Net loss allocable to non-redeemable ordinary shares		$	(1,494,781	)		$	(63,830	)
Denominator:
Weighted average non-redeemable ordinary shares, basic and diluted			4,612,500				4,612,500
Basic and diluted net loss per share, non-redeemable ordinary shares		$	(0.32	)		$	(0.01	)

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times, may exceed the federal depository insurance coverage corporation limit of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

The Company records uncertain tax positions In accordance with ASC 740 on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

 

The Company is considered to be an exempted Cayman Islands company with no connection to any other taxable jurisdiction. The company is not presently subject to income taxes or income tax filing requirements in the Cayman Islands. As such, the company’s income tax provision was zero for the year ended December 31, 2023.

 

Warrants

 

The Company accounts for its Public and Private warrants as equity-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

In addition to the 23,400,000 warrants (representing 15,000,000 Public Warrants (as defined at Note 3) included in the units and 8,400,000 Private Warrants) issued by the Company at the close of the Initial Public Offering, a further 3,150,000 warrants (representing 2,250,000 Public Warrants (as defined at Note 3) included in the units and 900,000 Private Warrants) were issued as a result of the underwriters’ full exercise of the over-allotment options. All warrants were issued in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity and they met the criteria for equity classification and are required to be recorded as part a component of additional paid-in capital at the time of issuance.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Foreign Currency Transactions

 

Certain transactions are denominated in a currency other than the Company’s functional currency of the U.S. dollar, and the Company generates assets and liabilities that are fixed in terms of the amount of foreign currency that will be received or paid. At each balance sheet date, the Company adjusts the assets and liabilities to reflect the current exchange rate, resulting in a translation gain or loss. Transaction gains and losses are also realized upon a settlement of a foreign currency transaction in determining net loss for the period in which the transaction is settled.

 

Recently Adopted Accounting Pronouncements

 

In June 2022, the FASB issued ASU 2022-03, which amends Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. The Company elected to early adopt ASU 2022-03 on July 1, 2023, and applied the amendment in measuring fair value of shares to be transferred on closing of a Business Combination.

 

Recent Accounting Pronouncements

 

In August 2020, FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments.

 

ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

 

The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU.

 

In June 2016, the FASB issued ASU 2016-12, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires additional disclosures regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The Company adopted the provisions of this guidance with effect from January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

 

NOTE 3 – INITIAL PUBLIC OFFERING

 

Pursuant to the Initial Public Offering, the Company offered for sale up to 15,000,000 Units (or 17,250,000 Units if the underwriters’ over-allotment option is exercised in full) at a purchase price of $10.00 per Unit. Each Unit consists of one ordinary share and one warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase one ordinary share at an exercise price of $11.50 per share, subject to adjustment.

 

On September 13, 2021, the underwriters fully exercised their over-allotment option and purchased an additional 2,250,000 Units, generating additional gross proceeds of approximately $22.50 million, and incurring additional cash underwriting discount of approximately $0.45 million. In connection with the sale of Units pursuant to the over-allotment option, the Company sold an additional 900,000 Private Warrants to the Sponsor and the underwriters generating additional gross proceeds of approximately $0.90 million. A total of approximately $23.4 million of the net proceeds was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to approximately $175.95 million.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 3 – INITIAL PUBLIC OFFERING (Continued)

 

In connection with the Initial Public Offering, the Company granted the underwriters an option to purchase 2,250,000 shares of the Company’s ordinary share at the Initial Public Offering price, or $10.00 per share, for 45 days commencing on September 8, 2021 (grant date). Since this option extended beyond the closing of the Initial Public Offering, this option feature represented a call option that was accounted for under ASC 480, Distinguishing Liabilities from Equity. Accordingly, the call option has been separately accounted for at a fair value with the change in fair value between the grant date and September 13, 2021 recorded as other income. The Company used the Black-Scholes valuation model to determine the fair value of the call option at the grant date and again at September 13, 2021 (refer to Note 8 for fair value information).

 

NOTE 4 – PRIVATE WARRANTS

 

Concurrently with the closing of the Initial Public Offering, the Sponsor and the underwriters purchased an aggregate of 8,400,000 Private Warrants, generating gross proceeds of $8.40 million in aggregate in a private placement. Each Private Warrant is exercisable for one ordinary share at a price of $11.50 per share, subject to adjustment.

 

As a result of the underwriters’ election to fully exercise their over-allotment option on September 13, 2021, the Sponsor and the underwriters and its designees purchased an additional 900,000 Private Warrants, at a purchase price of $1.00 per Private Warrant.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

Founder Shares

 

During the period from February 3, 2021 (inception) through March 22, 2021, the Sponsor paid $25,000 to cover certain formation and offering costs of the Company in consideration for 8,625,000 shares of Class B ordinary shares (the “Founder Shares”).

 

The Founder Shares include an aggregate of up to 1,125,000 Class B ordinary shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the number of Founder Shares will collectively represent 20% of the Company’s issued and outstanding shares upon the completion of the Initial Public Offering.

 

The allocation of the Founder Shares to the director nominees is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the 150,000 Founder Shares granted to the Company’s independent director nominees in July 2021 was $0.38 million or $2.54 per share. The Founder Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founder Shares is recognized only when the performance condition is met under the applicable accounting literature in this circumstance. The fair value of the allocated Founder Shares was measured at fair value using a Black Scholes simulation model.

 

On May 31, 2022, Mr. Sergei Ivashkovsky resigned from his position as independent director within the Company and returned 50,000 Founder Shares to the Sponsor. On June 1, 2022, Mr. Karim Zahmoul was appointed as independent director. On June 7, 2022, 50,000 Founder Shares were transferred to Mr. Karim Zahmoul by the Sponsor. The fair value of the 50,000 Founder Shares granted to the Mr. Karim Zahmoul on June 7, 2022 was $0.02 million or $0.33 per share. The Founder Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founder Shares is recognized only when the performance condition is met under the applicable accounting literature in this circumstance. The fair value of the allocated Founder Shares was measured at fair value using a Monte Carlo simulation model.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 5 – RELATED PARTY TRANSACTIONS (Continued)

 

Founder Shares (Continued)

 

As of December 31, 2023, the Company determined the performance conditions had not been met, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date the performance conditions are met (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founder Shares vested times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founder Shares.

 

Through July 2021, the Sponsor surrendered an aggregate 4,312,500 Founder Shares to the Company for no consideration. All shares and associated amounts have been retroactively adjusted to reflect the share surrender.

 

On September 13, 2021, no Class B ordinary share was available for forfeiture as a result of the underwriters’ full exercise of the over-allotment option.

 

Founder Shares are subject to lock-up until (i) with respect to 50% of the Founder Shares, the earlier of one year after the date of the consummation of the initial Business Combination and the date on which the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within a 30-trading day period commencing after the consummation of the initial Business Combination and (ii) with respect to the remaining 50% of the Founder Shares, the one-year anniversary of the consummation of the initial Business Combination. Notwithstanding the foregoing, the Founder Shares will be releases earlier if, subsequent to the initial Business Combination, the Company consummates a liquidation, merger, share exchange or other similar transaction which results in all of the shareholders having the right to exchange their ordinary shares for cash, securities or other property.

 

On April 5, 2023, in accordance with the provisions of the Memorandum and Articles of Association, the Sponsor exercised its right to convert 1,500,000 shares of Class B ordinary shares, par value $0.0001 per share, of the Company into 1,500,000 shares of Class A ordinary shares, par value $0.0001 per share, of the Company on a one-for-one basis.

 

As of balance sheet date, following conversion, there were 2,812,500 Founder Shares issued and outstanding.

 

Underwriter Founder Shares

 

On March 23, 2021, the Company had issued to its underwriters and/or its designees, an aggregate of 400,000 shares of Class A ordinary shares at $0.0001 per share (“Underwriter Founder Shares”). The holders of the Underwriter Founder Shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.

 

Through June 2021, the underwriters and/or its designees surrendered an aggregate of 100,000 Underwriter Founder Shares to the Company for no consideration, resulting in a decrease in the total number of Class A ordinary shares outstanding from 400,000 to 300,000. All shares and associated amounts have been retroactively adjusted to reflect the share surrender.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 5 – RELATED PARTY TRANSACTIONS (Continued)

 

Promissory Note — Related Party

 

On March 22, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $0.30 million. The Promissory Note is non-interest bearing and payable on the earlier of June 30, 2021 or the consummation of the Initial Public Offering.

 

On June 25, 2021, the terms of the Promissory Note were revised to be payable on or the earlier of December 31, 2021, or the consummation of the Proposed Public Offering.

 

On September 8, 2021, the outstanding balance of $0.28 million was repaid in full and is no longer available.

 

Related Party Loans

 

In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1.5 million of such Working Capital Loans may be convertible into warrants of the post Business Combination entity. The warrants would be identical to the Private Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans.

 

Amended Note

 

On September 8, 2022, the Company issued a promissory note for up to approximately $1.5 million (the “Note”) to the Sponsor. The Note is non-interest bearing. The principal balance of Note shall be payable on the date of a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination involving the Maker (as defined therein) and one or more businesses (such date the “Maturity Date”). The arrangement did not include any conversion feature. As of December 31, 2022, $1.5 million was drawn under the Note.

 

On February 28, 2023, the Note was amended to increase its principal amount to $3.5 million (the “Amended Note”). The Amended Note remains payable at Maturity Date and is non-interest bearing. The principal balance of Note shall be payable on the date of a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination involving the Maker and one or more businesses (such date the “Maturity Date”). The arrangement did not include any conversion feature.

 

In March 2023, $0.3 million was funded through the Amended Note, out of which $0.18 million was deposited in the Trust Account as the Extension Loan (defined below) and $0.12 million was for working capital purposes.

 

From April to June 2023, $0.9 million was funded through the Amended Note, out of which $0.12 million was deposited into the Trust Account as an Extension Loan and $0.78 million was kept for working capital purposes. In addition, $0.15 million was repaid to the Sponsor.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 5 – RELATED PARTY TRANSACTIONS (Continued)

 

Amended Note (Continued)

 

From July to September 2023, $0.8 million was funded through the Amended Note, out of which $0.12 million was deposited into the Trust Account as an Extension Loan and $0.68 million was kept for working capital purposes.

 

On October 2, 2023, the Company entered into the Second Amended and Restated Promissory Note (the “Second Amended Note”) with the Sponsor pursuant to which the Company may borrow up to an aggregate principal amount of $6 million. The Second Amended Note, amended, replaced and superseded in its entirety the Amended Note and any unpaid principal balance of the indebtedness evidenced by the Amended Note has been merged into and evidenced by the Second Amended Note. The Second Amended Note is non-interest bearing and due on the date on which the Company consummates its initial business combination. If the Company completes a business combination, it would repay any loaned amounts, without interest, upon consummation of the business combination. In the event that a business combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay any loaned amounts but no proceeds from its Trust Account would be used for such repayment.

 

On October 16, 2023, $0.1 million was drawn under the Second Amended Note, followed by a further draw down of $0.3 million on October 24, 2023. A portion of these funds in an amount of $120,000 was used to fund the Extension Loan.

 

From October to December 2023, $0.64 million was funded through the Amended Note, out of which $0.17 million was deposited into the Trust Account as an Extension Loan and $0.47 million was kept for working capital purposes.

 

As of December 31, 2023, $4 million was outstanding under the Amended Note, which comprises the entire balance of the Promissory Note – Related Party on the balance sheet as of December 31, 2023.

 

Extension Funds

 

The Sponsor has agreed to loan the Company (i) the lesser of (a) an aggregate of $0.18 million or (b) $0.12 per public share that remain outstanding and is not redeemed in connection with the Extension plus (ii) the lesser of (a) an aggregate of $60,000 or (b) $0.04 per public share that remain outstanding and is not redeemed in connection with the Extension for each of the six subsequent calendar months commencing on June 8, 2023 (the “Extension Loan”), which amount will be deposited into the Trust Account. On March 3, 2023, $0.18 million was deposited into the Trust Account as the initial deposit of the Extension Loan, which was funded through the Amended Note. On May 25 and June 13, 2023, $0.06 million was deposited into the Trust Account, respectively. On July 31 and August 31, 2023, $0.06 million was deposited into the Trust Account, respectively. On October 10, 2023 and October 30, 2023, $0.06 million was deposited into the Trust Account, respectively. On December 11, 2023 and January 3, 2024, $0.05 million was deposited into the Trust Account, respectively. As of December 31, 2023, the amount outstanding was $0.59 million.

 

New Oxus Shares

 

On September 22, 2023, the Sponsor entered into incentive agreements with each of Kanat Mynzhanov, the Chief Executive Officer of the Company (the “CEO”) and Askar Mametov, the Chief Financial Officer of the Company (the “CFO”), pursuant to which, solely upon and subject to successful completion of the Business Combination, the Sponsor will transfer to the CEO, 200,000 of its shares of the New Oxus and to the CFO, 50,000 of its shares of New Oxus.

 

Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of these shares at September 22, 2023 was $2.73 million or $10.91 per share. The Class A shares were granted subject to a performance condition (i.e., the consummation of a Business Combination). Compensation expense related to the transfer of New Oxus shares is recognized only when the performance condition is met under the applicable accounting literature in this circumstance. The closing share price of the Class A shares of the Company on the grant date was determined to be fair value.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

Related Party Payable

 

At close of the Initial Public Offering, the operating bank account of the Company held an excess of $0.86 million, resulting from an over funding in connection with the close of the Initial Public Offering. On September 9, 2021, the over funding was returned to the Sponsor. As of December 31, 2023, $0.07 million was due to the Sponsor in connection with professional fees paid on behalf of the Company, after the repayment of an amount of $0.10 million to the Sponsor, in connection to an over-funding. As of December 31, 2022, $0.16 million was outstanding, which comprised of $0.06 million due to the Sponsor in connection with professional fees paid on behalf of the Company, in addition of an amount of $0.10 million in connection to an over-funding.

 

Administrative Support Agreement

 

The Company has agreed to pay the Sponsor a total of up to $10,000 per month in the aggregate for up to 18 months for office space, utilities and secretarial and administrative support. Services commenced on the date the securities were first listed on the Nasdaq and will terminate upon the earlier of the consummation by the Company of a Business Combination or the liquidation of the Company. This arrangement was further extended to June 8, 2024 (refer to Note 1 for details).

 

For the year ended December 31, 2023, the Company incurred $0.12 million for these services, of which such amount is included in the operating costs on the accompanying statements of operations.

 

For the year ended December 31, 2022, the Company incurred $0.12 million for these services, of which such amount is included in the operating costs on the accompanying statements of operations.

 

Registration Rights

 

Pursuant to the Registration Rights Agreement entered into on September 2, 2021, the holders of the Founder Shares, Private Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and any ordinary shares issuable upon the exercise of the Private Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to shares of Class A ordinary shares). The holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that the Company register such securities. In addition, the holders will have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

 

Business Combination Marketing Agreement

 

The Company has engaged the Underwriters as advisors in connection with a Business Combination to assist the Company in holding meetings with its shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business Combination, assist the Company in obtaining shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination. The Company will pay the Underwriters a cash fee for such services upon the consummation of a Business Combination of $5.2 million that equals to 3.0% of the gross proceeds of Initial Public Offering (exclusive of any applicable finders’ fees which might become payable).

 

Legal Success Fee

 

As a contingent arrangement, an additional fee up to $0.2 million is payable to the Company’s legal counsel in the event that the Company completes a Business Combination.

 

Advisory Service Agreement

 

On January 16, 2024, the Company entered into an agreement with IB Capital LLC (“IB CAP”) for advisory services, with the term beginning on January 16, 2024 (“the Effective Term Date”) and ending upon upon the earlier of (i) the consummation of the Business Combination or (ii) three (3) months from the Effective Date (the “Term End Date”), stipulating a payment of $0.1 million at Effective Term Date, followed by $0.14 million payment on the Term End Date.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 7 – SHAREHOLDERS’ DEFICIT

 

Preferred Shares

 

The Company is authorized to issue 5,000,000 preferred shares with a par value of $0.0001 per preferred share. On December 31, 2023, and December 31, 2022, there were no shares of preferred stock issued or outstanding.

 

Class A Ordinary Shares

 

The Company is authorized to issue up to 500,000,000 shares of Class A ordinary shares, with a par value of $0.0001 per share. Holders of the Company’s ordinary shares are entitled to one vote for each share. Through December 31, 2021, the underwriters and/or its designees effected a surrender of an aggregate of 100,000 Class A ordinary shares to the Company for no consideration, resulting in a decrease in the total number of Class A ordinary shares outstanding from 400,000 to 300,000. All shares and associated amounts have been retroactively adjusted to reflect the share surrender.

 

On April 5, 2023, in accordance with the provisions of the Memorandum and Articles of Association, the Sponsor exercised its right to convert 1,500,000 shares of Class B ordinary shares, par value $0.0001 per share, of the Company into 1,500,000 shares of Class A ordinary shares, par value $0.0001 per share, of the Company on a one-for-one basis.

 

As of December 31, 2023 there were 1,800,000 non-redeemable shares of Class A ordinary shares issued and outstanding, and as of December 31, 2022, there were 300,000 non-redeemable shares of Class A ordinary shares issued and outstanding. This number excludes 1,939,631 shares of Class A ordinary shares as of December 31, 2023 and 17,250,000 shares of Class A ordinary shares as of December 31, 2022, that were outstanding and subject to possible redemption.

 

Class B Ordinary Shares

 

The Company is authorized to issue 50,000,000 Class B ordinary shares, with a par value of $0.0001 per share. Holders of the Class B ordinary shares are entitled to one vote for each share. Through December 31, 2021, the Sponsor effected a surrender of an aggregate of 4,312,500 Class B ordinary shares to the Company for no consideration, resulting in a decrease in the total number of Class B ordinary shares outstanding from 8,625,000 to 4,312,500. All shares and associated amounts have been retroactively adjusted to reflect the share surrender.

 

Holders of Class A ordinary shares and holders of Class B ordinary shares, voting together as a single class, shall have the exclusive right to vote for the election of directors and on all other matters submitted to a vote of the Company’s shareholder except as otherwise required by law. The shares of Class B ordinary shares will automatically convert into shares of Class A ordinary shares on a one-for-one basis (A) at any time and from time to time at the option of the holder thereof and (B) automatically on the business day following the closing of the Business Combination, subject to adjustment. In the case that additional shares of Class A ordinary shares, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the closing of a Business Combination, the ratio at which shares of Class B ordinary shares shall convert into shares of Class A ordinary shares will be adjusted (unless the holders of a majority of the outstanding shares of Class B ordinary shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A ordinary shares issuable upon conversion of all shares of Class B ordinary shares will equal, in the aggregate, on an as-converted basis, 25% of the sum of the total number of all ordinary shares outstanding upon the completion of the Initial Public Offering plus all shares of Class A ordinary shares and equity-linked securities issued or deemed issued in connection with a Business Combination. In addition, the calculation mentioned above will be subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In no event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less than one to one.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 7 – SHAREHOLDERS’ DEFICIT (Continued)

 

Class B Ordinary Shares (Continued)

 

On April 5, 2023, in accordance with the provisions of the Memorandum and Articles of Association of the Company, the Sponsor exercised its right to convert 1,500,000 shares of Class B ordinary shares, par value $0.0001 per share, of the Company into 1,500,000 shares of Class A ordinary shares, par value $0.0001 per share, of the Company on a one-for-one basis.

 

As of December 31, 2023, there were 2,812,500 shares of Class B ordinary shares issued and outstanding. As of December 31, 2022, there were 4,312,500 shares of Class B ordinary shares issued and outstanding.

 

Warrants

 

Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination and (b) 12 months from the closing of the Initial Public Offering.

 

Redemption of Warrants When the Price per Share of Class A Ordinary shares Equals or Exceeds $18.00 — once the warrants become exercisable, the Company may redeem the outstanding Public Warrants:

 

●

in whole and not in part;

 

●

at a price of $0.01 per Public Warrant;

 

●

upon not less than 30 days’ prior written notice of redemption to each warrant holder; and

 

●

if, and only if, the last reported sale price of the Class A ordinary shares for any 20 trading days within a 30 trading day period ending three business days before sending the notice of redemption to warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like).

 

In addition, if (x) the Company issues additional ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of our initial Business Combination at an issue price or effective issue price of less than $9.20 per share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to our Sponsor or its affiliates, without taking into account any, Founder Shares held by our Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of the Company’s initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s ordinary shares during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described above in this section will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 8 – FAIR VALUE MEASUREMENTS

 

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

●

Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

●

Level 2 – Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

 

●

Level 3 – Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

 

The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2023, by level within the fair value hierarchy:

 

		Quoted Prices in Active Markets				Significant Other Observable Inputs				Significant Other Unobservable Inputs
Description		(Level 1)				(Level 2)				(Level 3)
Asset:
Marketable securities held in Trust Account		$	21,921,321			$	—			$	—
		$	21,921,321			$	—			$	—

 

As of December 31, 2023 the amount $21.92 million includes deposit in transit of $0.05 million.

 

The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2022 by level within the fair value hierarchy:

 

		Quoted Prices in Active Markets				Significant Other Observable Inputs				Significant Other Unobservable Inputs
Description		(Level 1)				(Level 2)				(Level 3)
Asset:
Marketable securities held in Trust Account		$	178,532,948			$	-			$	-
		$	178,532,948			$	-			$	-

 

 

BOREALIS FOODS INC.
(FORMERLY KNOWN AS “OXUS ACQUISITION CORP.”)

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 9 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events, other than already disclosed, that would have required adjustment or disclosure in the financial statements.

 

On February 2, 2024, the Company held an extraordinary general meeting of shareholders (the “Second Extraordinary General Meeting”) in connection with the Transaction, whereby the holders of 1,886,751 Class A ordinary shares of the Company exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s trust account. As a result, approximately $21.42 million (approximately $11.35 per share) was removed from the Company’s Trust Account to pay such shareholders.

 

On the Closing Date, the Transaction was consummated, following shareholder approval at the Second Extraordinary General Meeting.

 

On February 6, 2024, a repayment of $0.95 million was made in connection with the Second Amended Note.

 

On February 7, 2024, Borealis, promises to pay to the order of the Sponsor or its registered assigns or successors in interest, or order, the principal sum of $7.60 million in lawful money of the United States of America. No interest shall accrue on the unpaid principal balance of this Note. This Sponsor Note amends, replaces, and supersedes in its entirety that certain Second Amended Note, dated October 2, 2023, made by the Company, in favor of the sponsor, and the unpaid principal balance of the indebtedness evidenced by the Second Amended Note is being merged into and will hereafter be evidenced by this Sponsor Note.

 

 

Exhibit 99.4

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Borealis Foods Inc.
for the year ended December 31, 2023

 

Capitalized terms used but not defined herein have the meanings ascribed to them in Borealis Foods Inc.’s Current Report on Form 8-K/A (the “Current Report”). The following discussion and analysis should be read in conjunction with Borealis Foods’ financial statements and related notes included elsewhere in the Current Report. This discussion and analysis and other parts of the Current Report contain forward-looking statements based upon current beliefs, plans, and expectations that involve risks, uncertainties, and assumptions. Borealis Foods’ actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in the Current Report. You should carefully read the “Risk Factors” section of the Current Report to gain an understanding of the important factors that could cause actual results to differ materially from any such forward-looking statements. Please also see “Forward-Looking Statements.” In this section, unless otherwise indicated or the context otherwise requires, references in this section to “New Borealis,” the “Company,” “we,” “us,” “our” and other similar terms refer to Borealis Foods Inc. and “Borealis” refers to Borealis Foods Inc. prior to the Business Combination and references to “Oxus” refer to Oxus Acquisition Corp. prior to the Business Combination.

 

Overview

 

New Borealis is a food technology company that has developed a high-quality, affordable, sustainable, and nutritious range of plant-based, ready-to-eat meals, which are sold in the U.S., Canada, and Europe. New Borealis has a mission to address global food security challenges by developing highly nutritious and functional food products that are both affordable and sustainable. New Borealis’ focus on affordability and sustainability reflects its commitment to making a positive impact on both human life and the planet. With its unique approach, New Borealis has a significant opportunity to create a meaningful and profound impact on the world.

 

New Borealis Foods has developed and launched mass-produced plant-based ramen meals with 20 grams of complete protein per serving. This achievement in the plant-based protein industry underscores New Borealis’ commitment to developing cutting-edge solutions to tackle global food challenges.

 

Going Concern

 

In connection with New Borealis’ assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, management has determined that negative impact resulting from the price increases in commodity pricing worldwide in 2022 and recurring losses from operations in 2023 raises substantial doubt about New Borealis’ ability to continue as a going concern.

 

 

Results of Operations

 

Comparison of the Years Ended December 31, 2023 and 2022

 

The following sets forth a summary of New Borealis’ results of operations for the years presented (in $ thousands):

 

		For the Year Ended
		2023 (Audited)								2022 (Audited)								2023 vs. 2022 Variance
		$				% of Revenues, net				$				% of Revenues, net
Revenues
Gross Revenue		$	31,399							$	27,431							$	3,968
Sales Allowances			(1,414	)			(5	)%			(2,134	)			(8	)%			720				3	%
Revenues, net			29,985								25,297								4,688				18	%
Cost of Goods Sold			31,289				104	%			32,367				128	%			(1,078	)			24	%
Gross profit (loss)			(1,304	)			(4	)%			(7,071	)			(28	)%			5,766				24	%
Total Sales & Marketing			6,000				20	%			2,506				10	%			3,494				10	%
Total Training			2,727				9	%			6,616				26	%			(3,889	)			(17	)%
Total General & Administrative Expenses			9,918				33	%			6,870				27	%			3,048				6	%
			18,645				62	%			15,992				63	%			2,653				(1	)%
Loss from Operations			(19,949	)			(67	)%			(23,062	)			(91	)%			3,113				(24	)%
Total other income (expense)			(7,866	)			(26	)%			(3,164	)			(13	)%			(4,702	)			(13	)%
Income (loss) before income taxes			(27,815	)			(93	)%			(26,226	)			(104	)%			(1,589	)			11	%
Income Tax Expense			336				1	%			(56	)			0	%			392				1	%
Net income (loss)		$	(27,479	)			(92	)%		$	(26,282	)			(104	)%		$	(1,197	)			12	%

 

Net Sales. New Borealis generates revenue from the sale of its plant-based, ready-to-eat meals. Net Sales are reported net of discounts, returns, and allowances. In 2023, net sales increased by $4,688 or 18% over 2022. Sales discounts and allowances improved to 5% of sales from 8% in 2022. This increase can be attributed primarily to changes in product mix and increased reliance on a single customer.

 

Cost of Goods Sold. New Borealis’ cost of goods sold decreased by $1,078 in 2023, representing a 24% improvement as a percentage of gross sales compared to 2022. Cost of goods sold is divided into five categories: raw material costs, direct and indirect labor, freight (including inbound, outbound, and inter-company), spoilage, and other costs (primarily energy expenses). In 2023, overall gross margin improved by $5,766 or 24% as a percentage of sales. The increase in raw material costs, direct and indirect labor, and energy expenses as a percentage of cost of goods sold was influenced by plant capacity utilization reaching 12%.

 

By the end of Q1 2023, raw material pricing began to stabilize from the peaks observed in 2022. Delays in modular reviews were experienced due to year-end customer inventory concerns. Despite initial regulatory hurdles, European distribution commenced in Q4 2023. However, food service sales slated for 2023 were postponed to Q1 2024 due to the timing of the school calendar. External factors such as the Ukraine war in February 2022 contributed to cost increases, particularly in commodities like flour and palm oil. These increases impacted gross profit, while energy prices rose with the commissioning of new production lines.

 

 

Training. Training costs improved by 17% as a percentage of sales in 2023, driven by enhanced operational efficiency as two production lines entered their second year. Personnel surged in the 2nd quarter of 2022 following the online launch of production lines. Personnel numbers are expected to fluctuate in response to demand and capacity requirements.

 

Sales and Marketing. Sales and Marketing expenses increased by $3,494 in 2023, representing a 10% increase compared to the Sales and Marketing expenses in 2022. Legacy Borealis allocates a significant portion of its Sales and Marketing budget to cover various expenses, including personnel costs, advertising expenditures, distribution costs, and associated occupancy expenses. The recent increase in Sales and Marketing expenditure is primarily attributed to the addition of a brand ambassador to our team. New Borealis’ Sales and Marketing expense consists primarily of personnel costs, advertising costs, distribution costs and related occupancy costs associated with sales and marketing, as well as salaries and occupancy costs for executive, financial, legal, and administrative personnel, professional fees.

 

G&A. G&A expenses increased by $3,048 and represented 6% of sales in 2023 compared to 2022. The increase is primarily due to higher professional fees associated with the Business Combination. Salaries and benefits increased by $201,247, offset by a decrease in insurance expenses by $426,000. The increase in professional fees amounted to $2,339 million. The prior year’s bad debt expense was mainly related to the startup of certain large retailers absorbing the initial reserve/allowance.

 

Depreciation expense. Depreciation expense increased by $486 in 2023, although as a percentage of sales, it decreased by 1% compared to 2022. The decrease in depreciation expense was mainly due to the disposal of a boiler in the 4th quarter of 2023. Additionally, 2022 witnessed the installation of two new production lines, contributing to the increase in fixed assets.

 

Other Expense (Income). Other expenses increased by $4,702 in 2023, with interest expenses accounting for a significant portion of the increase. Interest expense increased by 11% as a percentage of sales over 2022, resulting from higher aggregate principal amounts of indebtedness outstanding and increased interest accruals. Future increases in interest expenses will depend on capital needs, availability, and financing decisions.

 

Liquidity and Capital Resources

 

Until the consummation of the Initial Public Offering, Oxus only source of liquidity was an initial purchase of ordinary shares by the Sponsor and loans from the Sponsor.

 

On September 8, 2021, Oxus consummated the Initial Public Offering of 15,000,000 units, at a price of $10.00 per unit, generating gross proceeds of $150.00 million. Simultaneously with the closing of the Initial Public Offering, Oxus consummated the sale of 8,400,000 Private Warrants at a price of $1.00 per warrant in a private placement to Sponsor and the underwriters, generating gross proceeds of $8.40 million. On September 13, 2021, the underwriters exercised the over-allotment option in full and purchased an additional 2,250,000 units, generating gross proceeds of $22.50 million. In connection with the underwriters’ full exercise of the over-allotment option, Oxus issued an additional 900,000 Private Warrants at a price of $1.00 per warrant in a private placement to Sponsor and the underwriters, generating gross proceeds of $0.90 million.

 

Following the Initial Public Offering and the private placement, a total of $175.95 million was placed in the Trust Account (at $10.20 per Unit). Oxus incurred $4.15 million in transaction costs, including $3.45 million of underwriting fees and $0.70 million of other offering costs.

 

On August 10, 2023, Legacy Borealis entered into a $25,000,000 financing agreement with a maturity date in July 2026. Under this agreement, Borealis Foods (as successor-in-interest to Legacy Borealis) has a $15,000,000 term facility which was used to pay off amounts outstanding under, and to terminate, a then existing line of credit. In addition to the term facility, Legacy Borealis entered into a $10,000,000 revolving line of credit. The term facility and the revolving line of credit are secured by liens on substantially all of the assets of Borealis Foods (as successor-in-interest to Legacy Borealis) and its subsidiaries. Interest is payable under the term facility and the revolving line of credit at the annual rate of Prime + 4.75 % and Prime + 4.5%, respectively. As of March 31, 2024, $15 million principal amount was outstanding under the term facility and no principal amount was outstanding under the revolving line of credit.

 

 

In February 2024, New Borealis completed its Business Combination, resulting in approximately $50.3 million of convertible debt converting into equity. At the completion of the Business Combination, New Borealis had marketable securities in the Trust Account of $0.6 million. The reduction in Trust Account holdings resulted principally from shareholder redemptions. New Borealis expect lower operating expenses in 2024 with the completion of the merger.

 

Based on New Borealis’ present business plan and taking into account our working capital and cash anticipated to be generated through operations, New Borealis will require additional capital to obtain its anticipated funding needs through March 31, 2025. The amount of additional capital required to fund New Borealis through March 31, 2025 has been reduced as a result of a change in its business plan that reduced the need for additional capital expenditures relating to the expansion of our production lines beyond the current four production lines. In addition, New Borealis continues to seek additional financing. There can be no assurance that such additional financing will be available to New Borealis on terms acceptable to it or at all. In the event New Borealis’ additional financing efforts are not successful, New Borealis may seek to pursue alternatives which may include, among other things, scaling down research and development, business develop investments, and global distribution expansion until such time that new capital has been secured.

 

Cash Flows

 

The following table sets forth our cash flows for the period indicated (in thousands):

 

		Years Ended December 31,
		2023				2022
Net cash (used in) provided by:
Operating Activities		$	(18,005	)		$	(24,053	)
Investing Activities			(4,466	)			(3,329	)
Financing Activities			24,940				29,624

 

Cash Flows Used in Operating Activities

 

Net cash used in operating activities during the year ended December 31, 2023 was $18 million, resulting primarily from a net loss of $27.5 million, adjusted for non-cash charges of $3.9 million in depreciation and amortization, $492 thousand in stock-based compensation, $7.3 million in interest expense.

 

Net cash used in operating activities during the year ended December 31, 2022 was $24.1 million, resulting primarily from a net loss of $26.3 million, adjusted for non-cash charges of $3.5 million in depreciation and amortization, $0.5 million in stock-based compensation, $3.2 million in interest expense.

 

Cash Flows Used in Investing Activities

 

Net cash used in investing activities during the year ended December 31, 2023 was $4.5 million, representing $4.5 in property and equipment.

 

Net cash used in investing activities during the year ended December 31, 2022 was $3.3 million, representing additions of $3.4 million in property and equipment.

 

 

Cash Flows Provided by Financing Activities

 

Net cash provided by financing activities during the year ended December 31, 2023 was $24.9 million additions of $27 million, primarily reflecting proceeds received from convertible notes payable and $500 thousand in related party payments.

 

Net cash provided by financing activities during the year ended December 31, 2022 was $29.6 million additions of $24.8 million, primarily reflecting proceeds received from convertible notes payable and $3.7 million in additional related party debt.

 

Contractual Obligations and Commitments

 

The following table summarizes our non-cancellable contractual obligations and other commitments as of December 31, 2023, and the effects that such obligations are expected to have on our liquidity and cash flow for future periods (in thousands):

 

Payments due by period (2)

Total

Less than 1 year

1 – 3  years

4 – 5  years

More than 5 years

Lease commitment(1)

$

3.2M

$

.9M

$

1.7M

$

.5M

0

 

(1)

Includes operating lease liabilities for certain of our offices and facilities.

 

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.

 

Off-Balance Sheet Arrangements

 

New Borealis did not have, during the years presented, and New Borealis does not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Quantitative and Qualitative Disclosures about Market Risk

 

New Borealis is exposed to market risk in the ordinary course of its business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. New Borealis’ market risk exposure is primarily the result of fluctuations in foreign currency exchange rates.

 

Credit risk

 

Financial instruments which potentially subject New Borealis to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. New Borealis maintains cash and cash equivalents with major and reputable financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided by the Deposit Insurance Corporation on such deposits but may be redeemed upon demand. New Borealis performs periodic evaluations of the relative credit standing of the financial institutions. With respect to accounts receivable, New Borealis monitors the credit quality of its customers as well as maintain an allowance for credit losses for estimated losses resulting from the inability of customers to make required payments.

 

 

Concentration risk

 

New Borealis extends unsecured credit to its customers in the ordinary course of business. Payment terms are generally net 30 days with discounts amounting to 2%. Accounts receivable are written off when they are determined to be uncollectible based on the financial stability of its customers and existing economic conditions. Sales to one customer accounted for approximately 57% and sales to two customers accounted for approximately 72% of net revenues for the years ended December 31, 2023 and 2022, respectively. Accounts receivable from two customers amounted to approximately 50% and 83% of total accounts receivable as of December 31, 2023 and 2022, respectively. Substantially all of the Company’s 2023 and 2022 sales occurred in the United States and Canada. Purchases from 10 vendors accounted for approximately 50% and 59% of purchases during 2023 and 2022, respectively. Accounts payable to these vendors totaled approximately $430,000 and $2,565,000 as of December 31, 2023 and 2022, respectively.

 

Foreign currency risk

 

Our customers are primarily located in the United States, Japan, Germany and Canada; therefore, foreign exchange risk exposures arise from transactions denominated in currencies other than our functional and reporting currency (United States dollars). To date, a majority of our sales have been denominated in United States dollars and a significant portion of our operating expenses are denominated in Canadian dollars. New Borealis also purchases certain of our key manufacturing inputs in Euros. As New Borealis expands our presence in international markets, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, New Borealis has not entered into any hedging arrangements to minimize the impact of these fluctuations in the exchange rates. New Borealis will periodically reassess its approach to manage its risk relating to fluctuations in currency rates.

 

New Borealis does not believe that foreign currency risk had a material effect on our business, financial condition, or results of operations during the periods presented.

 

Inflation Risk

 

New Borealis does not believe that inflation had a significant impact on its results of operations for any periods presented in its consolidated financial statements. Nonetheless, if our costs were to become subject to significant inflationary pressures, New Borealis may not be able to fully offset such higher costs, and New Borealis’ inability or failure to do so could harm our business, financial condition and results of operations.

 

Trailing Costs

 

Certain Selling, General and Administrative costs have been expensed in the period incurred. These costs, to include business development costs, transaction costs and research and development costs, consist primarily of personnel and related expenses including salaries, benefits, share-based compensation, scale-up expenses, depreciation and amortization expenses, and facility lease costs. Scale -up expenses includes material waste costs, production personnel costs and various related expenses. These costs are focused on enhancements to our existing product formulations and production processes, as well as the scientific development of new products and economic verticals. New Borealis believes continued innovation and these new verticals will capture a larger share of consumers. As such, revenue associated with these costs will at times be delayed under the matching principal in accounting, whereas expenses will be recognized.

 

How We Evaluate Our Operations

 

Net Income/(Loss)

 

New Borealis measures performance based on its overall return to shareholders based on consolidated net income or net loss. New Borealis does not review a measure of operating result at a lower level than the consolidated company and New Borealis only has one reportable segment.

 

 

Adjusted EBITDA

 

We believe these adjustments relate to expenses and gains that are not indicative of normal, ongoing operations. While these items may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses and gains in the future, we believe that removing these items for purposes of calculating the Adjusted EBITDA financial measures provides a more focused presentation of our ongoing operating performance.

 

New Borealis views EBITDA as an important indicator of performance. New Borealis defines EBITDA as net income/(loss) plus net interest expense, income taxes, depreciation, and amortization. New Borealis defines Adjusted EBITDA as EBITDA further adjusted for any foreign exchange gains/(losses), share-based compensation expense and non-recurring items if identified. EBITDA and Adjusted EBITDA are supplemental measures utilized by its management and other users of New Borealis’ financial statements such as investors, research analysts and others, to assess the financial performance of its assets without regard to financing methods, capital structure or historical cost basis. Adjusted EBITDA is a key performance measure that its management uses to assess its operating performance. It facilitates internal comparisons of New Borealis’ operating performance on a more consistent basis. New Borealis uses these performance measures for business planning purposes and forecasting. New Borealis believes that EBITDA and Adjusted EBITDA enhances an investor’s understanding of its financial performance as they are useful in assessing New Borealis’ operating performance from period-to-period by excluding certain items that New Borealis believes are not representative of its core business.

 

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to New Borealis before (1) income taxes, (2) interest expense, $7.2 million, (3) depreciation and amortization, net, $3,937 million (4) other non-operating items, net, $.6 million, (5) Training, $2.7 million as of December 31, 2023, (6) M&A due diligence costs, $5.4 million as of December 31, 2023, (7) new product launch, $0.8 million as of December 31, 2023, (8) one-time formulation and product development costs, $1.4 million as of December 31, 2023. Management and New Borealis’ Board of Directors use this non-GAAP measure for purposes of evaluating New Borealis’ performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses such measure to evaluate management’s performance. New Borealis, therefore, believes that the use of this non-GAAP measure provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. As noted above, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

 

Risk Factors Affecting Operating Results

 

New Borealis is subject to a number of challenges that may adversely affect its businesses. These challenges are discussed under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

 

Recent Accounting Pronouncements

 

See Note 1 to New Borealis’ financial statements included elsewhere in this proxy statement/prospectus for information about recent accounting pronouncements, the timing of their adoption, and New Borealis’ assessment, if any, of their potential impact on New Borealis’ financial condition and results of operations.

 

Emerging Growth Company and Smaller Reporting Company Status

 

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Oxus previously elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

 

 

In addition, as an emerging growth company, New Borealis will be able to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

●

being permitted to present only two years of audited financial statements in addition to any required unaudited interim financial statements, with correspondingly reduced disclosure in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended;

 

●

reduced disclosure about New Borealis’ executive compensation arrangements in New Borealis’ periodic reports, proxy statements and registration statements;

 

●

exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

●

an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements.

 

New Borealis will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO (its predecessor), (b) in which it has total annual gross revenue of at least $1.07 billion or (c) in which New Borealis is deemed to be a large accelerated filer, which means the market value of its shares that are held by non-affiliates exceeds $700 million as of the prior June 30^th, and (2) the date on which it has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. New Borealis may choose to take advantage of some but not all of these reduced reporting burdens. Oxus has taken advantage of certain reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than you might obtain from other public companies in which you hold equity interests.

 

 

8

 

Exhibit 99.5

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations of
Oxus Acquisition Corp. for the year ended December 31, 2023

 

Capitalized terms used but not defined herein have the meanings ascribed to them in Borealis Foods Inc.’s Current Report on Form 8-K/A. References in this section to the “Company,” “Oxus Acquisition Corp.,” “Oxus,” “our,” “us” or “we” refer to Oxus Acquisition Corp. prior to the consummation of the Business Combination. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

Overview

 

We are a blank check company incorporated in the Cayman Islands on February 3, 2021 for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more businesses (a “Business Combination”). We intend to effectuate our initial Business Combination using cash from the proceeds of our IPO and the sale of the private warrants (the “Private Warrants”), our shares, debt or a combination of cash, equity, and debt.

 

The Business Combination Agreement

 

On February 23, 2023, we entered into a Business Combination Agreement with Newco and Legacy Borealis. The Business Combination Agreement was unanimously approved by Oxus’ and Legacy Borealis’ respective board of directors. Pursuant to the Business Combination Agreement, among other things: (a) Oxus will domesticate and continue as a corporation existing under the laws of the Province of Ontario, Canada (the “Continuance” and, New Oxus); (b) on the closing date, Newco and Legacy Borealis will amalgamate in accordance with the terms of the Legacy Borealis Amalgamation, with Amalco surviving the Legacy Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (c) on the closing date, immediately following the Borealis Amalgamation, Amalco and New Oxus will amalgamate in accordance with the terms of the Borealis Amalgamation, with Borealis Foods surviving the Borealis Amalgamation. Borealis Foods will continue under the name “Borealis Foods Inc.”. For a more detailed discussion of the Business Combination Agreement, the Transaction, and the ancillary agreements, see the Current Report on Form 8-K filed with the SEC on March 1, 2023.

 

Extension

 

At the extraordinary general meeting held on March 2, 2023 (the “Extraordinary General Meeting”), our shareholders approved (1) a special resolution (the “Extension Proposal”) to amend our Amended and Restated Memorandum and Articles of Association, as amended (the “Oxus Charter”) to extend the date that we have to consummate a business combination from March 8, 2023 to December 8, 2023, or such earlier date as determined by our board of directors (and (2) a special resolution (the “Founder Share Amendment Proposal”) to amend the Oxus Charter to provide for the right of a holder of the Class B ordinary shares to convert into the Class A ordinary shares on a one-for-one basis prior to the closing of a business combination at the election of such holder. On December 5, 2023, in connection with the Second Extraordinary General Meeting, the Company filed the Oxus Charter Amendment to extend the date by which the Company must consummate its initial business combination from December 8, 2023 to June 8, 2024, or such earlier date as determined by the Company’s board of directors (the “Extended Date”). In connection with the votes to approve the Extension Proposal and the Founder Share Amendment Proposal, the holders of 15,300,532 Class A ordinary shares of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.41 per share, for an aggregate redemption amount of approximately $159.34 million, leaving approximately $20.3 million in the Trust Account. On December 5, 2023, at the Second Extraordinary General Meeting, the holders of 9,837 Class A ordinary shares of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $11.20 per share, for an aggregate redemption amount of approximately $0.11 million, leaving approximately $21.73 million in the Trust Account. As of December 31, 2023, the Company had $21.92 million of marketable securities held in the Trust Account (including a deposit in transit of $0.05 million).

 

 

On the Closing Date, Borealis, the Company, and Newco, consummated the Transaction, following the approval at an extraordinary general meeting of the shareholders of Oxus held on February 2, 2024.

 

Conversion of Class B Ordinary Shares

 

On April 5, 2023, in accordance with the provisions of the Oxus Charter, our Sponsor exercised its right to convert 1,500,000 shares of Class B ordinary shares, par value $0.0001 per share, of the Company into 1,500,000 shares of Class A ordinary shares, par value $0.0001 per share, of the Company on a one-for-one basis.

 

As of December 31, 2023, following conversion, there were 6,552,131 ordinary shares of the Company issued and outstanding, consisting of 3,739,631 Class A ordinary shares (of which 1,939,631 shares are redeemable) and 2,812,500 Class B ordinary shares.

 

Results of Operations

 

We have neither engaged in any operations nor generated any revenues through the balance sheet date. Our only activities from February 3, 2021 (inception) through December 31, 2023, were related to the Company’s formation and the Initial Public Offering, and since the offering, identifying and evaluating prospective acquisition targets for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We expect to generate non-operating income in the form of interest income or dividend income on marketable securities held after the Initial Public Offering. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

 

For the year ended December 31, 2023, we had a net loss of $2.94 million, which consisted of dividend income of $2.20 million, interest income of $5,159, foreign exchange loss of $17,334 and operating expenses of $5.13 million.

 

For the year ended December 31, 2022, we had a net loss of $0.30 million, which consisted of dividend income of $2.58 million, interest income of $4,010, foreign exchange gains of $1,073 and operating expenses of $2.89 million.

 

Liquidity and Going Concern

 

Until the consummation of the Initial Public Offering, our only source of liquidity was an initial purchase of ordinary shares by the Sponsor and loans from the Sponsor.

 

On September 8, 2021, the Company consummated the Initial Public Offering of 15,000,000 units, at a price of $10.00 per unit, generating gross proceeds of $150.00 million. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 8,400,000 Private Warrants at a price of $1.00 per warrant in a private placement to Sponsor and the underwriters, generating gross proceeds of $8.40 million. On September 13, 2021, the underwriters exercised the over-allotment option in full and purchased an additional 2,250,000 units, generating gross proceeds of $22.50 million. In connection with the underwriters’ full exercise of the over-allotment option, the Company issued an additional 900,000 Private Warrants at a price of $1.00 per warrant in a private placement to Sponsor and the underwriters, generating gross proceeds of $0.90 million.

 

Following the Initial Public Offering and the private placement, a total of $175.95 million was placed in the Trust Account (at $10.20 per Unit). We incurred $4.15 million in transaction costs, including $3.45 million of underwriting fees and $0.70 million of other offering costs.

 

On August 10, 2023, Legacy Borealis entered into a $25,000,000 financing agreement with a maturity date in July 2026. Under this agreement, Borealis Foods (as successor-in-interest to Legacy Borealis) has a $15,000,000 term facility which was used to pay off amounts outstanding under, and to terminate, a then existing line of credit. In addition to the term facility, Legacy Borealis entered into a $10,000,000 revolving line of credit. The term facility and the revolving line of credit are secured by liens on substantially all of the assets of Borealis Foods (as successor-in-interest to Legacy Borealis) and its subsidiaries. Interest is payable under the term facility and the revolving line of credit at the annual rate of Prime + 4.75 % and Prime + 4.5%, respectively. As of March 31, 2024, $15 million principal amount was outstanding under the term facility and no principal amount was outstanding under the revolving line of credit.

 

 

In February 2024, the Company completed its Business Combination, resulting in approximately $50.3 million of convertible debt converting into equity. At the completion of the Business Combination, the Company had marketable securities in the Trust Account of $0.6 million. The reduction in Trust Account holdings resulted principally from shareholder redemptions. The Company expects lower operating expenses in 2024 with the completion of the merger.

 

For the year ended December 31, 2023, cash used in operating activities was $2.34 million. Net loss of $2.94 million which consisted of the dividend received of $2.20 million and foreign exchange loss of $17,334. Changes in operating assets and liabilities provided $2.79 million of total cash for operating activities.

 

For the year ended December 31, 2022, cash used in operating activities was $2.11 million. Net loss of $0.30 million which consisted of the dividend received of $2.58 million and foreign exchange gain of $1,073. Changes in operating assets and liabilities provided $0.78 million of total cash for operating activities.

 

As of December 31, 2023, and December 31, 2022, we had marketable securities held in the Trust Account of $21.92 million (including a deposit in transit of $0.05 million) and $178.53 million, respectively. The reduction in Trust Account holdings resulted principally from shareholder redemptions. 

 

Based on its present business plan and taking into account Borealis Foods’ working capital and cash anticipated to be generated through operations, Borealis Foods will require additional capital to fund its anticipated funding needs through March 31, 2025. The amount of additional capital required to fund Borealis Foods through March 31, 2025 has been reduced as a result of a change in Borealis Foods’ business plan that reduced the need for additional capital expenditures relating to the expansion of its production lines beyond the current four production lines. In addition, Borealis Foods continues to seek additional financing. There can be no assurance that such additional financing will be available to Borealis Foods on terms acceptable to Borealis Foods or at all. In the event Borealis Foods’ additional financing efforts are not successful, Borealis Foods may seek to pursue alternatives which may include, among other things, scaling down research and development, business develop investments, and global distribution expansion until such time that new capital has been secured..

 

Off-Balance Sheet Arrangements

 

We have no obligations, assets, or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

 

Contractual Obligations

 

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than described below.

 

We have engaged the Underwriters as advisors in connection with our Business Combination to assist the Company in holding meetings with its shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business Combination, assist the Company in obtaining shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination. The Company will pay the Underwriters a cash fee for such services upon the consummation of a Business Combination of $5.2 million that equals to 3.0% of the gross proceeds of Initial Public Offering (exclusive of any applicable finders’ fees which might become payable).

 

Critical Accounting Estimates

 

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Estimates made in preparing these financial statements include, among other things, the fair value measurement of shares transferred by the Sponsor to independent director nominees and fair value of shares to be transferred on completion of the Business Combination as per the Incentive agreements entered by the Sponsor and officers of the Company. Actual results could differ from those estimates.

 

 

Warrants

 

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15.

 

We account for the public warrants (the “Public Warrants” and together with Private Warrants, collectively, the “Warrants”), as either equity or liability-classified instruments based on an assessment of the specific terms of the Warrants and the applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the Warrants meet all of the requirements for equity classification under ASC 815, including whether the Warrants are indexed to our own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the Warrants and as of each subsequent quarterly period end date while the Warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, such warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized as a non-cash gain or loss on the statements of operations. We evaluated the Public Warrants and Private Warrants in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity,” and concluded that they met the criteria for equity classification and are required to be recorded as part a component of additional paid-in capital at the time of issuance. 

 

Class A Ordinary Shares Subject to Possible Redemption

 

The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, as of December 31, 2023 and December 31, 2022, 1,939,631 and 17,250,000 shares of Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheets, respectively.

 

Net Loss Per Ordinary Share

 

We comply with accounting and disclosure requirements of Financial Accounting Standards Board Accounting Standard Codification, or FASB ASC, Topic 260, “Earnings Per Share.” Net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company applies the two-class method in calculating earnings per share. Re-measurement associated with the redeemable shares of Class A ordinary share is excluded from EPS as the redemption value approximates fair value.

 

 

Recently Adopted Accounting Pronouncements

 

In June 2022, the FASB issued ASU 2022-03, which amends Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. The Company elected to early adopt ASU 2022-03 on July 1, 2023, and applied the amendment in measuring fair value of shares to be transferred on closing of a business combination.

 

Recent Accounting Pronouncements

 

In August 2020, FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

 

The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU.

 

In June 2016, the FASB issued ASU 2016-12, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires additional disclosures regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The Company adopted the provisions of this guidance with effect from January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.

 

 

Exhibit 99.6

 

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma combined financial statements are provided to aid in the analysis of the financial aspects of the Business Combination and adjustments for the material event. This material event is referred to herein as “Material Event” and the pro forma adjustments for the Material Event are referred to herein as “Adjustments for Material Event.”

 

The unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X.

 

The unaudited pro forma combined balance sheet of the Combined Company after giving effect to the Business Combination as of December 31, 2023 and the unaudited pro forma combined statement of operations of the Combined Company for the fiscal year ended December 31, 2023 present the combination of the financial information of Oxus and Borealis, after giving effect to the Business Combination and related adjustments including the other material events described in the accompanying notes. Oxus and Borealis are collectively referred to herein as the “Companies,” and the Companies, subsequent to the Business Combination, are referred to herein as the Combined Company or New Borealis.

 

The unaudited pro forma combined statement of operations for the fiscal year ended December 31, 2023 gives pro forma effect to the Business Combination and the Material Event as if these had occurred on January 1, 2023. The unaudited pro forma combined balance sheet as of December 31, 2023 gives pro forma effect to the Business Combination and the Material Event as if these were completed on December 31, 2023.

 

The unaudited pro forma combined financial information is based on and should be read in conjunction with the historical financial statements of each of Oxus and Borealis and the notes thereto, as well as the disclosures contained in the sections titled “Oxus’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Borealis’ Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

The unaudited pro forma combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the Combined Company’s financial condition or results of operations would have been had the Business Combination and the Material Event occurred on the dates indicated. Further, the unaudited pro forma combined financial information also may not be useful in predicting the future financial condition and results of operations of the Combined Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma combined financial statements and are subject to change as additional information becomes available and analyses are performed.

  

The Business Combination was accounted for as a reverse recapitalization in accordance with ASC Topic 805, Business Combinations. Under this method of accounting, Oxus was treated as the “acquired” company for accounting purposes. Since New Borealis does not meet the definition of a business under ASC Topic 805, Business Combinations, net assets of New Borealis was stated at historical cost, with no goodwill or other intangible assets recorded. Borealis has been determined to be the accounting acquirer based on an evaluation of the following facts and circumstances, and accordingly the Business Combination is treated as an equivalent to an acquisition of Oxus accompanied by a recapitalization:

 

●

Borealis’ existing shareholders have the greatest voting interest in the combined entity with an approximately 52.14% voting interest;

 

●

the largest individual minority shareholder of the combined entity is an existing shareholder of Borealis;

 

 

●

senior management of Borealis continue as senior management of the combined entity;

 

●

Borealis is the larger entity based on historical total assets and revenues; and

 

●

Borealis’ operations comprises the ongoing operations of New Borealis.

 

The following table presents summary pro forma data after giving effect to the Business Combination, the Material Event and the other transactions at the closing of the Business Combination:

 

		Shares				%
Borealis Shareholders			11,127,141				52.14	%
Oxus Public Shareholders			52,880				0.25	%
Oxus Founders (1)			6,035,359				28.27	%
New Investors			4,126,074				19.34	%
Total			21,341,454				100.00	%

 

(1)

This includes 2,130,136 shares issued to Oxus Capital for their investment in convertible notes in Borealis and also includes 300,000 shares issued to underwriters and 150,000 shares issued to the directors. From the 6,035,359 shares, 200,000 shares are to be allocated to Kanat Mynzhanov and 50,000 to Askar Mametov pursuant to the Sponsor Incentive Agreements.

 

The Business Combination resulted in the combination of Borealis and Newco, with a fiscal year end of December 31. The unaudited pro forma combined statement of operations for the fiscal year ended December 31, 2023 presents the combination of financial information of Newco, Oxus and Borealis, after giving effect to the Business Combination, the Material Event and related adjustments described in the accompanying notes.

 

Material Event and Background Relevant to Material Event

 

In January 2024, Borealis issued convertible notes payable with an aggregate principal amount $3 million, respectively, to New Investors. This facility is expected to be converted to Class A Shares of the Combined Company at Closing.

 

In February 2024, the holders of 1,886,751 Class A Shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $11.35 per share, for an aggregate redemption amount of $21.42 million, leaving $0.6 million in the trust account (refer to Note 3 — Adjustments for Material Event).

 

From January 1, 2024 to the Closing, $0.95 million was repaid under the promissory note.

 

 

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2023

 

		Oxus Acquisition Corp.				Borealis Foods, Inc. and Subsidiaries				Adjustments for Material Event (Note 3)				Pro Forma Adjustments				Notes to Pro Forma Adjustments		Pro Forma Combined
ASSETS
Current Assets
Cash		$	93,115			$	7,615,630			$	2,050,000			$	600,263			A		$	5,823,779
															(220,000	)		B
															(4,315,229	)		C
Accounts receivable, net of allowance for doubtful accounts			-				1,775,756				-				-						1,775,756
Inventories, net			-				6,945,028				-				-						6,945,028
Prepaid expenses			29,600				845,878				-				-						875,478
Total Current Assets			122,715				17,182,292				2,050,000				(3,934,966	)					15,420,041
Marketable securities held in Trust Account			21,921,321				-				(21,321,058	)			(600,263	)		A			-
Property, plant and equipment, net			-				46,408,540				-				-						46,408,540
Right-of-use asset, net			-				108,469				-				-						108,469
Goodwill			-				1,917,356				-				-						1,917,356
Other non-current assets			-				169,685				-				-						169,685
TOTAL ASSETS		$	22,044,036			$	65,786,342			$	(19,271,058	)		$	(4,535,229	)				$	64,024,091
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities
Accrued expenses		$	3,432,370			$	10,887,730			$	—			$	(2,309,911	)		F		$	1,283,898
															(1,879,970	)		G
															(8,846,321	)		C
Deferred transaction costs			-				-				-				5,155,000			B			11,360,346
															6,205,346			C
Promissory note - related party			3,988,000				-				(950,000	)			-						3,038,000
Related party payable			66,854				-				-				-						66,854
Finance lease payable, current portion			-				565,353				-				-						565,353
Operating lease liability, current portion			-				43,794				-				-						43,794
Due to related parties			-				7,825,790				-				-						7,825,790
Notes payable, current portion, net of capitalized loan costs			-				681,121				-				-						681,121
Notes payable, net of current portion			-				13,509,189				-				-						13,509,189
Convertible note payable, current portion			-				47,300,000				3,000,000				(20,300,000	)		F			-
															(30,000,000	)		G
Total Current Liabilities			7,487,224				80,812,977				2,050,000				(51,975,856	)					38,374,345
Convertible note payable, net of current portion			-				3,000,000				-				-			G			3,000,000
Operating lease liability, net of current portion			-				71,119				-				-						71,119
Finance lease payable, net of current portion			-				1,683,308				-				-						1,683,308
Deferred tax liability			-				1,566,233				-				-						1,566,233
TOTAL LIABILITIES			7,487,224				87,133,637				2,050,000				(51,975,856	)					44,695,005

 

 

UNAUDITED PRO FORMA COMBINED BALANCE SHEET — (Continued)
As of December 31, 2023

 

		Oxus Acquisition Corp.				Borealis Foods, Inc. and Subsidiaries				Adjustments for Material Event (Note 3)				Pro Forma Adjustments				Notes to Pro Forma Adjustments		Pro Forma Combined
Commitments and contingencies
Class A ordinary shares, par value $0.0001; subject to possible redemption, at redemption value			21,921,321				-				(21,321,058	)			(600,263	)		E			-
STOCKHOLDERS’ (DEFICIT) EQUITY
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 1,800,000 issued and outstanding as of December 31, 2023 (excluding 1,939,631 shares subject to possible redemption as of December 31, 2023)			180				-				-				206			D			2,134
															5			E
															1,330			F
															413			G
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 2,812,500 shares issued and outstanding as of December 31, 2023 issued and outstanding			281				-				-				(281	)		D			-
Common stock			-				-				-				-			F			-
Preferred stock			-				-				-				-						-
Additional paid-in capital			-				44,118,081				-				(5,375,000	)		B			84,792,328
															(1,674,254	)		C
															75			D
															600,258			E
															15,243,611			F
															31,879,557			G
Accumulated deficit			(7,364,970	)			(65,465,376	)			-				7,364,970			F			(65,465,376	)
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY			(7,364,509	)			(21,347,295	)			-				48,040,890						19,329,086
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY		$	22,044,036			$	65,786,342			$	(19,271,058	)		$	(4,535,229	)				$	64,024,091

 

 

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2023

 

		Oxus Acquisition Corp.				Borealis Foods, Inc. and Subsidiaries				Pro Forma Adjustments				Notes to Pro Forma Adjustments		Pro Forma Combined
Revenues, net		$	-			$	29,984,968			$	-					$	29,984,968
Cost of goods sold			-				31,288,687				-						31,288,687
Gross profit			-				(1,303,719	)			-						(1,303,719	)
Operating expenses
Operating costs			5,130,993				-				7,049,254			dd			12,180,247
Selling, general and administrative expenses			-				18,645,431				-						18,645,431
Stock-based compensation			-				-				2,998,000			cc			2,998,000
Total operating expenses			5,130,993				18,645,431				10,047,254						33,823,678
Loss from operations			(5,130,993	)			(19,949,150	)			(10,047,254	)					(35,127,397	)
Other (expenses) income
Dividend income			2,201,765				-				(2,201,765	)		aa			-
Interest income			5,159				-				-						5,159
Foreign exchange (loss) gain			(17,334	)			(962,665	)			-						(979,999	)
South Carolina grant revenue			-				373,120				-						373,120
Interest expense			-				(7,276,583	)			4,189,812			bb			(3,086,771	)
Total other income (expense), net			2,189,590				(7,866,128	)			1,988,047						(3,688,491	)
Net loss before income taxes			(2,941,403	)			(27,815,278	)			(8,059,207	)					(38,815,888	)
Benefit for income tax			-				336,031				-						336,031
Net loss		$	(2,941,403	)		$	(27,479,247	)		$	(8,059,207	)				$	(38,479,857	)
Basic and diluted weighted average redeemable Class A ordinary shares outstanding			4,463,896											Note 4			21,341,454
Basic and diluted net loss per redeemable Class A ordinary share		$	(0.32	)												$	(1.80	)
Basic and diluted weighted average non-redeemable ordinary shares outstanding			4,612,500														-
Basic and diluted net loss per non-redeemable ordinary share		$	(0.32	)												$	-

 

 

Notes to Unaudited Pro Forma Combined Financial Information

 

Note 1 — The Business Combination

 

Description of the Business Combination

 

On February 23, 2023, Oxus entered into a Business Combination Agreement with Newco and Borealis. Pursuant to the Business Combination Agreement, among other things: (a) Oxus domesticated and continues as a corporation existing under the laws of the Province of Ontario, Canada (the “Continuance”); (b) on the Closing Date, Newco and Borealis amalgamated in accordance with the terms of the Plan of Arrangement, with Amalco surviving the Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (c) on the Closing Date, immediately following the Borealis Amalgamation, Amalco and New Oxus amalgamated (the “New Oxus Amalgamation,” and together with the Continuance, the Borealis Amalgamation and other transactions contemplated by the Business Combination, the Plan of Arrangement and the Ancillary Agreements), with New Borealis surviving the New Oxus Amalgamation.

 

Under the Business Combination Agreement, the shareholders of Borealis received from New Oxus, in the aggregate, a number of shares of New Oxus equal to (a) the Borealis Value (as defined below) divided by (b) $10.00. The Borealis Value will be equal to $150 million less net indebtedness (aggregate consolidated amount of indebtedness of Borealis minus cash) (the “Borealis Value”).

 

Basis of Presentation

 

The Business Combination was accounted for as a reverse recapitalization in accordance with ASC Topic 805, Business Combinations, whereby Oxus is treated as the acquired company and Borealis is treated as the acquirer. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Borealis issuing stock for the net assets of Oxus, accompanied by a recapitalization. The net assets of Oxus was stated at historical cost, with no goodwill or other intangible assets recorded. Subsequently, results of operations presented for the period prior to the Business Combination were those of Borealis.

 

The unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the Business Combination.

 

The unaudited pro forma combined balance sheet as of December 31, 2023 gives pro forma effect to the Business Combination as if it had been consummated on December 31, 2023. The unaudited pro forma combined statement of operations for the year ended December 31, 2023 gives pro forma effect to the Business Combination as if it had been consummated on January 1, 2023.

 

The unaudited pro forma combined balance sheet as of December 31, 2023 has been prepared using, and should be read in conjunction with, the following:

 

●

Oxus’ audited balance sheet as of December 31, 2023 and the related notes included elsewhere in this proxy statement/prospectus/information statement; and

 

●

Borealis’ audited consolidated balance sheet as of December 31, 2023 and the related notes included elsewhere in this proxy statement/prospectus/information statement.

 

The unaudited pro forma combined statement of operations for the year ended December 31, 2023 has been prepared using, and should be read in conjunction with, the following:

 

●

Oxus’ audited statement of operations for the year ended December 31, 2023 and the related notes included elsewhere in this proxy statement/prospectus/information statement; and

 

●

Borealis’ audited consolidated statement of operations for the year ended December 31, 2023 and the related notes included elsewhere in this proxy statement/prospectus/information statement.

 

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

 

The unaudited pro forma combined financial information does not give effect to any synergies, operating efficiencies, tax savings or cost savings that may be associated with the Merger.

 

 

The pro forma adjustments reflecting the completion of the Business Combination are based on currently available information and assumptions and methodologies that management believes are reasonable under the circumstances. The unaudited pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at the current time and that the proforma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial information.

 

The unaudited pro forma combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of Oxus and Borealis.

 

Accounting Policies

 

Upon consummation of the Business Combination, management will perform a comprehensive review of Oxus’ and Borealis’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of the post-combination company. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma combined financial information.

 

Note 2 — Pro Forma Adjustments

 

Adjustments to the Unaudited Pro Forma Combined Balance Sheet as of December 31, 2023

 

The transaction accounting adjustments included in the unaudited pro forma combined balance sheet as of December 31, 2023 are as follows:

 

A	Cash released from trust

 

Adjustment to transfer $0.6 million of marketable securities held by Oxus in trust and converted into cash resources upon close of the Business Combination. Represents the impact of the Business Combination on the cash balance of the Combined Company.

 

B	Success fees

 

Adjustment relates to the business combination marketing arrangement fee of $5.2 million related to the IPO and a legal success fee of $0.2 million, of which $0.2 million was paid upon closing of the Business Combination and $5.2 million is due at the first anniversary of the Closing. This amount was recognized as a decrease in cash $0.2 million, a decrease in additional paid-in capital of $5.4 million, and an increase in deferred transaction costs of $5.2 million.

 

C	Transaction and other costs

 

Adjustment to decrease cash by $4.3 million, accrued expenses by $8.8 million (incurred transaction cost of which $3.4 million relates to Oxus, $5.4 million relates to Borealis), additional paid-in capital by $1.7 million (incremental transaction cost of which $0.8 million relates to Oxus and $0.9 million relates to Borealis) and, an increase deferred transaction costs of $6.2 million. The adjustment relates to direct and incremental transaction costs that comprised of legal, accounting, audit and miscellaneous fees.

 

D	SPAC Class B Share Conversion

 

Adjustment relates to the conversion of 2,812,500 Class B ordinary shares of Oxus, in accordance to the Class B Share Conversion Ratio, as defined in the Business Combination Agreement. The adjustment results in a decrease of $281 in Class B ordinary shares and increases of $206 in Class A ordinary shares and $75 in additional paid-in capital related to the forfeiture of 750,000 Class B shares by the Sponsor.

 

 

E	Reclassification of Oxus Class A ordinary shares subject to possible redemption

 

This adjustment relates to the reclassification of 52,880 shares of Oxus Class A ordinary shares subject to redemption, with a par value of $0.0001 into 52,880 shares of the Combined Company Class A ordinary shares, resulting in an increase in Combined Company A ordinary shares par value not subject to redemption of approximately $5 and an increase of additional paid-in capital of $0.6 million.

 

F	Conversion of Borealis common stock into Oxus Class A ordinary shares

 

Represents an exchange of Borealis common stock into ordinary shares in Oxus. In exchange for their common stock in Borealis, Borealis Shareholders received 13,300,000 shares of the Combined Company. The pro forma adjustment of the reverse recapitalization is as follows:

 

●

A decrease of approximately $7.4 million to eliminate Oxus’ accumulated deficit, a decrease of $20.3 million of convertible notes payable and accrued interest of $2.3 million.

 

●

Using an Exchange Ratio of approximately 1-for-0.06621 the total number of shares of the Combined Company’s ordinary shares to be issued to Borealis Shareholders was 13,300,000 shares. Based on a par value of $0.0001, the adjustment to the Combined Company’s ordinary shares par value balance was approximately $1,330. The 13,300,000 shares issued to Borealis Holders was calculated by applying the exchange ratio to the outstanding common stock of Borealis as of December 31, 2023. Refer to the table below.

 

Diluted Borealis Shares			200,890,791
x: Exchange ratio			0.06621
Total number of Combined Company Shares to be held by Borealis Shareholders post merger			13,300,000

 

G	Conversion of New Investor Convertible Note

 

Represents the conversion of New Investor Convertible Notes to Class A Shares at Closing. The adjustment results in reductions in convertible notes payable, current portion of $30 million, $1.9 million of accrued expenses and expenses, along with increases of $413 in Class A Shares and $31.9 million in additional paid-in capital. The long-term convertible notes of $3 million will be paid on its maturity date.

 

Adjustments to the Unaudited Pro Forma Combined Statement of Operations for and the Year Ended December 31, 2023

 

The transaction accounting adjustments included in the unaudited pro forma combined statement of operations for the year ended December 31, 2023 are as follows:

 

aa

Exclusion of dividend income

 

Represents elimination of dividend income earned on marketable securities held in the trust account.

 

bb

Exclusion of interest expense

 

The adjustment relates elimination of interest expense in connection conversion and settlement of convertible notes

 

cc

Recognition Oxus of stock-based compensation

 

Adjustment relates to the recognition of $3 million of stock-based expense which was considered contingent upon the consummation of the Business Combination.

 

dd

Transaction cost

 

To reflect incremental transaction costs for Oxus.

 

 

Note 3 — Adjustments for Material Event

 

The adjustments in connection with the Material Event resulted in:

 

●

an increase of $3 million in cash and convertible notes payable, current portion, respectively, in connection with the funding received by Borealis in January 2024;

 

●

a decrease of $21.3 million in cash held in trust and common stock subject to redemption, with regards to the redemption of 1,886,751 Class A Shares in February 2024;

 

●

an increase of $0.6 million in cash held in trust and common stock subject to redemption with regards to the interest income earned and extension fee deposits made from December 31, 2023 through the closing of Business Combination; and,

 

●

an decrease in cash and promissory note of $0.95 million as a result of repayment.

 

Note 4 — Net Loss per Share

 

Represents the net loss attributable to ordinary shareholders per share calculated using the historical weighted average shares of ordinary shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2023. As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the periods presented, the calculation of weighted average shares of ordinary shares outstanding for basic and diluted net loss attributable to ordinary shareholders per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire period presented. If the maximum number of shares are redeemed, this calculation is retroactively adjusted to eliminate such shares for the entire period. The calculation of diluted loss per ordinary shares does not consider the effect of the warrants issued in connection with the Initial Public Offering since the inclusion of such warrants would be anti-dilutive.

 

For the Year Ended December 31, 2023
Weighted average Class A ordinary shares outstanding, basic and diluted			21,341,454
Net loss per share of Class A ordinary shares, basic and diluted		$	(1.80	)

 

 

9

 

v3.24.1.u1

Cover	Feb. 07, 2024
Document Type	8-K/A
Amendment Flag	true
Amendment Description	(Amendment No. 1)
Document Period End Date	Feb. 07, 2024
Current Fiscal Year End Date	--12-31
Entity File Number	001-40778
Entity Registrant Name	BOREALIS FOODS INC.
Entity Central Index Key	0001852973
Entity Tax Identification Number	98-1638988
Entity Incorporation, State or Country Code	A6
Entity Address, Address Line One	1540 Cornwall Rd. #104
Entity Address, City or Town	Oakville
Entity Address, Postal Zip Code	L6J 7W5
City Area Code	905)
Local Phone Number	278-2200
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	true
Elected Not To Use the Extended Transition Period	false
Common Shares
Title of 12(b) Security	Common Shares
Trading Symbol	BRLS
Security Exchange Name	NASDAQ
Warrants
Title of 12(b) Security	Warrants
Trading Symbol	BRLSW
Security Exchange Name	NASDAQ

---