As filed with the Securities and Exchange Commission on November 14, 2006
Registration Statement No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
XPLORE TECHNOLOGIES CORP.
(Exact Name of Registrant as Specified in Its Charter)
Canada
(State or Other Jurisdiction of Incorporation) |
3570
(Primary Standard Industrial Classification Code Number) |
Xplore Technologies Corp.
14000 Summit Drive, Suite 900
Austin, Texas 78728
(512) 336-7797
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Michael J. Rapisand
Xplore Technologies Corp.
14000 Summit Drive, Suite 900
Austin, Texas 78728
(512) 336-7797
with copies to:
Jonathan J. Russo, Esq.
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, New York 10022
(212) 895-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and the consummation of the domestication transaction covered hereby.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
CALCULATION OF REGISTRATION FEE
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Title of each Class of
Securities to be Registered |
Amount to be
Registered(1) |
Proposed Maximum
Offering Price Per Unit |
Proposed Maximum
Aggregate Offering Price |
Amount of Registration
Fee |
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Common Stock, $0.001 par value | 61,000,000 | $0.36(2) | $21,960,000 | |||||
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Series A Preferred Stock, $0.001 par value | 64,000,000 | $0.0003(3) | $19,200 | |||||
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Series B Preferred Stock, $0.001 par value | 10,000,000 | $0.0003(3) | $3,000 | |||||
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Total | $21,982,200 | $2,352 | ||||||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant files a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
XPLORE TECHNOLOGIES CORP.
14000 Summit Drive, Suite 900
Austin, Texas 78728
, 2007
Dear Shareholders:
We are furnishing this management information circular/prospectus to shareholders of Xplore Technologies Corp., or Xplore Technologies, in connection with the solicitation of proxies by our management for use at a special meeting of our shareholders. The meeting will be held on , 2007 at (Eastern Standard Time), at the Harvard Club, 27 West 44 th Street, New York, New York 10036.
The purpose of the meeting is to obtain shareholder approval to change our jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware in the United States of America through the adoption of a certificate of domestication and a new certificate of incorporation. This process is called a continuance in Canada and a domestication in Delaware.
We believe our domestication will enhance shareholder value over the long-term by improving our ability and flexibility to obtain financing in the equity and debt capital markets, enhancing the marketability of our capital stock by raising our profile in the United States and providing greater opportunity for proposing and winning business in the United States. We chose the State of Delaware to be our domicile because Delaware has a modern and flexible corporate code, well developed corporate law and a court system with considerable expertise in dealing with corporate issues.
If we complete the domestication, we will continue our legal existence in Delaware as if we had originally been incorporated under Delaware law. In addition, each outstanding common and preferred share of Xplore Technologies as a Canadian corporation will then represent one share of common or preferred stock, as applicable, of Xplore Technologies as a Delaware corporation. Our common shares are currently traded on the Toronto Stock Exchange under the symbol XPL. For the foreseeable future following the domestication, our common stock will continue to be listed on the Toronto Stock Exchange under the same trading symbol. In addition, in the future we intend to seek approval to list our common stock on a national stock exchange or stock market in the United States; however, we cannot assure you that we will be able to obtain any such listing.
The proposal for domestication is subject to approval by at least two-thirds of the votes cast by the holders of our common shares, Series A Preferred Shares and Series B Preferred Shares, voting together at the meeting as a single class, whether in person or by proxy. Dissenting shareholders have the right to be paid fair value of the shares in respect of which the shareholders dissent under Section 190 of the Canada Business Corporations Act. Our board of directors has reserved the right to terminate or abandon our domestication at any time prior to its effectiveness, notwithstanding shareholder approval, if it determines for any reason that the consummation of our domestication would be inadvisable or not in our best interests. If approved by our shareholders, it is anticipated that the change of our jurisdiction of incorporation, or domestication, will become effective on or about , 2007 or as soon as practicable after the meeting of shareholders.
The existing certificates representing our common and preferred shares will continue to represent the same number of shares of our capital stock after the domestication without any action on your part. You will not have to exchange any certificates. We will issue new certificates to you representing shares of capital stock of Xplore Technologies as a Delaware corporation upon transfers or at your request.
The accompanying management information circular/prospectus provides a detailed description of our domestication and other information to assist you in considering the matter on which you are asked to vote. We urge you to review this information carefully and, if you require assistance, to consult with your financial, tax or other professional advisers.
For the reasons set forth in the management information circular/prospectus, our board of directors unanimously believes that the proposed domestication is in our best interests. We therefore strongly urge you to vote FOR our domestication.
Whether or not you plan to attend the meeting, we ask that you indicate the manner in which you wish your shares to be voted and sign and return your proxy as promptly as possible in the enclosed envelope so that your vote may be recorded. You may vote your shares in person if you attend the meeting, even if you send in your proxy.
We appreciate your continued interest in our company.
Very truly yours, | ||
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Michael J. Rapisand Corporate Secretary and Chief Financial Officer |
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On Behalf of our Board of Directors |
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy card as
promptly as possible and return it in the enclosed envelope.
XPLORE TECHNOLOGIES CORP.
14000 Summit Drive, Suite 900
Austin, Texas 78728
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Xplore Technologies Corp. (we, us or Xplore Technologies) will be held on , 2007 at , (Eastern Standard time), at the Harvard Club, 27 West 44 th Street, New York, New York 10036, for the following purposes:
1. To consider, and if deemed advisable, approve a special resolution authorizing Xplore Technologies Corp. to make an application under Section 188 of the Canada Business Corporations Act and change its jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware, United States of America, by way of a domestication under Section 388 of the Delaware General Corporation Law, and to adopt the certificate of incorporation authorized in the special resolution to be effective as of the date of our continuance; and
2. To transact any other business properly brought before the meeting or any adjournment thereof.
The text of the special resolution is set forth in Exhibit A to the accompanying management information circular/prospectus. The proposal for domestication is subject to approval by at least two-thirds of the votes cast by the holders of our common shares, Series A Preferred Shares and Series B Preferred Shares, voting together at the meeting as a single class, whether in person or by proxy. As of the date of this notice, there were 60,890,900 of our common shares, 63,472,895 of our Series A Preferred Shares and 9,988,513 of our Series B Preferred Shares issued and outstanding. Each outstanding common or preferred share entitles the holder to one vote at the meeting on the proposal.
If the special resolution for the continuance is approved, our board of directors will be authorized to implement, delay or abandon the domestication. Our Board of Directors recommends that shareholders vote "FOR" the approval of the special resolution. Dissenting shareholders are entitled to be paid the fair value of their shares under the procedures for dissenters' rights contemplated by Section 190 of the Canada Business Corporations Act and described in the accompanying management information circular/prospectus.
Our board of directors has fixed the close of business on , 2007 as the record date for determining shareholders entitled to notice of and to vote at the meeting and any adjournments or postponements. If you were a registered holder of our common or preferred shares at the close of business on the record date, you are entitled to notice of and to vote at the meeting.
Shareholders are cordially invited to attend the special meeting in person. Your vote is important. Those who do not plan to attend the meeting are requested to complete, sign and date the accompanying proxy card and return it before the special meeting in the envelope provided. A proxy will not be valid unless it is deposited with the office of our transfer agent, Equity Transfer Services Inc., 200 University Avenue, Suite 400, Toronto, Ontario M5H 4H1, by the second business day preceding the meeting or any adjournment. Your proxy may be revoked at any time before its exercise by giving a notice of revocation, by delivering a subsequent proxy card or by voting in person at the meeting.
By order of the Board of Directors,
Michael
J. Rapisand
Corporate Secretary and Chief Financial Officer
Austin,
Texas
, 2007
XPLORE TECHNOLOGIES CORP.
14000 Summit Drive, Suite 900
Austin, Texas 78728
Management Information Circular/Prospectus
SPECIAL MEETING OF SHAREHOLDERS OF XPLORE TECHNOLOGIES CORP.
This constitutes a management information circular/prospectus (which we refer to as this prospectus) with respect to the change of our jurisdiction of incorporation (known as a continuance in Canada and a domestication in the United States) from the federal jurisdiction of Canada to the State of Delaware. We sometimes refer in this prospectus to our pre-continuance/domestication company as Xplore Canada and our post-continuance/domestication company as Xplore Delaware.
General Information
This prospectus is being furnished to our shareholders in connection with the solicitation of proxies by our management for use at a special meeting of our shareholders to be held on , 2007, at the Harvard Club, 27 West 44 th Street, New York, New York 10036, commencing at (Eastern Standard Time), and at any adjournment or postponement thereof. These proxy solicitation materials were mailed on or about , 2007 to all of our shareholders entitled to vote at the meeting.
Revocability of Proxies
A registered shareholder who has given a proxy may revoke the proxy by completing and signing a proxy bearing a later date and depositing it with the transfer agent; or by depositing an instrument in writing executed by him or by his attorney authorized in writing at the registered office of our company at any time up to and including the last business day preceding the day of the meeting (or any adjournment thereof), or with the chairman of the meeting prior to the commencement of the meeting on the day of the meeting (or any adjournment thereof); or in any other manner permitted by law. A non-registered shareholder who wishes to revoke a voting instruction form or a waiver of the right to receive meeting materials should contact the intermediary for instructions.
Voting, Quorum; and Solicitation
Our shareholders of record at the close of business on , 2007, the record date, are entitled to notice of and to vote at the meeting and at any adjournment(s) thereof. At the record date, 60,890,900 of our common shares, 63,472,895 of our Series A Preferred Shares and 9,988,513 of our Series B Preferred Shares were issued and outstanding.
The presence of one shareholder, in person or by proxy, is necessary to constitute a quorum at the meeting. As of the record date, we had one class of common shares and two series of preferred shares outstanding. On all matters which may come before the meeting, our shareholders on the record date are entitled to one vote for each common and/or preferred share held of record.
Approval of our continuance requires the affirmative vote of at least two-thirds of the votes cast by the holders of our common shares, Series A Preferred Shares and Series B Preferred Shares, voting together at the meeting as a single class, whether in person or by proxy.
We will bear the cost of solicitation of proxies from our shareholders. In addition to solicitation by mail, the directors and officers of our company may solicit proxies personally or by telephone or other electronic means. These persons will receive no additional compensation for such services but will be reimbursed for reasonable out-of-pocket expenses. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of shares held of record by these persons, and we will reimburse them for their reasonable out-of-pocket expenses.
Other Matters
Our shareholders who are unable to attend the meeting in person should read the notes accompanying the enclosed proxy card and complete and return the proxy card to our registrar and our transfer agent within the time required by, and to the location set out in, the notes to the proxy.
The persons named in the enclosed proxy card are our directors or officers and will, if authorized by proxy, vote the shares represented thereby on any poll, and where a choice with respect to any matter to be acted upon has been specified in the proxy card, the shares will be voted in accordance with the specification so made. If no such specification is made, the shares will be voted in favor the proposal described in the notice of the meeting.
The enclosed proxy card confers discretionary authority upon the person appointed thereunder with respect to amendments or variations of matters identified in the notice of meeting and with respect to other matters which may properly come before the meeting. At the time of printing this prospectus, our management knows of no such amendment, variation or other matter that is expected to come before the meeting.
These securities involve a high degree of risk. See "Risk Factors" beginning on page for a discussion of specified matters that should be considered.
Neither the Securities and Exchange Commission nor any state securities commission, or any securities commission or similar authority in Canada, has approved or passed upon the merits of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
SUMMARY | 2 | |
SELECTED FINANCIAL DATA | 6 | |
RISK FACTORS | 7 | |
EXCHANGE RATES | 16 | |
FORWARD-LOOKING STATEMENTS | 16 | |
THE SPECIAL MEETING | 17 | |
THE DOMESTICATION | 21 | |
ACCOUNTING TREATMENT OF DOMESTICATION | 33 | |
UNITED STATES AND CANADIAN INCOME TAX CONSIDERATIONS | 34 | |
DESCRIPTION OF CAPITAL STOCK | 43 | |
MARKET PRICE AND RELATED STOCKHOLDER MATTERS | 48 | |
OUR BUSINESS | 49 | |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 57 | |
MANAGEMENT | 74 | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 81 | |
INTEREST OF MANAGEMENT IN THE DOMESTICATION | 83 | |
LEGAL MATTERS | 83 | |
EXPERTS | 83 | |
SHAREHOLDER PROPOSALS | 83 | |
WHERE YOU CAN FIND MORE INFORMATION | 83 | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | F-1 | |
EXHIBITS : | ||
EXHIBIT ASpecial Resolution for the Domestication | A-1 | |
EXHIBIT BForm of Certificate of Domestication of Xplore Technologies Corp. | B-1 | |
EXHIBIT CProposed Certificate of Incorporation of Xplore Technologies Corp. | C-1 | |
EXHIBIT DProposed By-Laws of Xplore Technologies Corp. | D-1 | |
EXHIBIT ESection 190 of the Canada Business Corporations Act | E-1 | |
EXHIBIT GForm of Proxy Card | G-1 |
Trademarks or trade names of Xplore Technologies Corp. used in this management information circular/prospectus include: "iX" and "AllVue". Each trademark, trade name or service mark of any other company appearing in this management information circular/prospectus belongs to its holder.
The following is a brief summary of certain information contained elsewhere in this prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained in this prospectus and the exhibits attached hereto. You should carefully read this prospectus in its entirety and carefully consider the information set forth under the heading "Risk Factors."
Xplore Technologies Corp.
We are a leader in engineering, developing, integrating and marketing rugged, mobile computing systems. Our innovative products and features are designed to enhance the ability of persons to perform their job outside of traditional office settings. Our line of iX Tablet PCs are designed to operate in challenging work environments, such as extreme temperatures, repeated vibrations or dirty and dusty conditions. Further, these systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, Global Positioning System modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mouses and cases.
Xplore Technologies Corp.'s predecessor entity, Xplore Technologies Inc., was incorporated under the laws of the Province of Ontario on August 20, 1996. That company was subsequently continued under the federal laws of Canada on March 22, 2000 and, on March 25, 2000, was amalgamated with Xplore Technologies Corp. under the federal laws of Canada to continue as Xplore Technologies Corp. The principal executive offices of Xplore Technologies are located at 14000 Summit Drive, Suite 900, Austin, Texas 78728 and our phone number is (512) 336-7797.
The Special Meeting (Page )
2
The Domestication (Page )
Our board of directors is proposing to change our jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware through a transaction called a "continuance" under Section 188 of the Canada Business Corporations Act, also referred to as a "domestication" under Section 388 of the Delaware General Corporation Law (which we sometimes refer to as the DGCL). The continued, or domesticated, corporation will become subject to the DGCL on the date of its domestication, but will be deemed to have commenced its existence in Delaware on the date it originally commenced existence in Canada. Under the DGCL, a corporation becomes domesticated in Delaware by filing a certificate of domestication and a certificate of incorporation for the corporation being domesticated. Our board of directors has unanimously approved our domestication, believes it to be in our best interests and in the best interests of our shareholders and unanimously recommends approval of our continuance to our shareholders.
Our board of directors believes that, by domiciling Xplore Technologies in the United States, we may be able to enhance shareholder value over the long term with greater acceptance in the capital markets and improved marketability of our common stock. Our board of directors considered the fact that, in management's experience, potential investors, lenders and strategic partners in the United States are more familiar with U.S. accounting, tax and disclosure standards than those in Canada and are therefore more comfortable dealing with U.S. corporations than Canadian corporations. Our board of directors also considered that, by becoming subject solely to U.S. tax laws and accounting standards, we will eliminate many of the income tax and financial accounting complexities associated with incorporation outside the United States. In addition, being domiciled in the United States could provide the flexibility to enter into some types of mergers, acquisitions and business combination transactions with other U.S. corporations that could have adverse tax consequences if we remained a Canadian corporation. In addition, our board of directors believes that our domestication will provide greater opportunity for proposing and winning business in the United States.
The domestication will be effective upon the filing of the certificates with the office of the Secretary of State of the State of Delaware. Thereafter, Xplore Technologies will be subject to the
3
certificate of incorporation filed in Delaware. We will be discontinued in Canada as of the date shown on the certificate of discontinuance issued by the Director of the Canada Business Corporations Act. A copy of Section 190 the Canada Business Corporations Act addressing dissenters' rights in connection with the domestication is attached to this prospectus as Exhibit E.
The domestication will not interrupt the corporate existence or operations of Xplore Technologies or the trading market of our common shares. Each outstanding common and preferred share at the time of the domestication will remain issued and outstanding as a share of common or preferred stock, as applicable, of Xplore Technologies after its corporate existence is continued from Canada under the Canada Business Corporations Act and domesticated in Delaware under the DGCL. For the foreseeable future, our common stock will continue to be listed on the Toronto Stock Exchange under the trading symbol "XPL." In the future, we intend to seek approval to list our common stock on a national stock exchange or stock market in the United States; however, we cannot assure you that we will be able to obtain any such listing.
Regulatory and Other Approvals (Page )
The continuance is subject to the authorization of the Director of the Canada Business Corporations Act. The Director is empowered to authorize the domestication if, among other things, he is satisfied that the continuance will not adversely affect our creditors or shareholders.
Tax Consequences of the Domestication (Page )
A U.S. holder's tax basis in the shares of Xplore Delaware received in the exchange will be equal to such holder's tax basis in the shares of Xplore Canada, increased by the amount of gain (if any) recognized in connection with the domestication or the amount of the "all earnings and profits amount" included in income by such U.S. holder. A U.S. holder's holding period in the shares of Xplore Delaware should include the period of time during which such holder held his shares in Xplore Canada, provided that the shares of Xplore Canada were held as a capital asset.
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those
properties. We will be taxed on any income or gain realized on that sale. We will have a deemed year-end for Canadian tax purposes. We could be subject to an additional tax if the fair market
value of our assets, net of liabilities, exceeds the paid-up capital of the issued and outstanding shares of Xplore Canada. We believe that we will not owe any Canadian federal income taxes as a
result of the continuance.
This
summary does not discuss all aspects of United States or Canadian tax consequences that may apply in connection with the domestication. Holders of Xplore Canada shares should consult their own
tax advisors as to the tax consequences of the domestication applicable to them. In addition, please note that other tax consequences may arise under applicable law in other countries.
To ensure compliance with the requirements imposed by the Internal Revenue Service, we inform you that any tax statement herein concerning United States federal taxes is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any tax-related penalties under the United States Internal Revenue Code. Any tax statement herein concerning United State federal taxes is written in connection with the marketing or promotion of the transaction or matters to which the statement relates. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
Accounting Treatment of the Domestication (Page )
The continuance of Xplore Technologies and its domestication as a Delaware corporation represents a transaction between entities under common control. Assets and liabilities transferred between entities under common control are accounted for at historical cost. Accordingly, the assets and liabilities of Xplore Delaware, the continuing entity, will be reflected at their historical cost to Xplore Canada.
Any of our common and/or preferred shares that we acquire from dissenting shareholders will be treated as an acquisition of treasury stock at the amount paid for the shares.
Dissent Rights of Shareholders (Page )
If you wish to dissent and do so in compliance with Section 190 of the Canadian Business Corporations Act, and we proceed with our domestication, you will be entitled to be paid the fair value of the shares you hold. Fair value is determined as of the close of business on the day before the continuance is approved by shareholders. If you wish to dissent, you must send written objection to the continuance to us at or before the meeting. If you vote in favor of the continuance, you in effect lose your rights to dissent. If you abstain or vote against the continuance, you preserve your dissent rights to the extent you comply with Section 190. However, it is not sufficient to vote against the continuance or abstain. You must also provide a separate dissent notice at or before the meeting. If you grant a proxy and intend to dissent, the proxy must instruct the proxy holder to vote against the continuance in order to prevent the proxy holder from voting such shares in favor of the continuance and thereby voiding your right to dissent. Under the Canada Business Corporations Act, you have no right of partial dissent. Accordingly, you may only dissent as to all your shares. Section 190 of the Canada Business Corporations Act is reprinted in its entirety as Exhibit E to this prospectus.
Comparison of Shareholder Rights (Page )
Upon completion of the domestication, our shareholders will be holders of capital stock of a Delaware corporation. After that time, their rights will be governed by the Delaware General Corporation Law as well as our new Delaware certificate of incorporation and by-laws. The section entitled "The DomesticationComparison of Shareholder Rights" describes material differences between the rights of Canadian shareholders and Delaware stockholders.
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The table below presents selected historical consolidated financial data for Xplore Technologies as of and for each of the five years ended March 31, 2006, 2005, 2004, 2003 and 2002. The selected historical consolidated financial data as of and for the three years ended March 31, 2006 is derived from our audited consolidated financial statements, which have been audited by Mintz & Partners LLP, independent registered auditors.
The selected historical consolidated financial data as of and for the six months ended September 30, 2006 and September 30, 2005 is derived from our unaudited consolidated financial statements. In the opinion of management, our unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations for these periods. Operating results for the six months ended September 30, 2006 and 2005 are not necessarily indicative of the results that may be expected for the full year.
The selected historical consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included in this prospectus. Our financial statements included in this prospectus have been prepared in accordance with U.S. GAAP.
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Six Months Ended September 30,
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Year Ended March 31,
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2006
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2005
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2006
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2005
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2004
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2003
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2002
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(Unaudited)
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(In thousands of U.S. dollars, except per share data)
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STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||||
Revenue | $ | 17,839 | $ | 12,708 | $ | 27,480 | $ | 17,530 | $ | 24,631 | $ | 15,091 | $ | 9,861 | ||||||||
Cost of revenue | 12,917 | 9,587 | 20,671 | 13,860 | 20,880 | 12,357 | 11,356 | |||||||||||||||
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Gross profit (loss) | 4,922 | 3,121 | 6,809 | 3,670 | 3,751 | 2,734 | (1,495 | ) | ||||||||||||||
Expenses: | ||||||||||||||||||||||
Sales, marketing and support | 3,127 | 2,242 | 5,284 | 4,839 | 4,504 | 5,644 | 5,714 | |||||||||||||||
Product research, development and engineering | 1,241 | 1,050 | 2,402 | 2,327 | 2,523 | 3,472 | 4,517 | |||||||||||||||
General administration | 1,738 | 2,671 | 4,143 | 4,179 | 4,616 | 4,135 | 5,186 | |||||||||||||||
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6,106 | 5,963 | 11,829 | 11,345 | 11,643 | 13,251 | 15,417 | ||||||||||||||||
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Loss from operations | (1,184 | ) | (2,842 | ) | (5,020 | ) | (7,675 | ) | (7,892 | ) | (10,517 | ) | (16,912 | ) | ||||||||
Interest and other income (expense) | (1,305 | ) | (489 | ) | (1,553 | ) | (1,216 | ) | (4,807 | ) | (1,486 | ) | (412 | ) | ||||||||
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Net loss | $ | (2,489 | ) | (3,331 | ) | (6,573 | ) | (8,891 | ) | (12,699 | ) | (12,003 | ) | (17,324 | ) | |||||||
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Loss per share | $ | (0.04 | ) | (0.06 | ) | (0.12 | ) | (0.18 | ) | (0.41 | ) | (0.51 | ) | (0.95 | ) | |||||||
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OTHER FINANCIAL DATA: | ||||||||||||||||||||||
Ratio of fixed charges to earnings(1) | (0.50 | ) | N/A | N/A | N/A | N/A | N/A | N/A |
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As of September 30,
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As of March 31,
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2006
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2005
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2006
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2005
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2004
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2003
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2002
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(Unaudited)
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(In thousands of U.S. dollars)
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BALANCE SHEET DATA: | |||||||||||||||||||||
Current assets | $ | 14,759 | $ | 8,835 | $ | 9,208 | $ | 6,622 | $ | 8,589 | $ | 9,675 | $ | 12,555 | |||||||
Current liabilities | 7,145 | 10,890 | 13,714 | 17,681 | 7,526 | 6,784 | 7,372 | ||||||||||||||
Working capital | 7,614 | (2,055 | ) | (4,506 | ) | (11,059 | ) | 1,063 | 2,891 | 5,183 | |||||||||||
Total assets | 15,430 | 9,339 | 11,224 | 7,094 | 9,383 | 10,971 | 13,617 | ||||||||||||||
Long-term debt | 250 | 12,005 | 12,005 | | 7,550 | 3,714 | | ||||||||||||||
Total liabilities | 7,395 | 22,895 | 25,719 | 17,681 | 15,076 | 10,498 | 7,372 | ||||||||||||||
Shareholders' equity (deficit) | 8,035 | (13,556 | ) | (14,495 | ) | (10,587 | ) | (5,693 | ) | 473 | 6,245 |
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You should carefully consider the risks and uncertainties described below before, together with all of the other information in this prospectus, including the consolidated financial statements and the related notes thereto, before making an investment decision. If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment.
Risks Relating to the Domestication
If the Canadian federal tax authorities do not accept our conclusions and assumptions relating to the tax treatment of the continuance, we may owe significant income taxes, which could adversely affect our business.
For Canadian tax purposes, on the date of the continuance (otherwise known as the domestication in the U.S.), we will be treated as though we sold all of our property and received the fair market value for those properties. We will be taxed on any income or gain realized on that sale. We will have a deemed year-end for Canadian tax purposes. We could be subject to an additional tax if the fair market value of our assets, net of liabilities, exceeds the paid-up capital of our issued and outstanding shares. We reviewed our assets, liabilities and paid-up capital and we believe that we will not owe any Canadian federal income taxes as a result of the continuance. It is possible that the facts on which we based our assumptions and conclusions could change before the continuance is completed. We have not applied to the federal tax authorities for a ruling on this matter and do not intend to do so. We have also made certain assumptions regarding the tax treatment of this transaction in order to reach our conclusions and it may be possible for some of these assumptions to be interpreted in a different manner which would be less favorable to us. You should understand that it is possible that the federal tax authorities will not accept our valuations or positions and claim that we owe taxes as a result of this transaction.
If the IRS does not agree with our position with respect to the tax treatment of the domestication, we or our U.S. shareholders may owe significant income taxes.
We believe that the domestication (otherwise known as the continuance in Canada) will qualify as a tax-free reorganization for United States federal income tax purposes for us and our U.S. holders. Any U.S. holder who owns 10% or more of the combined voting power of all classes of our stock at the time of the domestication will have to recognize income, categorized as dividend income for U.S. federal income tax purposes, equal to the U.S. holder's allocable share of "all earnings and profits amount." Any U.S. holder that owns less than 10% of the combined voting power of all classes of our stock and whose shares have a fair market value of $50,000 or more will, assuming the deemed dividend election is made by such U.S. holder, have income in an amount equal to the lesser of the gain, if any, on the domestication or his allocable share of the "all earnings and profits amount." U.S. holders who own less than 10% of the combined voting power of all classes of our stock and whose shares have a fair market value below $50,000 are not subject to tax on the domestication. The Company believes that it does not have an "all earnings and profits amount", and as a result, no U.S. holder should be subject to taxation; provided that U.S. holders who own less than 10% of the combined voting power of all classes of our stock and whose shares have a fair market value of $50,000 or more file the deemed dividend election. However, no assurance can be given that the IRS will agree with the Company's position and that such position, if asserted, may be upheld.
We have not asked, nor do we intend to ask, for a ruling from the Internal Revenue Service that the U.S. Federal income tax consequences will be as described herein. There is always the risk that the IRS may take a contrary position and that such position, if asserted, may be upheld.
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The rights of our shareholders under Canadian law will differ from their rights under Delaware law, which could provide less protection to our shareholders following the domestication.
Upon consummation of the domestication, our shareholders will become stockholders of a Delaware corporation. There are material differences between the Canada Business Corporations Act and the Delaware General Corporation Law and our current and proposed charter and by-laws. For example, under Canadian law, many significant corporate actions such as amending a corporation's articles of incorporation or consummating a merger require the approval of at least two-thirds of the votes cast by shareholders, whereas under Delaware law, all that is required is a simple majority of the total voting power of all of the outstanding shares. Furthermore, shareholders under Canadian law are entitled to appraisal rights under a number of extraordinary corporate actions, including an amalgamation with another unrelated corporation, certain amendments to a corporation's articles of incorporation or the sale of all or substantially all of a corporation's assets, whereas under Delaware law, stockholders are only entitled to appraisal rights for certain mergers or consolidations and not for any other extraordinary corporate events. Some of these differences could provide less protection to our shareholders and give more discretion to our directors and officers.
The proposed domestication will result in additional direct and indirect costs whether or not completed.
The domestication will result in additional direct costs. In connection with the domestication, we intend to become a U.S. reporting issuer while still being a Canadian reporting issuer and, as a result, will incur additional costs and expenses of having to comply with U.S. securities laws and Canadian law. In addition, we will incur attorneys' fees, accountants' fees, filing fees, mailing expenses and financial printing expenses in connection with the domestication. The domestication may also result in certain indirect costs by diverting attention of our management and employees from our business with resulting increased administrative costs and expenses.
Risks Relating to our Business
We have a history of net losses, we anticipate additional losses and may never become profitable.
We have incurred net losses in each fiscal year since our inception. For our fiscal year ended March 31, 2006, we incurred a net loss of approximately $6.6 million and for the six months ended September 30, 2006, we incurred a net loss of $2.5 million. In addition, as of September 30, 2006, our accumulated deficit was approximately $84.5 million. Our losses have resulted primarily from expenses incurred in research and development of our technology and products and from expenses incurred selling and marketing our products. We expect to continue to incur additional operating losses in the future as we continue our research and development efforts and expand our sales and marketing activities. We cannot assure you that our revenue will increase or that we will be profitable in any future period.
Our financial statements have historically been prepared on a going concern basis and we cannot assure you that we will be able to continue as a going concern.
Historically, our financial statements have been prepared on a going concern basis. We have accumulated significant losses as we have been developing our current and next generation rugged computer products. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to obtain additional financing as may be required and ultimately to achieve and maintain profitable operations. However, we cannot predict at this time when we will achieve any of these conditions. We have had recurring losses and expect to report an operating loss for fiscal year ended March 31, 2007. Our financial statements have been prepared based on the assumption that we would continue as a going concern and do not reflect
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adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications that would be necessary if the going concern assumption were not appropriate.
We will need to raise additional capital in the future and if we are unable to raise capital when necessary our operations will be harmed.
We will need additional funding to support our ongoing losses. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Because of our capital requirements, we may seek to access the public or private markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. It is uncertain whether additional funding will be available when we need it and whether it will be available on terms that will be acceptable to us or at all. If we raise funds by selling additional shares of common stock or other securities exercisable for or convertible into common stock, the ownership interest of our shareholders will be diluted. If we are not able to obtain financing when needed we would likely be unable to carry out our business plan, and would have to significantly limit our operations and our business, financial condition or results of operations would be materially harmed.
We may not be able to develop a rugged notebook or develop a rugged notebook that is accepted by the market, in which case our planned operations would be materially affected.
We do not currently have a product in the rugged notebook market, however, we plan to develop one. We cannot assure you that we will be able to develop a rugged notebook or that any rugged notebook we develop will be able to compete or have any success in the marketplace. If we are unable to develop a rugged notebook or if we do develop a rugged notebook but it is not accepted by the market, our planned operations would be materially harmed.
Since our revenues are highly dependent on one product family, any significant reduction of sales of this product family would have a material adverse effect on our company.
Because our revenues are derived substantially from sales of our iX104 family of systems, we are highly dependent upon market acceptance of the iX104 product family. We cannot assure you that the iX104 product family will achieve significant acceptance in the marketplace. Any significant reduction of sales of the iX104 product family would have a material adverse effect on our company.
A significant portion of our revenue is dependent on a few customers and if we are unable to continue to secure and maintain a sufficient number of large contracts, our business, operating results and financial condition will be materially adversely affected.
While we have a number of customers, in any given year a single customer can account for a significant portion of our revenue. In fiscal year 2006, one customer accounted for over 10% of our total revenue and in fiscal year 2004, three customers accounted for over 50% of our total revenue. We believe that revenue derived from current and future large customers will continue to represent a significant portion of our total revenue. If we are unable to continue to secure and maintain a sufficient number of large contracts, our business, operating results and financial condition will be materially adversely affected.
We experience lengthy sales cycles for our products and the delay of an expected large order could have a material adverse effect on our operating results.
The purchase of an iX104 system is often an enterprise-wide decision for prospective customers, which requires us to engage in sales efforts over an extended period of time and to provide a significant level of education to prospective customers regarding the uses and benefits of such systems. As a result, our products generally have a lengthy sales cycle ranging from several months to several
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years. Consequently, if sales from a specific customer forecasted are not realized, we may not be able to generate revenue from alternative sources in time to compensate for the shortfall. The loss or delay of an expected large order could have a material adverse effect on our operating results. Moreover, to the extent that significant contracts are entered into and required to be performed earlier than expected, operating results for subsequent periods may be adversely affected.
We are dependent on Wistron Corporation and other third parties to manufacture our products and our reliance subjects us to a number of significant risks, any of which could have a material adverse effect on our business should they occur.
We rely primarily on Wistron Corporation, a Taiwanese company, as well as other third party manufacturers, for the manufacture of our products, and expect to continue to do so for the foreseeable future. Our business is therefore dependent upon Wistron and other third parties for their manufacturing abilities. There can be no assurance that Wistron or any of these manufacturers will continue to work with us, that they will be able to meet our manufacturing needs in a satisfactory and timely manner, that Wistron or any of these manufacturers have the required capacity to satisfy our manufacturing needs or that we can obtain additional or alternative manufacturers when and if needed. Our reliance on Wistron and other third party manufacturers involves a number of additional risks, including:
The availability to us of Wistron and the other third party manufacturers, and the amount and timing of resources to be devoted to these activities is not within our control, and we cannot assure you that we will not encounter manufacturing problems that would materially harm our business. The loss of Wistron or any other third party manufacturer, a significant price increase, an interruption of supply or the inability to obtain additional or alternative manufacturers when and if needed could have a material adverse effect on our business, financial condition or results of operations.
We face substantial competition from many companies and if we are not able to effectively compete against these companies, our business would likely suffer.
We operate in a highly competitive industry. Many of our competitors have much greater financial, technical, research and development resources and production and marketing capabilities than we do. The principal competitive factors in our industry include:
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If any of our competitors were to develop products that are superior to our products or planned products or achieve greater market acceptance due to pricing, sales channels or other factors, we would experience significantly more competitive pressure. Intense competition, rapid technological change and evolving industry standards could decrease demand for our products or make our products obsolete. We cannot predict whether we can successfully compete with these pressures and, if we are unable to do so, our business, financial condition or results of operations would likely suffer.
If we are unable to continue to develop advanced technology, advanced versions of our existing products and new products in a timely and cost-effective manner, our ability to generate revenue and become profitable will be impaired.
To remain competitive, we must continue to enhance and improve our current line of products and develop new products. The technology industry in general, and the market for rugged mobile computing systems in particular, is characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and emergence of new industry standards and practices that could render our existing products and systems obsolete. Our products embody complex technology and may not always be compatible with current and evolving technical standards and products developed by others. Our future success will depend in large part upon our ability to:
Failure or delays by us to meet or comply with the requisite and evolving industry or user standards could have a material adverse effect on our business. Our business may be adversely affected if we incur delays in developing new products or enhancements or if such products or enhancements do not gain market acceptance. In addition, there can be no assurance that products or technologies developed by others will not render our products or technologies non-competitive or obsolete. If we are unable to successfully develop new technology, products or advanced versions of existing products in the future or if those technologies or products are not accepted in the market, our ability to generate significant revenues will be significantly impaired, we could experience additional significant losses and our business, financial condition and results of operations will be materially harmed.
We are dependent on the efforts of our strategic partners and, as a result, the loss of any strategic partner or the inability to attract new strategic partners could have a material adverse effect on our business, financial condition or results of operations.
Our distribution strategy is to provide direct support, as well as indirect channels of distribution comprised of specialized resellers, project alliance partners and industry participants. Accordingly, our success depends, in part, on these current and additional strategic relationships and on the performance and success of our strategic partners. The loss by us of any strategic partner, or the inability to attract
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new strategic partners as a result of competitive products offered by our competitors, could have a material adverse effect on our business, financial condition or results of operations.
We may be unable to successfully expand our sales and support infrastructure which may have a materially harmful effect on our business.
Our future revenue growth will depend on our ability to successfully expand our direct sales force and our customer support capabilities. We may not be able to successfully manage the expansion of these functions or recruit and train additional direct sales and customer support personnel. There is presently a market shortage of qualified personnel to fill these positions. If we are unable to hire and retain additional highly skilled direct sales personnel, we may not be able to increase our revenues to the extent necessary to achieve profitability or meet customer demands. Even if we are successful in expanding our sales direct force and customer support capability, the expansion may not result in revenue growth. If we are unable to successfully expand our sales and support infrastructure our business will likely be materially harmed.
If we are unable to successfully protect our intellectual property, our competitive position will be harmed which would have a materially adverse effect on our company.
Our ability to compete is heavily affected by our ability to protect our intellectual property. We rely on a combination of patents, copyright and trademark laws, trade secret, confidentiality procedures and contractual provisions to protect our proprietary rights. The steps we take to protect our technology may be inadequate. Existing trade secret, trademark and copyright laws offer only limited protection. Unauthorized parties may attempt to copy aspects of our products or obtain and use information which we regard as proprietary. Policing unauthorized use of our products is difficult, time consuming and costly. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, the effect of either of which could be materially adverse to our business, financial condition or results of operations.
Others could claim that we infringe on their intellectual property rights, which may result in costly and time consuming litigation and could ultimately have a material adverse effect on our company.
We are not aware that our products infringe on the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim such infringement by us or our licensees with respect to current or future products. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into a royalty or licensing agreement, any of which could be harmful to our business. If we are unable to obtain a required license, our ability to sell or use certain products may be impaired. In addition, if we fail to obtain a license, or if the terms of the license are burdensome to us, our business, financial condition and results of operations could be materially harmed.
Our operations may be adversely affected by factors associated with doing business outside of the United States.
A substantial portion of our total revenues is comprised of sales made outside of the United States. Our operations may be materially and adversely affected by many factors related to doing business outside of the United States, including:
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The occurrence of any one these risks could be materially harmful our business, financial condition or results of operations.
We may be subject to product returns resulting from defects in our products, which could have a materially harmful effect on our business, financial condition or results of operations.
There can be no assurance that defects and errors will not be found in our products when integrated with other products or systems. If our products contain undetected defects, errors or failures, we could face:
Any such defects and errors could result in adverse customer reactions and negative publicity regarding our company and our products, leading to the loss of or delay in market acceptance our products, either of which would reduce our sales and have a material adverse effect on our business, financial condition and results of operations.
We may be unable to recoup our investments in research and development of new products which could adversely affect the amount of funds we have available for future research and development products and could have a material adverse effect on our business.
The technical innovations required for us to remain competitive in the industry are complex, require long development cycles and entail a significant amount of research and development expenditures. We have invested and will continue to invest in research and development to develop new products and to enhance our existing technologies and products. We have incurred and expect to incur most of our research and development expenses before the technical feasibility or commercial viability of our enhanced or new products can be ascertained. Revenues from our future or enhanced products may be insufficient to recover our associated research and development costs. Our inability to recover these research and development costs could have an adverse effect on the amount of funds available for future research and development products, which could have a material adverse effect on our business, financial condition or results of operations.
The loss of key personnel could adversely affect our ability to remain competitive which could have a material adverse effect on our business, financial condition or results of operations.
Our operations are dependent on the abilities, experience and efforts of a number of key personnel, including senior management and product development personnel. Should any of these persons be unable or unwilling to continue in our employ, our business, financial condition or results of operations could be materially adversely affected. In addition, our success is highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical and sales and marketing personnel. Competition for such personnel is intense and there is no assurance that we will be able to attract and retain such qualified technical and managerial personnel in the future. The inability to attract or retain qualified personnel in the future or delays in hiring skilled personnel could have a material adverse effect on our business.
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Risks Relating to Ownership of our Common Stock
Some of our shareholders own a large percentage of our voting securities and have effective control over matters requiring shareholder approval.
One of our shareholders, Phoenix Venture Fund LLC, is co-managed by Philip S. Sassower, our Chairman and Chief Executive Officer, and Andrea Goren, one of our directors, and beneficially owns, in the aggregate, approximately 23.1% of our outstanding voting securities. In addition, Mr. Sassower, together with entities controlled by him, beneficially own approximately 11.9%, in the aggregate, of our outstanding voting securities. Thus, Phoenix Venture Fund and Mr. Sassower together control approximately 35.0% of our outstanding voting securities. Accordingly, Phoenix Venture Fund and Mr. Sassower have the ability to exercise significant influence (and have effective control) over matters generally requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over us.
Some of the rights granted to the holders of our Series A Preferred Shares could prevent a potential acquirer from buying our company.
Holders of our Series A Preferred Shares, which include Phoenix Venture Fund and Mr. Sassower, have the right to block the company from consummating a merger, consolidation, sale of substantially all of its assets or liquidation. Phoenix Venture Fund and Mr. Sassower together control more than 70.4% of the outstanding Series A Preferred Shares. Accordingly, the holders of our Series A Preferred Shares could prevent the consummation of a transaction in which our shareholders could receive a substantial premium over the current market price for their shares.
The anti-takeover effect of certain of our charter provisions could adversely affect holders of our common stock.
Our authorized capital consists of preferred stock issuable in one or more series. Our board of directors has the authority to issue preferred shares and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by shareholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of our outstanding voting shares, which could deprive our holders of common stock of a premium that they might otherwise realize in connection with a proposed acquisition of our company.
Many factors can adversely affect the price of our common stock.
The trading price of our common shares has been highly volatile and may continue to fluctuate substantially. The price of our common stock after the domestication may be higher or lower than the price prior to the domestication, depending on many factors, some of which are beyond our control. We believe that a variety of factors have caused and could in the future cause the stock price of our common stock to fluctuate significantly, including:
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In addition, in recent years the stock market in general and the market for shares of small capitalization technology companies in particular, has experienced substantial price and volume fluctuations, which have often been unrelated or disproportionate to the operating performance of affected companies. Any fluctuations in the future could adversely affect the market price of our common stock and the market price of our common stock may decline.
Dividends are not expected to be paid on our common stock.
We have never paid cash dividends on our common shares. Our current policy is to retain any future earnings to finance the future development and expansion of our business. After the domestication is implemented, we anticipate that our dividend policy will not change. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, capital requirements, operating and financial conditions and on such other factors the board of directors deems relevant. Under the terms of our articles of incorporation, we are prohibited from paying dividends on our common shares unless and until all accrued and unpaid dividends are paid on our Series A and Series B Preferred Shares. Furthermore, under the terms of our loan agreement with a commercial bank, we are prohibited from paying cash dividends.
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In this prospectus, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in United States ("U.S.") dollars. The average exchange rate for each of the years ended March 31, 2006, March 31, 2005 and March 31, 2004 and the exchange rate at the end of each such period for the conversion of U.S. dollars into the Canadian dollars ("Cdn.") based on the Bank of Canada's closing rate of exchange for U.S. dollars were as follows:
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Year Ended
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March 31, 2006
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March 31, 2005
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March 31, 2004
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End of Period | Cdn. $1.1680 | Cdn. $1.2096 | Cdn. $1.3113 | |||
Period Average | Cdn. $1.1933 | Cdn. $1.2786 | Cdn. $1.3530 |
Some of the statements contained in this prospectus are forward-looking statements. We generally identify forward-looking statements with the words "plan," "expect," "anticipate," "estimate," "may," "will," "should" and similar expressions. We based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Many factors could cause our actual results, performance or achievements to be materially different from any results, performance or achievements that may be expressed or implied by such forward-looking statements including, those which are discussed under the heading "Risk Factors." Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. We do not intend, and do not assume, any obligation to update these forward-looking statements.
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We are furnishing this prospectus to the shareholders of Xplore Technologies as part of the solicitation of proxies by management for use at the special meeting.
Date, Time and Place
We will hold our meeting of shareholders on , 2007, at , at the Harvard Club, 27 West 44 th Street, New York, New York 10036.
This prospectus and the enclosed proxy card are first being mailed to our shareholders on or about , 2007.
The Proposal
You are being asked to consider and vote upon a proposed application under Section 188 of the Canada Business Corporations Act to change of our jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware, United States of America, by implementing a transaction known as a continuance in Canada and a domestication in Delaware under Section 388 of the DGCL and adopting a certificate of incorporation authorized in the special resolution to be effective as of the date of domestication.
Our board of directors does not know of any other matters that are to be presented for consideration at the meeting. Should any other matters properly come before the meeting, it is the intention of the persons named in the accompanying proxy to vote such proxy on behalf of the shareholders they represent in accordance with their best judgment.
Record Date
Our board of directors has fixed , 2007 as the record date for the purpose of determining shareholders entitled to receive notice of and to vote at the meeting. Each shareholder is entitled to one vote for each share of our common and/or preferred shares held and shown as registered in such holder's name on the list of shareholders prepared as of the close of business on the record date. The list of shareholders will be available for inspection during usual business hours at the principal office of our transfer agent, Equity Transfer Services Inc., 200 University Avenue, Suite 400, Toronto, Ontario M5H 4H1, and will be available for inspection at the meeting.
Quorum and Required Vote
As of , 2007, 60,890,900 common shares, 63,472,895 Series A Preferred Shares and 9,988,513 Series B Preferred Shares were issued and outstanding and entitled to be voted at the meeting. Each common and each preferred share has the right to one vote on each matter that properly comes before the meeting. The presence, in person or by proxy, of one shareholder entitled to vote thereat is necessary to constitute a quorum at the meeting. We will hold the meeting on the scheduled date as long as this quorum requirement is met. We will count your shares toward this quorum requirement as long as we receive your signed proxy card, even if you vote to abstain on the proposal or fail to vote.
To approve the continuance, the special resolution authorizing the transaction must be approved by at least two-thirds of the votes cast by the holders of our common shares, Series A Preferred Shares and Series B Preferred Shares, voting together at the meeting as a single class, whether in person or by proxy. A copy of the special resolution is attached to this prospectus as Exhibit A. If the continuance is approved, our board of directors may, in its discretion, postpone or abandon the continuance. The board of directors has not considered any alternative action if the domestication is not approved or if the exercise of dissenters' rights or other factors require its abandonment.
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Voting by Directors and Executive Officers
At the close of business on the record date, our company's directors, executive officers and their affiliates owned and were entitled to vote an aggregate of 47,396,918 common shares and/or Series A Preferred Shares, which represented approximately 35.3% of the voting rights attached to all of our shares of capital stock outstanding. Each of our directors, executive officers and their affiliates have indicated their present intention to vote, or cause to be voted, their shares in favor of the proposal.
Appointment of Proxies
Shareholders who are unable to attend the meeting and vote in person may still vote by appointing a proxyholder.
The persons specified in the enclosed form of proxy are directors and/or officers of Xplore Technologies. A shareholder has the right to appoint a person, who need not be a shareholder, to represent such shareholder at the meeting (or any adjournment thereof) other than the persons specified in the enclosed form of proxy. Such right may be exercised by inserting such person's name in the blank space provided in the form of proxy or by completing another proper form of proxy. For shareholders who wish to appoint a proxyholder, the completed form of proxy must be mailed in the enclosed envelope and received by Equity Transfer Services Inc. at the address on the proxy envelope no later than the close of business on the second business day prior to the date of the meeting (or any adjournment thereof) or deposited with the chairman of the meeting before commencement thereof.
Enquiries regarding proxy forms can be made to our transfer agent, Equity Transfer Services Inc., 200 University Avenue, Suite 400, Toronto, Ontario M5H 4H1, or by telephone at (416) 361-0930.
Only registered holders of our common or preferred shares or the persons they appoint as their proxies are permitted to vote at the meeting. However, in many cases, shares beneficially owned by a person (which we refer to as a non-registered holder) are registered either (i) in the name of an intermediary (including banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered registered retirement savings plans, registered retirement income funds, registered educational savings plans and similar plans) that the non-registered holder deals with in respect of the shares, or (ii) in the name of a clearing agency (such as The Canadian Depository for Securities Limited) of which the intermediary is a participant. We have distributed copies of the Notice of Meeting, this prospectus and the enclosed form of proxy (which we refer to as the meeting materials) to the clearing agencies and intermediaries for onward distribution to non-registered holders of our common and/or preferred shares.
Intermediaries are required to forward the meeting materials to non-registered holders unless a non-registered holder has waived his right to receive them. Intermediaries often use service companies to forward the meeting materials to non-registered holders. A non-registered holder who has not waived the right to receive meeting materials will receive from the intermediary a voting instruction form which must be completed and signed by the non-registered holder and returned in accordance with the directions of the intermediary.
Should a non-registered holder wish to attend and vote at the meeting in person, the non-registered holder should write his, her or its name in the space provided for that purpose on the voting instruction form and return it in accordance with the directions of the intermediary. The intermediary will send the non-registered holder a form of proxy which has already been signed by the intermediary (typically by a facsimile stamped signature), which is restricted as to the number of shares beneficially owned by the non-registered holder and which names the non-registered holder as proxyholder. This form of proxy need not be signed by the non-registered holder. In this case, the non-registered holder should deposit this form of proxy with the transfer agent, Equity Transfer Services Inc., in accordance with the instructions set out above.
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Non-registered holders should carefully follow the instructions of the intermediary, including those regarding when and where the voting instruction form or form of proxy is to be delivered.
Revocation of Proxies
A registered holder of common or preferred shares who has given a proxy may revoke the proxy:
A non-registered holder who wishes to revoke a voting instruction form or a waiver of the right to receive meeting materials should contact the intermediary for instructions.
Voting of Proxies
The persons designated in the enclosed form of proxy will vote the shares in respect of which they are appointed proxy in accordance with the instructions of the shareholder as indicated on the proxy and, if the shareholder specifies a choice with respect to any matter to be acted upon, the shares will be voted accordingly. In absence of any such instructions, shares represented by such proxies will be voted at the meeting FOR the resolution described herein.
The enclosed form of proxy, when properly signed, confers discretionary authority upon the representatives designated therein with respect to amendments to or variations of matters identified in the Notice of Meeting and with respect to other matters which may properly come before the meeting. At the date of this prospectus, management does not know of any such amendments, variations or other matters. However, if any such amendments, variations or other matters which are not now known to management should properly come before the meeting, the shares represented by the proxies solicited hereby will be voted thereon in accordance with the best judgment of the person or persons voting such proxies.
Voting Shares and Principal Holders
All of the outstanding common and preferred shares are entitled to be voted at the meeting. As at the close of business on , 2007, 60,890,900 common shares, 63,472,895 Series A Preferred Shares and 9,988,513 Series B Preferred Shares were outstanding. Each shareholder is entitled to one vote for each common and/or preferred share shown as registered in the shareholder's name on the list of shareholders prepared as of the close of business on , 2007.
To our knowledge as at the close of business on , 2007, no person beneficially owned or exercised control or direction over shares carrying more than 10% of the voting rights attached to any class of shares entitled to be voted at the meeting except for the following:
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Cost of Proxy Solicitation
We will bear the cost of solicitation of proxies from our shareholders. In addition to solicitation by mail, the directors and officers of our company may solicit proxies personally or by telephone or other electronic means. These persons will receive no additional compensation for such services but will be reimbursed for reasonable out-of-pocket expenses. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of stock held of record by these persons, and we will reimburse them for their reasonable out-of-pocket expenses.
Annual Meeting of Shareholders
The purpose of this meeting is for our shareholders to consider and, if deemed advisable, approve a special resolution authorizing a change of our Company's jurisdiction from the federal jurisdiction of Canada to the State of Delaware. We are also holding our annual meeting of shareholders on December 6, 2006. At that meeting, our shareholders will:
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General
Our board of directors is proposing to change our jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware through a transaction called a "continuance" under Section 188 of the Canada Business Corporations Act, also referred to as a "domestication" under Section 388 of the Delaware General Corporation Law (which we sometimes refer to as the DGCL). The continued, or domesticated, corporation will become subject to the DGCL on the date of its domestication, but will be deemed to have commenced its existence in Delaware on the date it originally commenced existence in Canada. Under the DGCL, a corporation becomes domesticated in Delaware by filing a certificate of domestication and a certificate of incorporation for the corporation being domesticated. Our board of directors has unanimously approved our domestication, believes it to be in our best interests and in the best interests of our shareholders, and unanimously recommends approval of our domestication to our shareholders.
The domestication will be effective upon the filing of the applicable certificates of domestication and incorporation with the office of the Secretary of State of the State of Delaware. Thereafter, Xplore Technologies will be subject to the certificate of incorporation filed in Delaware. We will be discontinued in Canada as of the date shown on the certificate of discontinuance issued by the Director of the Canada Business Corporations Act. Upon domestication, our board of directors intends to adopt by-laws, a copy of which is attached to this prospectus as Exhibit D. A copy of Section 190 the Canada Business Corporations Act addressing dissenters' rights in connection with the continuance is attached to this prospectus as Exhibit E.
The domestication will not interrupt the corporate existence or operations of Xplore Technologies or the trading market of our common stock. Each outstanding common and preferred share at the time of the domestication will remain issued and outstanding as a share of common or preferred stock of Xplore Technologies after its corporate existence is continued from Canada under the Canada Business Corporations Act and domesticated in Delaware under Delaware law. For the foreseeable future, our common stock will continue to be listed on the Toronto Stock Exchange under the trading symbol "XPL." In the future, we intend to seek approval to list our common stock on a national stock exchange or stock market in the United States; however, we cannot assure you that we will be able to obtain such listing.
Principal Reasons for the Domestication
In 2003, our board of directors determined that maintaining our existing corporate headquarters in Canada was no longer consistent with the strategic direction and growth of our business, which is increasingly U.S. driven. Consistent with that determination, our headquarters was transferred from Canada to our facility in Austin, Texas in August 2004. The redomiciling of Xplore Technologies as a Delaware corporation is part of our overall plan to relocate substantially all of our business enterprise to the United States, to have our jurisdiction of incorporation be in the United States and to have our stock trade on an exchange in the United States.
Our board of directors believes that, by domiciling Xplore Technologies in the United States, we may be able to enhance shareholder value over the long term with greater acceptance in the capital markets and improved marketability of our common stock. Our board of directors considered the fact that, in management's experience, potential investors, lenders and strategic partners in the United States are more familiar with U.S. accounting, tax and disclosure standards than those in Canada and may be more comfortable dealing with U.S. corporations than Canadian corporations. Our board also considered that, by becoming subject solely to U.S. tax laws and accounting standards, we will eliminate many of the income tax and financial accounting complexities associated with incorporation outside the United States. In addition, our board believes that being domiciled in the United States should provide
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the flexibility to enter into some types of mergers, acquisitions and business combination transactions with other U.S. corporations that could have adverse tax consequences if we remained a Canadian corporation. In addition, our board of directors believes that our domestication will provide greater opportunity in proposing and winning business in the United States.
Our board of directors chose the State of Delaware to be our domicile because it believes the more favorable corporate environment afforded by Delaware will help us compete more effectively with other public companies, many of which are incorporated in Delaware, in raising capital and in attracting and retaining skilled, experienced personnel. For many years, Delaware has followed a policy of encouraging public companies to incorporate in the state by adopting comprehensive corporate laws that are revised regularly in response to developments in modern corporate law and changes in business circumstances. The Delaware courts are known for their considerable expertise in dealing with complex corporate issues and providing predictability through a substantial body of case law construing Delaware's corporate law. Coupled with an active bar known for continually assessing and recommending improvements to the DGCL, these factors add greater certainty in complying with fiduciary responsibilities and assessing risks associated with conducting business.
The interests of our board of directors, management and principal shareholders in voting for the domestication may not be the same as the interests of our other shareholders. Delaware corporate law does not afford shareholders some of the rights and protections available under Canadian corporate law. For example, under Canadian corporate law, extraordinary corporate actions such as amending a corporation's articles of incorporation or consummating a merger require the approval of at least two-thirds of the votes cast by shareholders, whereas under Delaware corporate law, all that is required is a simple majority of the total voting power of all of the outstanding shares. Another example is that shareholders under Canadian corporate law are entitled to appraisal rights under a number of many significant corporate actions, including an amalgamation with another unrelated corporation, certain amendments to a corporation's articles of incorporation or the sale of all or substantially all of a corporation's assets, whereas under Delaware corporate law, stockholders are only entitled to appraisal rights for certain mergers or consolidations and not for any other extraordinary corporate events. A more detailed overview of some of the principal differences between Canadian corporate law and Delaware corporate law as they affect shareholders is set forth below.
Our board of directors has considered the potential disadvantages of the domestication to our shareholders and believes that the potential benefits of the change in domicile and related adoption of our proposed Delaware certificate of incorporation and by-laws outweigh the possible disadvantages. In particular, our board believes the prospects for greater acceptance in the capital markets and enhanced marketability for our common stock plus the benefits associated with attracting and retaining skilled and experienced personnel, as well as the greater sophistication, breadth and certainty of Delaware law, make the proposed domestication beneficial to Xplore Technologies, its management and its shareholders.
Effects of the Continuance
Applicable Law. As of the effective date of the continuance, our legal jurisdiction of incorporation will be Delaware, and the continuing corporation, will no longer be subject to the provisions of the Canada Business Corporations Act. All matters of corporate law will be determined under the Delaware General Corporation Law. We will retain our original incorporation date in Canada as our date of incorporation for purposes of the Delaware General Corporation Law.
Assets, Liabilities, Obligations, Etc. Under Delaware law, as of the effective date of the continuance, all of our assets, property, rights, liabilities and obligations immediately prior to the continuance will continue to be our assets, property, rights, liabilities and obligations. Canadian
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corporate law ceases to apply to us on the date shown on the certificate of discontinuance to be issued by the Director of the Canada Business Corporations Act.
Capital Stock. Once the domestication is completed, holders of our common and/or preferred shares will continue to own one share of our common stock for each common share held and one share of our preferred stock for each preferred share held before the continuance. The existing certificates representing Xplore Canada's shares of capital stock will not be canceled. Holders of options or warrants to purchase Xplore Canada's common shares on the effective date of the continuance will continue to hold options or warrants to purchase the same number of shares of Xplore Delaware's common stock at the same exercise price.
Business and Operations. The continuance, if approved, will effect a change in the legal jurisdiction of incorporation as of the effective date thereof, but our business and operations will remain the same.
Officers and Directors
Our board of directors currently consists of four members, Philip Sassower (Chairman), Brian E. Usher-Jones, Andrea Goren and Thomas F. Leonardis. Upon the domestication, our board of directors will consist of the same four individuals. Immediately following the domestication, our executive officers will also be unchanged. They are Philip Sassower, Chief Executive Officer, Mark Holleran, President and Chief Operating Officer, and Michael J. Rapisand, Chief Financial Officer and Corporate Secretary.
Treatment of the Outstanding Capital Stock, Options and Warrants
The existing share certificates representing of our common and preferred shares will continue to represent the same number of shares of our common or preferred stock, as applicable, after the domestication without any action on your part. You will not have to exchange any share certificates. We will issue new certificates to you representing shares of capital stock of Xplore Technologies as a Delaware corporation upon your transfer or at your request. Holders of our outstanding options and warrants will continue to hold the same securities, which will remain exercisable for an equivalent number of shares of common stock of Xplore Technologies as a Delaware corporation for the equivalent exercise price per share, without any action by the holder.
Shareholder Approval
The continuance is subject to various conditions, including approval by our shareholders of the special resolution authorizing the transaction. A copy of the special resolution is attached to this prospectus as Exhibit A. Under Canadian law, this requires affirmative votes from at least two-thirds of the votes cast by the holders of our common shares, Series A Preferred Shares and Series B Preferred Shares, voting together at the meeting as a single class, whether in person or by proxy. Assuming we receive the requisite shareholder approval for the continuance, our board of directors will retain the right to terminate or abandon the continuance if it determines that consummating the continuance would be inadvisable or not in the best interests of Xplore Technologies or its shareholders, or if all of the respective conditions to consummation of the continuance have not occurred within a reasonable period of time.
Regulatory and Other Approvals
The continuance is subject to the authorization of the Director of the Canada Business Corporations Act. The Director is empowered to authorize the continuance if, among other things, he is satisfied that the continuance will not adversely affect our creditors or shareholders.
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Canadian law also requires that an application for authorization of a Canadian corporation to continue in another jurisdiction must be accompanied by:
Subject to the Director's authorization of the continuance, and the approval of our board of directors and shareholders, we anticipate that we will file with the Secretary of State of Delaware a certificate of domestication and a certificate of incorporation under Section 388 of the DGCL, and that we will be domesticated in Delaware on the date that all of the conditions to the domestication have been satisfied. Promptly thereafter, we intend to give notice to the Director that we have been continued under the laws of the State of Delaware and request that the Director issue us a certificate of discontinuance bearing the same date as the date of acceptance of our certificate of domestication and certificate of incorporation by the Secretary of State of Delaware.
Comparison of Shareholder Rights
The principal attributes of our capital stock before and after continuance and domestication are comparable, but there are some material differences in shareholder rights.
General. On the effective date of the domestication, we will be deemed to have been incorporated under the laws of the State of Delaware from our inception and will be governed by the certificate of incorporation filed with the certificate of domestication adopted in the special resolution of our shareholders authorizing the domestication. Differences between Canadian corporate law and Delaware corporate law and between our current articles of incorporation and by-laws and the proposed certificate of incorporation and by-laws will result in various changes in the rights of our shareholders. The following summary comparison does not purport to be exhaustive and is qualified in its entirety by the provisions of applicable Canadian and Delaware corporate law and by reference to
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our proposed certificate of incorporation and by-laws, as well as our current Canadian articles of incorporation and by-laws. Our proposed certificate of incorporation and by-laws are included in this prospectus as Exhibit C and Exhibit D, respectively.
Capital Structure. Under our proposed Delaware certificate of incorporation, the total number of shares of capital stock that we will have the authority to issue is 300 million shares of common stock, par value $0.001 per share, and 90 million shares of preferred stock, par value $0.001 per share, of which 64 million have been designated Series A Preferred Stock and 10 million have been designated Series B Preferred Stock. Under our current Canadian articles of incorporation, we presently have the authority to issue an unlimited number of common shares, without par value and an unlimited number of preferred shares, issuable in a series, without par value.
Shareholder Approval; Vote on Extraordinary Corporate Transactions. Canadian law generally requires a vote of shareholders on a greater number and diversity of corporate matters than Delaware law. Furthermore, many matters requiring shareholder approval under Canadian law must be approved by a special resolution of not less than a two-thirds majority of the votes cast by shareholders who voted on those matters. In certain cases, a special resolution to approve an extraordinary corporate action is also required to be approved separately by the holders of a class or series of shares, whether or not shares of such class or series otherwise carry the right to vote.
Under Delaware law, and our proposed certificate of incorporation, a sale, lease or exchange of all or substantially all the property or assets of a Delaware corporation or an amendment to its certificate of incorporation requires the approval of the holders of a majority of the outstanding voting power. Mergers or consolidations also generally require the approval of the holders of a majority of the outstanding voting power of the corporation. However, shareholder approval is generally not required by a Delaware corporation:
Amendments to the Governing Documents. Under Canadian law, amendments to the articles of incorporation generally require the approval of not less than two-thirds of the votes cast by shareholders who voted on the resolution. The directors may make, amend or repeal any by-law unless the articles of incorporation or by-laws provide otherwise. When directors make, amend or repeal a by-law, they are required under the Canada Business Corporations Act to submit the change to shareholders at the next meeting of shareholders. Shareholders may confirm, reject or amend the by-law, amendment or repeal by a majority of the votes cast by shareholders who voted on the resolution.
Under Delaware law, an amendment to a corporation's certificate of incorporation requires the approval by the holders of a majority of the outstanding voting power. In addition, under Delaware law, if the amendment to the certificate of incorporation would increase or decrease the aggregate number of authorized shares of a class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely, that class is entitled to vote separately on the amendment whether or not it is
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designated as voting stock. Furthermore, if the proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for purposes of the class vote. Delaware law reserves the power to the shareholders to adopt, amend or repeal the by-laws unless the certificate of incorporation confers such power on the board of directors in addition to the shareholders. Our proposed certificate of incorporation authorizes our board of directors to adopt, amended or repeal our by-laws.
Place of Meetings. Canadian law provides that meetings of shareholders must be held at the place within Canada provided in the by-laws or, in the absence of such provision, at the place within Canada that the directors determine. A meeting of shareholders may be held at a place outside of Canada if the place is specified in the articles of incorporation or all the shareholders entitled to vote at the meeting agree that the meeting is to be held at that place. Xplore Canada's articles provide that meetings of our shareholders may be held at such places in Canada or the United States as our directors may from time to time determine. Delaware law provides that meetings of the shareholders be held at any place in or out of Delaware designated by or in the manner provided in the certificate of incorporation or by-laws. Our proposed by-laws provide that meetings of the shareholders will be held at any place designated by our board of directors.
Quorum of Shareholders. Canadian law provides that, unless the by-laws provide otherwise, a quorum of shareholders is present at a meeting of shareholders (irrespective of the number of persons actually present at the meeting) if holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy. Our current by-laws provide that the presence of one shareholder, in person or by proxy, constitutes a quorum. Under Delaware law, the certificate of incorporation or by-laws may specify the required quorum, but generally a quorum may consist of no less than one-third of the total voting power. Our proposed by-laws provide that the holders of a majority of the voting power, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders.
Call of Meetings. Canadian law provides that holders of not less than five percent of our issued voting shares may requisition the directors requiring them to call and hold a special meeting for the purposes stated in the requisition. Delaware law provides that a special meeting of the shareholders may be called by the board of directors or by any person or persons as may be authorized by the certificate of incorporation or by-laws. Our proposed by-laws provide that a special meeting of shareholders may only be called by our board of directors.
Shareholder Consent in Lieu of Meeting. Under Canadian law, shareholders can take action by written resolution and without a meeting only if all shareholders entitled to vote on that resolution sign the written resolution. Under Delaware law, unless otherwise limited by the certificate of incorporation, shareholders may act by written consent without a meeting if holders of outstanding stock representing not less than the minimum number of votes that would be necessary to take the action at an annual or special meeting execute a written consent providing for the action.
Director Qualification and Number. The Canada Business Corporations Act states that a distributing corporation must have no fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates. Additionally, at least 25% of the directors must be Canadian residents unless the corporation has less than four directors, in which case at least one director must be a Canadian resident. Delaware law has no similar requirements; however, the governance standards of all major U.S. stock exchanges require the majority of a listed company's board of directors to be independent.
Fiduciary Duty of Directors. Directors of a corporation incorporated or organized under the Canada Business Corporations Act or Delaware General Corporation Law have fiduciary obligations to
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the corporation and its shareholders. Under these fiduciary obligations, the directors must act in accordance with the so-called duty of care. The Canada Business Corporations Act requires directors of a Canadian corporation, in exercising their powers and discharging their duties, to act honestly and in good faith with a view to the best interests of the corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Under Delaware common law, directors have a duty of care and a duty of loyalty. The duty of care requires that the directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of loyalty is the duty to act in good faith, not out of self-interest, and in a manner which the directors reasonably believe to be in the best interest of the shareholders.
Personal Liability of Directors. The Canada Business Corporations Act prescribes circumstances where directors can be liable for malfeasance or nonfeasance. Certain actions to enforce a liability imposed by the Canada Business Corporations Act must be brought within two years from the date of the resolution authorizing the act complained of. A director will be deemed to have complied with his fiduciary obligations to the corporation under certain sections of the Canada Business Corporations Act if he relied in good faith on:
The Canada Business Corporations Act also contains other provisions limiting personal liability of a corporation's directors.
Our proposed certificate of incorporation limits the liability of directors to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. However, such limitation of liability cannot be relied upon in respect of certain prescribed conduct, including:
Indemnification of Officers and Directors. Under the Canada Business Corporations Act and pursuant to our current by-laws, we will indemnify present or former directors or officers against all costs, charges and expenses, including an amount paid to settle an action or settle a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with Xplore Canada. In order to qualify for indemnification such director or officers must:
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The Canada Business Corporations Act also provides that such persons are entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred in connection with the defense of any such proceeding if the person was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the person ought to have done and otherwise meets the qualifications for indemnity described above.
Delaware law permits indemnification to its present or former directors or officers, employees and agents made a party, or threatened to be made a party, to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person:
In a derivative action, or an action by or in the right of the corporation, the corporation is permitted to indemnify directors, officers, employees and agents against expenses actually and reasonably incurred by them in connection with the defense or settlement of an action or suit if they acted in good faith and in a manner that they reasonably believed to be in or not opposed to the best interests of the corporation. However, in such a case, no indemnification shall be made if the person is adjudged liable to the corporation, unless and only to the extent that, the court in which the action or suit was brought or the Court of Chancery of the State of Delaware shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability to the corporation.
Our proposed by-laws provide for mandatory indemnification of our directors and officers to the extent permitted under Delaware law. The Delaware General Corporation Law allows the corporation to advance expenses before the resolution of an action, if in the case of current directors and officers, such persons agree to repay any such amount advanced if they are later determined not to be entitled to indemnification. Our proposed by-laws provide for the mandatory advancement of expenses to directors and officers.
Derivative Action. Under the Canada Business Corporations Act, a complainant, who is defined as either a present or former registered holder or beneficial owner of a security of a corporation or any of its affiliates; a present or former director or officer of a corporation or any of its affiliates; the Director; or any other person who, in the discretion of a court, is a proper person to make an application under the part of the Canada Business Corporations Act dealing with shareholder remedies, may apply to the court for the right to bring an action in the name of and on behalf of a corporation or any of its subsidiaries, or to intervene in an existing action to which they are a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the entity. Under the Canada Business Corporations Act, the court must be satisfied that:
Under the Canada Business Corporations Act, the court in a derivative action may make any order it thinks fit including, orders pertaining to the control or conduct of the lawsuit by the complainant or
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the making of payments to former and present shareholders and payment of reasonable legal fees incurred by the complainant.
Similarly, in Delaware, a shareholder may bring a derivative action on behalf of the corporation to enforce a corporate right, including the breach of a director's duty to the corporation. Delaware law requires that the plaintiff in a derivative suit be a shareholder of the corporation at the time of the wrong complained of and remain so through the duration of the suit; that the plaintiff make a demand on the directors of the corporation to assert the corporate claim unless the demand would be futile; and that the plaintiff is an adequate representative of the other shareholders.
Dissenter's Rights. The Canada Business Corporations Act provides that shareholders of a corporation entitled to vote on certain matters are entitled to exercise dissent rights and demand payment for the fair value of their shares. Dissent rights exist when there is a vote upon matters such as:
However, a shareholder is not entitled to dissent if an amendment to the articles of incorporation is effected by a court order approving a reorganization or by a court order made in connection with an action for an oppression remedy.
Under Delaware law, shareholders who have neither voted in favor of or consented to the merger or consolidation have the right to seek appraisal in connection with certain mergers or consolidations by demanding payment in cash for their shares equal to the fair value of such shares. Fair value is determined by a court in an action timely brought by the dissenters. In determining fair value, the court may consider all relevant factors, including the rate of interest which the resulting or surviving corporation would have had to pay to borrow money during the pendency of the court proceeding.
The Delaware General Corporation Law grants appraisal rights only in the case of certain mergers or consolidations and not in the case of other fundamental changes such as the sale of all or substantially all of the assets of the corporation or amendments to the certificate of incorporation, unless so provided in the corporation's certificate of incorporation. Further, no appraisal rights are available for shares of any class or series listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 shareholders. However, appraisal rights are available if the agreement of merger or consolidation does not convert such shares into:
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In addition, dissenters' rights are not available for any shares of the surviving corporation if the merger did not require the vote of the shareholders of the surviving corporation.
Oppression Remedy. Under the Canada Business Corporations Act, a complainant has the right to apply to a court for an order where an act or omission of the corporation or an affiliate effects a result, or the business or affairs of which are or have been conducted in a manner, or the exercise of the directors' powers are or have been exercised in a manner, that would be oppressive or unfairly prejudicial to or would unfairly disregard the interest of any security holder, creditor, director or officer of the corporation. On such application, the court may make any interim or final order it thinks fit, including an order restraining the conduct complained of. There are no equivalent statutory remedies under the Delaware General Corporation Law; however, shareholders may be entitled to remedies for a violation of a director's fiduciary duties under Delaware common law.
Business Combinations. Section 203 of the Delaware Business Corporation Law provides, with some exceptions, that a Delaware corporation may not engage in any business combination with a person, or an affiliate or associate of such person, who is an interested shareholder for three years from the date that person became an interested shareholder unless:
An "interested shareholder" is defined as any person who is:
A "business combination" includes a merger or consolidation, a sale or other disposition of assets having an aggregate market value of 10% or more of the consolidated assets of the corporation or the aggregate market value of the outstanding stock of the corporation and certain transactions that would increase the interested shareholder's proportionate share ownership in the corporation.
A corporation may, at its option, exclude itself from the coverage of Section 203 by an appropriate provision in its certificate of incorporation. Our proposed certificate of incorporation does not contain such an exclusion from Section 203 of the Delaware General Corporation Law. There is no comparable provision relating to business combinations under the Canada Business Corporations Act but restrictions on business combinations do exist under applicable Canadian securities laws.
Anti-Takeover Effects. Some powers granted to companies under Delaware law may allow a Delaware corporation to make itself potentially less vulnerable to hostile takeover attempts. These powers include the ability to:
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Our proposed certificate of incorporation and/or by-laws will provide us with some of these powers including prior notice of director nominations and restrictions on the ability to call a special meeting of stockholders.
Dissent Rights of Shareholders
Section 190 of the Canada Business Corporations Act is reprinted in its entirety as Exhibit E to this prospectus. Shareholders may exercise their dissent rights in connection with the proposal to change our jurisdiction of incorporation from the federal jurisdiction of Canada to Delaware. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS OF SECTION 190 OF THE CANADA BUSINESS CORPORATIONS ACT.
If you wish to dissent and do so in compliance with Section 190 of the Canada Business Corporations Act, you will be entitled to be paid the fair value of the shares you hold if the domestication occurs. Fair value is determined as of the close of business on the day before the continuance is approved by shareholders.
If you wish to dissent, you must send written objection to the continuance to us at or before the meeting. If you vote in favor of the continuance, you in effect lose your rights to dissent. If you abstain or vote against the continuance, you preserve your dissent rights if you comply with Section 190. However, it is not sufficient to vote against the continuance or abstain. You must also provide a separate dissent notice at or before the meeting. If you grant a proxy and intend to dissent, the proxy must instruct the proxy holder to vote against the continuance in order to prevent the proxy holder from voting such shares in favor of the continuance and thereby voiding your right to dissent. Under the Canada Business Corporations Act, you have no right of partial dissent. Accordingly, you may only dissent as to all your shares.
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Under Section 190, you may dissent only for shares that are registered in your name. In many cases, people beneficially own shares that are registered either:
If you want to dissent and your shares are registered in someone else's name, you must contact your intermediary and either:
In other words, if your shares are registered in someone else's name, you will not be able to exercise your dissenters' rights directly unless the shares are re-registered in your name. A dissenting shareholder may only make a claim under Section 190 with respect to all of the shares of a class held on behalf of any one beneficial owner and registered in the name of the dissenting shareholder. We are required to notify each shareholder who has filed a dissent notice when and if the continuance has been approved. This must be sent within 10 days after shareholders approve the continuance. We will not send a notice to any shareholder who voted to approve the continuance or who has withdrawn their dissent notice.
Within 20 days after receiving the above notice from us, or if you do not receive such notice, within 20 days after learning that the continuance has been approved, you must send us a payment demand containing:
Within 30 days after sending a payment demand, you must send to us through our transfer agent, Equity Transfer Services Inc., 200 University Avenue, Suite 400, Toronto, Ontario M5H 4H1, the certificates representing your shares. If you fail to send us a dissent notice, a payment demand or your share certificates within the appropriate time frame, you forfeit your right to dissent and your right to be paid the fair value of your shares. Our transfer agent will endorse on your share certificates a notice that you are a dissenting shareholder and will return the share certificates to you.
Once you send a payment demand to us, you cease to have any rights as a shareholder. Your only remaining right is the right to be paid the fair value of your shares. Your rights as a shareholder will be reinstated if:
Within seven days of the later of the effective date of the continuance or the date we receive your payment demand, we must send you a written offer to pay for your shares. This offer must include a written offer to pay you an amount considered by our board of directors to be the fair value of your
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shares accompanied by a statement showing how that value was determined. The offer must include a statement showing the manner used to calculate the fair value. Every offer to pay any shareholder must be on the same terms. We must pay you for your shares within 10 days after you accept our offer. Any such offer lapses if we do not receive your acceptance within 30 days after the offer to pay has been made to you.
If we fail to make an offer to pay for your shares, or if you fail to accept the offer within the specified period, we may, within 50 days after the effective date of the continuance, apply to a court to fix a fair value for your shares. If we fail to apply to a court, you may apply to a court for the same purpose within a further period of 20 days. You are not required to give security for costs in such a case.
All dissenting shareholders whose shares have not been purchased will be joined as parties and bound by the decision of the court. We are required to notify each affected dissenting shareholder of the date, place and consequences of the application and of their right to appear and be heard in person or by counsel. The court may determine whether any person who is a dissenting shareholder should be joined as a party. The court will then fix a fair value for the shares of all dissenting shareholders who have not accepted a payment offer from us. The final order of a court will be rendered against us for the amount of the fair value of the shares of all dissenting shareholders. The court may, in its discretion, allow a reasonable rate of interest on the amount payable to each dissenting shareholder and appoint an appraiser to assist in the determination of a fair value for the shares.
THIS IS ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS OF THE CANADA BUSINESS CORPORATIONS ACT. THEY ARE TECHNICAL AND COMPLEX. IT IS SUGGESTED THAT IF YOU WANT TO AVAIL YOURSELF OF YOUR RIGHTS THAT YOU SEEK YOUR OWN LEGAL ADVICE. FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF THE CANADA BUSINESS CORPORATIONS ACT MAY PREJUDICE YOUR RIGHT OF DISSENT. SECTION 190 THE CANADA BUSINESS CORPORATIONS ACT IS ATTACHED HERETO AS EXHIBIT E AND IS INCORPORATED HEREIN BY REFERENCE.
ACCOUNTING TREATMENT OF DOMESTICATION
The continuance of Xplore Technologies and its domestication as a Delaware corporation represents a transaction between entities under common control. Assets and liabilities transferred between entities under common control are accounted for at historical cost. Accordingly, the assets and liabilities of Xplore Technologies (Delaware), the continuing entity, will be reflected at their historical cost to Xplore Technologies (Canada).
Any of our shares that we acquire from dissenting shareholders will be treated as an acquisition of treasury stock at the amount paid for the shares.
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UNITED STATES AND CANADIAN INCOME TAX CONSIDERATIONS
The domestication may have income tax consequences in both the United States and Canada. We believe these consequences, if any, will be offset by, among other things, our ability, following the domestication, to enter into some types of mergers, acquisitions and combination transactions with U.S. corporations that could have adverse tax consequences if we remained a Canadian corporation. The material tax consequences of the domestication to us and our current shareholders are summarized below.
United States Tax Consequences
TO ENSURE COMPLIANCE WITH THE REQUIREMENTS IMPOSED BY THE INTERNAL REVENUE SERVICE, WE INFORM YOU THAT ANY TAX STATEMENT HEREIN IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY TAX-RELATED PENALTIES UNDER THE UNITED STATES INTERNAL REVENUE CODE. ANY TAX STATEMENT HEREIN WAS WRITTEN IN CONNECTION WITH THE MARKETING OR PROMOTION OF THE TRANSACTIONS OR MATTERS TO WHICH THE STATEMENT RELATES. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER'S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
The following is a general discussion of expected material United States federal income tax consequences of the domestication to Xplore Technologies, the Canadian corporation, and the U.S. Holders (as defined below) and Non-U.S. Holders (as defined below) of its common and preferred shares, as well as certain of the expected material federal income and estate tax consequences of the ownership and disposition of the common and preferred stock of Xplore Technologies, the Delaware corporation. Some aspects of this summary involve transfers between Xplore Technologies as a Canadian corporation and Xplore Technologies as a Delaware corporation. To avoid confusion where a distinction is necessary, Xplore Technologies as a Canadian corporation is referred to as "Xplore Canada" and Xplore Technologies as a Delaware Corporation is referred to as "Xplore Delaware."
This discussion does not address all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances or to persons that are subject to special tax rules. In particular, this description of United States tax consequences does not address the tax treatment of special classes of holders, such as banks, insurance companies, tax-exempt entities, financial institutions, broker-dealers, persons holding shares of our capital stock as part of a hedging or conversion transaction or as part of a "straddle," United States expatriates, holders who acquired their common stock in Xplore Canada pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan and holders who exercise dissenters rights. We assume in this discussion that you hold our capital stock as a capital asset within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"). This discussion is based on current provisions of the Code, United States Treasury Regulations, judicial opinions, published positions of the United States Internal Revenue Service (the "IRS") and other applicable authorities, all as in effect on the date of this management information circular/prospectus and all of which are subject to differing interpretations or change, possibly with retroactive effect. This discussion does not give a detailed discussion of any state, local or foreign tax considerations. We urge you to consult your tax advisor about the United States federal tax consequences of acquiring, holding, and disposing of the capital stock of Xplore Canada and Xplore Delaware, as well as any tax consequences that may arise under the laws of any foreign, state, local, or other taxing jurisdiction or under any applicable tax treaty.
As used in this summary, the term "U.S. Holder" means a beneficial owner of our capital stock that is for United States federal income tax purposes:
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If a partnership (including for this purpose any other entity, either organized within or without the United States, that is treated as a partnership for United States federal income tax purposes) holds the shares, the tax treatment of a partner as a beneficial owner of the shares, generally will depend upon the status of the partner and the activities of the partnership. Foreign partnerships also generally are subject to special United States federal income tax documentation requirements. A beneficial owner of our capital stock who is not a U.S. Holder is referred to below as a "Non-U.S. Holder."
Code Section 368 Reorganization Provisions
We plan to change our place of incorporation to the United States through a reorganization qualifying under Code Section 368(a)(1)(F), which we refer to as a F Reorganization, which should not represent a taxable transaction to Xplore Canada for United States federal income tax purposes. For all reorganizations, there is a requirement of continuity of proprietary interests. The IRS has explicitly adopted the position that F Reorganizations only apply to transactions in which there is no change in the existing shareholders of the corporation involved, except for a minor change, generally defined as less than one percent. The IRS may view the ability of our existing shareholders to exercise rights of dissent on the proposal for the domestication and receive the fair value of their shares as a device to shift ownership among historic shareholders or to offer ownership to new shareholders, which therefore, depending on the number of the holders who exercise their rights to dissent from the domestication could jeopardize the status of the domestication as a F Reorganization.
In the event that the domestication does not qualify as a F Reorganization, it could qualify under Code Section 368(a)(1)(D), which we refer to as a D Reorganization. Even though inbound transactions usually meet the requirements of a D reorganization in either context, the fact that it will not be treated as a F reorganization is important in some instances.
The domestication may fail to qualify as a D Reorganization if Xplore Delaware does not acquire "substantially all" of the assets of Xplore Canada in the domestication. For ruling purposes, the IRS defines "substantially all" as 70% of the gross assets and 90% of the net assets of Xplore Canada. In determining if Xplore Delaware acquires the requisite amount of assets of Xplore Canada, payments of cash by Xplore Canada to any holders of shares of Xplore Canada that exercise the right to dissent from the domestication will not be considered as assets acquired by Xplore Delaware. Accordingly, if the holders of a significant number of the shares of Xplore Canada exercise the right to dissent from the domestication, the domestication may fail to qualify as a D Reorganization.
Effects of Code Section 367
Code Section 367 applies to certain non-recognition transactions involving foreign corporations. When it applies, Code Section 367 has the effect of imposing income tax on U.S. Holders in connection with transactions that would otherwise be tax free. Code Section 367 would apply to the domestication under the circumstances discussed below.
U.S. Holders who own, directly or by attribution, 10% or more of the combined voting power of all classes of stock of Xplore Canada, which we refer to as a 10% Shareholder, would be required to
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recognize as dividend income a proportionate share of Xplore Canada's "all earnings and profits amount", which we refer to as the ALL E&P Amount, as determined under Section 1.367(b)-2 of the United States Treasury Regulations.
A U.S. Holder that is not a 10% Shareholder is not required to include the ALL E&P Amount in income. Instead, absent making an election discussed below to include his or her allocable share of the ALL E&P Amount in income, which we refer to as a Deemed Dividend Election, such U.S. Holder must recognize gain, but will not recognize any loss, on his or her shares if such shares have a fair market value of $50,000 or more on the date of the exchange and the fair market value of Xplore Delaware stock received in the exchange exceeds the U.S. Holder's tax basis of the shares of Xplore Canada surrendered in the exchange. However, such U.S. Holder can make the Deemed Dividend Election to include in income as a dividend the ALL E&P Amount attributable to the shares owned by such U.S. Holder in Xplore Canada. If a U.S. Holder makes such an election, then such holder does not recognize any gain on the exchange. A Deemed Dividend Election can be made only if the company gives the U.S. Holder the information which provides the ALL E&P Amount for such holder and the U.S. Holder elects and files certain notices with such holder's federal income tax return for the year in which the exchange occurred.
A U.S. Holder that is not a 10% Shareholder and owns shares in Xplore Canada with a fair market value of less than $50,000 on the day of the exchange is not subject to tax on the domestication.
We do not believe we have a positive ALL E&P Amount for these purposes. Therefore, U.S. Holders who are 10% Shareholders, as well as those U.S. Holders who are not 10% Shareholders but who make the Deemed Dividend Election, should have no deemed dividend income and no recognized gain or loss on the exchange of shares of capital stock of Xplore Canada for shares of capital stock of Xplore Delaware. However, no assurance can be given that the IRS will agree with our determination that we do not have a positive ALL E&P Amount.
Passive Foreign Investment Company Considerations
In addition to the discussion under the heading "Effects of Code Section 367" above, the domestication might be a taxable event to U.S. Holders if Xplore Canada is or ever was a passive foreign investment company, or a PFIC, under Section 1297 of the Code, provided that Section 1291(f) of the Code is currently effective.
Generally, a foreign corporation is a PFIC if 75% or more of its gross income for a taxable year is passive income or if, on average for such taxable year, 50% or more of the value of its assets held by the corporation during a taxable year produce or are held to produce passive income. Passive income includes dividends, interest, rents and royalties, but excludes rents and royalties that are derived in the active conduct of a trade or business and that are received from an unrelated person, as well as interest, dividends, rents and royalties received from a related person that are allocable to income of such related person other than passive income. For purposes of these rules, Xplore Canada would be considered to own the assets of and recognize the income of any subsidiary corporations as to which it owns 25% or more of the value of their outstanding stock, in proportion to such ownership. If a foreign corporation is classified as a PFIC for any taxable year during which a U.S. Holder owns stock in the foreign corporation, the foreign corporation generally remains thereafter classified as a PFIC with respect to that stockholder. Xplore Canada believes that it is not and has never been a PFIC. Accordingly, the domestication should not be a taxable event for any U.S. Holder based on an application of the PFIC rules. However, the determination of whether a foreign corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination. Hence, the IRS might not agree that Xplore Canada is not a PFIC.
Section 1291(f) of the Code generally requires that, to the extent provided in regulations, a United States person who disposes of stock of a PFIC recognizes gain notwithstanding any other provision of
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the Code. No final Treasury regulations have been promulgated under this statute. Proposed Treasury regulations were promulgated in 1992 with a retroactive effective date. If finalized in their current form, these regulations would generally require gain recognition by United States persons exchanging stock of Xplore Canada for stock of Xplore Delaware, if Xplore Canada were classified as a PFIC at any time during such United States person's holding period in such stock and such person had not made either a "qualified electing fund" election under Code Section 1295 for the first taxable year in which such U.S. Holder owned Xplore Canada shares or in which Xplore Canada was a PFIC, whichever is later; or a "mark-to-market" election under Code Section 1296. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply based on a complex set of computational rules designed to offset the tax deferral to such stockholders on our undistributed earnings. However, we are unable to predict at this time whether, in what form, and with what effective date, final Treasury Regulations under Code Section 1291(f) will be adopted.
Basis and Holding Period Considerations
If the domestication is a tax free reorganization within the meaning of Section 368 of the Code, the tax basis of Xplore Delaware's stock received by the shareholder in the exchange will equal his or her tax basis in Xplore Canada's shares surrendered in the exchange increased by any gain recognized by such U.S. Holder in the exchange or the ALL E&P Amount included in the income of such U.S. Holder. The holding period for the Xplore Delaware stock will be the same as the U.S. Holder's holding period for the Xplore Canada shares surrendered in the exchange, provided that the shares were held as a capital asset.
If the domestication is not a tax free reorganization within the meaning of Section 368 of the Code, the tax basis of Xplore Delaware's stock distributed to the U.S. Holder will equal his or her tax basis in the shares surrendered plus any gain recognized. The holding period will begin on the date of the exchange.
Consequences to Non-U.S. Holders
The exchange of shares of Xplore Canada for stock of Xplore Delaware by a Non-U.S. Holder will not be a taxable transaction for such holder for United States federal income tax purposes.
Dividends
We do not anticipate paying cash dividends on our stock in the foreseeable future. However, if we pay dividends on shares of the stock of Xplore Delaware (which includes distribution of shares of Xplore Delaware common stock to holders of shares of preferred stock of Xplore Delaware), such dividends paid to Non-U.S. Holders will generally be subject to withholding of United States federal income tax at the rate of 30%, or such lower rate as may be specified by an applicable income tax treaty and we have received proper certification (generally on IRS Form W-8BEN) of the application of such income tax treaty. A Non-U.S. Holder that is eligible for a reduced rate of United States federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of a trade or business in the United States or, if provided in an applicable income tax treaty, dividends that are attributable to a Non-U.S. Holder's permanent establishment in the United States, are not subject to the U.S. withholding tax, but are instead taxed in the manner applicable to U.S. Holders. In that case, we will not have to withhold United States federal withholding tax if the Non-U.S. Holder complies with applicable certification and disclosure requirements (generally on IRS Form W-8ECI). In addition, dividends received by a foreign corporation that are effectively connected with the conduct of a trade
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or business in the United States may be subject to a branch profits tax at a 30% rate, or a lower rate specified in an applicable income tax treaty.
Gain on Disposition
A Non-U.S. Holder generally will not be subject to United States federal income tax, including by way of withholding, on gain recognized on a sale or other disposition of stock of Xplore Delaware unless any one of the following is true:
We do not anticipate that Xplore Delaware will become a USRPHC. However, since the determination of USRPHC status in the future will be based upon the composition of our assets from time to time and there are uncertainties in the application of certain relevant rules, there can be no assurance that we will not become a USRPHC in the future.
U.S. Federal Estate Taxes
Capital stock of Xplore Delaware owned or treated as owned by an individual who at the time of death is a Non-U.S. Holder will be included in his or her estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
A Non-U.S. Holder may have to comply with specific certification procedures to establish that the holder is not a United States person as described above (generally on IRS Form W-8BEN), or otherwise establish an exemption, in order to avoid backup withholding and information reporting tax requirements with respect to our payments of dividends on the stock of Xplore Delaware.
The payment of the proceeds of the disposition of stock by a Non-U.S. Holder to or through the United States office of a broker generally will be reported to the IRS and reduced by backup withholding unless the Non-U.S. Holder either certifies its status as a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption and the broker has no actual knowledge to the contrary. Information reporting requirements, but not backup withholding, will also apply to payments of the proceeds from sales of our stock by foreign offices of United States brokers or foreign brokers with certain types of relationships to the United States, unless the broker has documentary evidence in its records that the holder is a Non-U.S. Holder and certain other conditions are met, or the holder otherwise establishes an exemption.
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Backup withholding is not an additional tax. Any amounts that we withhold under the backup withholding rules will be refunded or credited against the Non-U.S. Holder's United States federal income tax liability if certain required information is furnished to the IRS. Non-U.S. Holders should consult their own tax advisors regarding application of backup withholding in their particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding under current United States Treasury regulations.
Canadian Tax Consequences
General
The following section is a summary of the material Canadian federal income tax consequences of the continuance of our company to Canadian-resident shareholders of our company and to United States-resident shareholders of our company. The following summary is based on the facts set out in this management information circular/prospectus and on additional information provided to Canadian tax counsel by management of our company.
Although portions of the summary of tax consequences to United States-resident shareholders may apply to shareholders residing in other jurisdictions, this summary does not specifically address tax consequences to such shareholders and accordingly such shareholders are urged to contact their own tax advisors to determine the tax consequences to them. This summary does not include the consequences of any provincial, municipal, or other local tax laws or regulations, any tax laws of any jurisdictions outside of Canada, or any other tax laws other than the federal income tax laws of Canada.
This summary of Canadian tax consequences, as well as the abbreviated summary of Canadian tax consequences set forth in the section entitled "Summary" of this management information circular/prospectus are based on the current wording of the Income Tax Act of Canada, the regulations made under that act, the Canada-United States Income Tax Convention, 1980, as amended, and our Canadian tax counsel's understanding of administrative materials published by the Canada Revenue Agency, which we refer to as CRA. This summary takes into account all proposed amendments to the Income Tax Act that have been announced by the Minister of Finance before the date of mailing of this management information circular/prospectus. However, there is no assurance that such proposed amendments will be enacted in their current form, or at all. Apart from such proposed amendments, this summary does not take into account or anticipate any changes in law, whether by legislative, governmental, or judicial action. No advance income tax ruling has been obtained from the CRA to confirm the tax consequences of any of the transactions described in this management information circular/prospectus. This summary assumes that the mind and management of our company will not be in Canada after the continuance.
This summary of consequences to shareholders of our company applies only to shareholders who, for the purposes of the Income Tax Act, hold their shares of our stock as capital property, deal at arm's length with our company, and are not affiliated with our company. The summary does not apply to a shareholder in relation to whom our company is or will be a foreign affiliate within the meaning of the Income Tax Act, or who holds more than 10 per cent of our company's stock.
A shareholder will generally be considered to be holding shares as capital property unless the shareholder holds the shares in the course of carrying on a business, acquired the shares in a transaction that is an adventure in the nature of trade, or holds the shares as "mark-to-market" property for the purposes of the Income Tax Act. Shareholders should consult their own tax advisors if they have questions as to whether they in fact hold their shares as capital property. Shareholders who do not hold their shares as capital property should consult their own tax advisors regarding the consequences of the continuance to them.
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THE TAX SUMMARIES IN THIS HEREIN PROVIDE GENERAL INFORMATION ONLY. THEY ARE NOT MEANT TO PROVIDE ANY OF THE SHAREHOLDERS OF OUR COMPANY WITH LEGAL OR TAX ADVICE, AND SHOULD NOT BE INTERPRETED IN THAT MANNER. THEY DO NOT COVER ALL OF THE TAX CONSEQUENCES THAT MIGHT BE RELEVANT TO ALL OF THE SHAREHOLDERS OF OUR COMPANY, AND WILL NOT APPLY IN THE SAME WAY TO ALL THE SHAREHOLDERS OF OUR COMPANY. SHAREHOLDERS OF OUR COMPANY ARE STRONGLY ADVISED TO CONSULT WITH THEIR OWN TAX AND LEGAL ADVISORS REGARDING THE UNITED STATES AND CANADIAN INCOME TAX CONSEQUENCES OF THE CONTINUANCE IN THEIR PARTICULAR CIRCUMSTANCES.
Our Company
On the continuance, our company will be deemed under the provisions of the Canada-United States Income Tax Convention to be resident in the United States, and to no longer be resident in Canada. Under the Income Tax Act, the change in our company's residence from Canada to the United States will cause our company's tax year to end immediately before the continuance, and a new tax year to begin at the time of the continuance. Furthermore, our company will be deemed to have disposed of all of its property immediately before the continuance for proceeds of disposition equal to the fair market value of the property at that time. This deemed disposition may cause our company to incur Canadian tax liability on the basis of the resulting deemed capital gains and income.
Furthermore, our company will be subject to a separate corporate emigration tax imposed by the Income Tax Act on corporations departing from Canada. The emigration tax will be imposed on the amount by which the fair market value of all of our company's property immediately before the continuance exceeds the aggregate of its liabilities at that time and the amount of paid-up capital on all of the issued and outstanding shares of our company's common stock. Tax will be imposed at a rate of 5% on our company's net assets determined under the foregoing formula, unless one of the main reasons for our company changing its residence to the United States was to reduce the amount of this corporate emigration tax or the amount of Canadian withholding tax paid by our company, in which case the rate will be 25%.
Based on management's review of our assets, liabilities and paid-up capital, as well as the availability of tax loss carry forwards that will be available to us to offset any income resulting from the deemed disposition of our assets, we believe that there should not be material income realized as a result of this deemed disposition. This conclusion is based in part on determinations of factual matters including the fair market value of our property. Furthermore, facts underlying our assumptions and conclusions may also change prior to the effective time of the continuance. We have not applied to the CRA for a ruling as to the amount of federal taxes payable by us as a result of the continuance and do not intend to apply for such a ruling given the factual nature of the determinations involved. In addition, we have not applied to the CRA for a determination of our past losses, and do not intend to apply for such a determination prior to the continuance. There can be no assurance that the CRA will accept the valuations or the positions that we have adopted in calculating the amount of Canadian tax that will be payable upon the continuance, including our calculation of the amount of historical tax losses that are available to offset any taxes that would otherwise be payable upon the continuance. Accordingly, there is no assurance that the CRA will conclude after the effective time of the continuance that no Canadian federal taxes are due as a result of the continuance or that the amount of Canadian federal taxes found to be due will not be significant.
Due to our change in residence upon the continuance, we will no longer be subject to taxation in Canada on our worldwide income. However, if we carry on a business through a permanent establishment located in Canada, as that expression is defined in the tax convention, we will be subject to Canadian tax on business profits attributable to the permanent establishment.
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For the purposes of calculating any Canadian tax liability of our company after the continuance, we will be unable to deduct historic losses incurred prior to becoming a Delaware corporation. The continuance will therefore eliminate our past Canadian tax losses as a source of future deductions.
Shareholder Residents in Canada
The following portion of this summary of Canadian federal tax consequences applies to shareholders of our company who are resident in Canada for the purposes of the Income Tax Act.
Shareholders of our company who remain holding shares of our stock after the continuance will not be considered to have disposed of those shares by reason only of the continuance. Accordingly, the continuance will not cause these shareholders to realize a capital gain or loss on their shares, and will have no effect on the adjusted cost base of their shares of our stock.
Following the continuance, any dividends received by an individual shareholder on the shares of our stock will not be eligible for the gross-up and dividend tax credit treatment generally applicable to dividends on shares of taxable Canadian corporations. Any dividends received by a corporate shareholder on the shares of our stock will be included in calculating that shareholder's income and will generally not be deductible. To the extent that United States withholding taxes are imposed on dividends paid by our company to Canadian-resident shareholders, Canadian resident shareholders will generally be entitled to claim a foreign tax credit against their Canadian income tax.
We intend to continue to list our shares of common stock on the Toronto Stock Exchange for the foreseeable future. We also plan to list our shares on another prescribed exchange outside of Canada as defined in the regulations under the Income Tax Act. Because our shares of common stock are listed on a prescribed exchange in Canada and, if listed outside of Canada, will be listed on a prescribed stock exchange outside of Canada, our shares of common stock will continue to be a qualified investment for certain deferred income plans under the Income Tax Act, namely trusts governed by deferred profit sharing plans, registered retirement savings plans, registered retirement income funds, and registered education savings plans.
Canadian residents are required under the Income Tax Act to report their foreign property holdings if the aggregate cost amount of their foreign holdings exceeds Cdn.$100,000. Following the continuance, our shares will constitute foreign property for the purposes of this rule and their cost amount will count towards the calculation of the Cdn.$100,000 threshold.
Although the matter is not free from doubt, it is reasonable to conclude based on administrative positions published by the CRA that the amount paid to a shareholder who dissents to the continuance should be treated as proceeds of disposition of that shareholder's shares. Accordingly, the dissenting shareholder would recognize a capital gain or loss to the extent that the amount received as proceeds for the disposition of that shareholder's shares exceeds or is less than the shareholder's adjusted cost base of the shares.
Shareholders Resident in the United States
The following portion of this summary of Canadian federal tax consequences applies to shareholders of our company who are resident in the United States and not in Canada for the purposes of the Income Tax Act, and who do not use or hold their shares in the course of carrying on a business in Canada.
Shareholders of our company who remain holding shares of our stock after the continuance will not be considered to have disposed of their shares by reason only of the continuance. Accordingly, the continuance will not cause these shareholders to realize a capital gain or loss on their shares, and will have no effect on the adjusted cost base of their shares.
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After the continuance, United States-resident shareholders of our company will not be subject to Canadian withholding tax on dividends received from our company.
After the continuance, the shares of our stock will not be taxable Canadian property to United-States resident shareholders, and therefore will not cause such shareholders to be subject to taxation in Canada on any subsequent disposition of the shares, provided that more than 50% of the fair market value of the shares is not derived directly or indirectly from one or any combination of real property situated in Canada, Canadian resource properties, and timber resource properties and provided that the shares are not owned by a person who, together with other non-arm's length persons owns, or at any time in the previous months owned, more that 25% of the shares.
Although the matter is not free from doubt, it is reasonable to conclude based on administrative positions published by the CRA that the amount paid to a shareholder who dissents to the continuance should be treated as proceeds of disposition of that shareholder's shares. Based on this conclusion, no Canadian tax need be withheld or remitted on a payment made to a dissenting shareholder resident in the United States.
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The following summary description of our equity securities does not purport to be complete and is qualified in its entirety by reference to the proposed certificate of incorporation and by-laws of Xplore Technologies, copies of which are attached to this prospectus as Exhibits C and D, respectively. Unless the context provides otherwise, the following discussion describes our capital stock assuming that the continuance has already been effected. As of , 2007, there were 60,890,900 common shares, 63,472,895 Series A Preferred Shares and 9,988,513 Series B Preferred Shares issued and outstanding.
Common Stock
We are authorized to issue 300 million shares, par value $0.001 per share, of common stock. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, provided that all accrued and unpaid dividends have been paid to the holders of our preferred stock. Upon liquidation, dissolution or winding up, the holders of common stock are entitled to receive, after payment of any liquidation preference to our holders of preferred stock, proportionately our net assets available after the payment of all debts and other liabilities. Holders of common stock have no pre-emptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be impacted by, the rights of the holders of shares of our Series A Preferred Stock, our Series B Preferred Stock and any other series of preferred stock that we may designate and issue in the future.
Preferred Stock
Under the proposed certificate of incorporation, our board of directors has the authority, without shareholder approval, to create one or more series within a class of preferred stock, to issue 90 million shares of preferred stock in such series up to the maximum number of shares of the relevant series of preferred stock authorized, and to determine the preferences, rights, privileges, qualifications, limitations, and restrictions of any such class or series, including:
While our board of directors has no current intention of doing so, our board of directors may issue preferred stock as an anti-takeover measure without any further action by the holders of the common stock. This may have the effect of delaying, deferring or preventing a change of control of our company by increasing the number of shares necessary to gain control of our company.
Our proposed certificate of incorporation currently provides for two series of preferred stock, Series A Preferred Stock and Series B Preferred Stock. Other than differences between Delaware law and the federal laws of Canada, the rights, privileges and preferences of our Series A preferred stock and Series B Preferred Stock in our proposed certificate of incorporation are similar to those in our existing articles of incorporation. Below is a summary of the terms associated with our Series A and Series B Preferred Stock. Please refer to our proposed certificate of incorporation annexed to this
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prospectus as Exhibit C for a full description of the rights and privileges attached to our Series A and Series B Preferred Stock.
Series A Preferred Stock
Our board of directors is authorized to issue up to 64 million shares of Series A Preferred Stock, of which 63,472,895 shares are issued and outstanding. Our Series A Preferred Stock has the following rights and privileges:
Voting. Each share of Series A Preferred Stock will be entitled to vote together with our other shareholders on an as-converted basis, and not as a separate class, except as required by law or our certificate of incorporation. In addition, so long as at least 10% of the shares of Series A Preferred Stock originally issued remain outstanding (approximately 6,347,290 shares), our holders of our Series A Preferred Stock are entitled to vote, separately as a class, to designate two members of our board of directors (which we refer to as the Preferred Directors).
Furthermore, so long as at least 10% of the shares of Series A Preferred Stock originally issued remain outstanding, our company may not, without the consent of the holders of a majority of the voting power of the Series A Preferred Stock, take any of the following actions:
Dividends. Subject to the approval of the Toronto Stock Exchange or such other Canadian or United States securities exchange or quotation system which on the date of determination constitutes the principal securities market for our common stock, the Series A Preferred Shares carry an annual 5% dividend, payable quarterly, in that number of shares of common stock determined by dividing the amount of the applicable dividend payment then payable by the U.S. dollar equivalent of the volume weighted average trading price of our common stock on such principal securities market for the 10 trading days ending on the third trading day preceding the applicable dividend payment date, less, if applicable, the maximum discount permitted by such principal securities market at that time.
Liquidation Preference. In the event of any liquidation, dissolution or winding up of our company (which we refer to as a Liquidation), the holders of the Series A Preferred Stock will be entitled to receive, in preference to the holders of our common stock, but pari passu with the holders of our Series B Preferred Stock, an amount equal to the greater of $0.34 per each share of Series A Preferred Stock, plus an amount equal to any accrued and unpaid dividends, or such amount per share as would have been payable had each share of Series A Preferred Stock been converted into a share of common
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stock immediately prior to the Liquidation (which we refer to as the Series A Liquidation Preference). A merger or consolidation (other than one in which shareholders of our company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) and a sale, lease, transfer or other disposition of all or substantially all of our assets will be treated as a liquidation event (which we refer to as a deemed liquidation event) and will also trigger the payment of the Series A Liquidation Preference, unless the holders of the Series A Preferred Stock elect otherwise.
Optional Conversion. Our shares of Series A Preferred Stock initially convert on a one-for-one basis into shares of common stock at any time at the option of the holder, subject to adjustment for stock dividends, splits, combinations and similar events. In the event that we issue additional securities at a purchase price less than the then current conversion price of the Series A Preferred Stock (which initially is $0.34 per share), such conversion price (and as a result the conversion ratio) will be adjusted in accordance with the formula described in our certificate of incorporation.
Mandatory Conversion. Each share of Series A Preferred Stock will automatically be converted into shares of common stock at the then applicable conversion rate upon:
Series B Preferred Stock
Our board of directors is authorized to issue up to 10 million shares of Series B Preferred Stock, of which 9,988,513 shares are issued and outstanding. Our Series B Preferred Stock has the following rights and privileges:
Voting. Each share of Series B Preferred Stock will be entitled to vote together with our other shareholders on an as-converted basis, and not as a separate class, except as required by law or our certificate of incorporation. In addition so long as at least 10% of the shares of Series B Preferred Stock originally issued remain outstanding (approximately 998,851 shares), our company may not, without the consent of the holders of a majority of the voting power of the Series B Preferred Stock, take any of the following actions:
Dividends. Subject to the approval of the Toronto Stock Exchange or such other Canadian or United States securities exchange or quotation system which on the date of determination constitutes the principal securities market for our common stock, the Series B Preferred Shares carry an annual 5% dividend, payable quarterly, in that number of shares of common stock determined by dividing the amount of the applicable dividend payment then payable by the U.S. dollar equivalent of the volume weighted average trading price of our common stock on such principal securities market for the 10
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trading days ending on the third trading day preceding the applicable dividend payment date, less, if applicable, the maximum discount permitted by such principal securities market at that time.
Liquidation Preference. In the event of a Liquidation of our company, the holders of the Series B Preferred Stock will be entitled to receive, in preference to the holders of our common stock, but pari passu with the holders of our Series A Preferred Stock, an amount equal to the greater of $0.34 per each share of Series B Preferred Stock, plus an amount equal to any accrued and unpaid dividends, or such amount per share as would have been payable had each share of Series B Preferred Stock been converted into a share of common stock immediately prior to the Liquidation (which we refer to as the Series B Liquidation Preference). A merger or consolidation (other than one in which shareholders of our company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) and a sale, lease, transfer or other disposition of all or substantially all of our assets will be treated as a liquidation event and will also trigger the payment of the Series B Liquidation Preference, unless the holders of the Series B Preferred Stock elect otherwise.
Optional Conversion. Our shares of Series B Preferred Stock initially convert on a one-for-one basis into shares of common stock at any time at the option of the holder, subject to adjustment for stock dividends, splits, combinations and similar events. In the event that we issue additional securities at a purchase price less than the then current conversion price of the Series B Preferred Stock (which initially is $0.34 per share), such conversion price (and as a result the conversion ratio) will be adjusted in accordance with the formula described in our certificate of incorporation; provided, that the conversion price will not in any event be less than $0.255 per share.
Mandatory Conversion. Each share of Series B Preferred Stock will automatically be converted into shares of common stock at the then applicable conversion rate upon:
Options/Warrants
As of October 31, 2006, options to purchase a total of 11,374,479 shares of common stock were issued and outstanding under our Share Option Plan (including grants relating to 1.3 million common shares that are conditional upon shareholder approval at our annual meeting to be held on December 6, 2006), of which 2,660,014 have fully vested, and warrants to purchase 15,476,614 shares of our common stock were issued and outstanding. These warrants have exercise prices ranging from $0.35 to $0.58 per share with expiration dates from December 17, 2007 to September 22, 2009.
Corporate Governance Provisions with Possible Anti-Takeover Effects
The provisions in our proposed certificate of incorporation and our by-laws are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control of our company. These provisions also are designed to reduce our vulnerability to an unsolicited takeover proposal that does not contemplate the acquisition of all of the outstanding shares of our common stock or an unsolicited proposal for the restructuring or sale of all or part of us. These provisions, however, could discourage potential
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acquisition proposals and could delay or prevent a change in control of our company. They may also have the effect of preventing changes in our management.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our proposed by-laws provide that stockholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of stockholders must provide timely notice of their proposal in writing to the Corporate Secretary. Generally, to be timely, a stockholder's notice must be received at our principal executive offices not fewer than 45 days nor more than 75 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year's annual meeting. Our proposed by-laws also specify requirements as to the form and content of a stockholder's notice. These provisions may impede a stockholder's ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.
Amendments to By-Laws
Our proposed certificate of incorporation grants our board of directors the authority to amend and repeal our by-laws without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware. Notwithstanding the foregoing, our proposed certificate of incorporation also provides that our by-laws may be amended by the stockholders by a vote of a majority in voting power of all shares of stock then entitled to vote at an election of directors, voting together as a single class.
Limitation of Liability and Indemnification of Officers and Directors
Our proposed certificate of incorporation provides that no director shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except as required by the Delaware General Corporation Law. Our proposed by-laws provide that, to the fullest extent permitted by law, we must indemnify and advance expenses to any person made or threatened to be made a party to any action by reason of the fact that the person is or was our director or officer, or serves or served as a director or officer of any other enterprise at our request and advance expenses. The indemnification and advancement of expenses provisions do not apply to any former officers or directors serving before , 2007 or arising out of any act or transaction that occurred prior to such date.
The limitation of liability and indemnification provisions in our proposed certificate of incorporation and by-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment in our company may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
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MARKET PRICE AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is listed on the Toronto Stock Exchange and is traded under the symbol "XPL." In the future, we intend to seek approval to list of our common stock on a national stock exchange or stock market in the United Sates; however, we cannot assure you that we will be able to obtain any such listing. We have one class of common equity and two classes of preferred shares. As of October 31, 2006, there were 212 holders of record of our common shares. The following table sets forth, for the periods indicated, the high and low sales price of our common stock on the Toronto Stock Exchange.
PERIOD
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High
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Low
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(Cdn. $)
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(Cdn. $)
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||
Fiscal Year Ended March 31 2005: | ||||
First Quarter | 2.19 | 1.16 | ||
Second Quarter | 1.89 | 0.90 | ||
Third Quarter | 1.00 | 0.49 | ||
Fourth Quarter | 0.60 | 0.40 | ||
Fiscal Year Ended March 31 2006: |
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|
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First Quarter | 1.14 | 0.35 | ||
Second Quarter | 1.10 | 0.70 | ||
Third Quarter | 0.88 | 0.51 | ||
Fourth Quarter | 0.68 | 0.37 | ||
Fiscal Year Ended March 31, 2007: |
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|
|
|
First Quarter | 0.50 | 0.30 | ||
Second Quarter | 0.68 | 0.35 | ||
Third Quarter (through November 10, 2006) | 0.45 | 0.36 |
Dividend Policy
We have not declared or paid any dividends on our common stock during our last five fiscal years. Our preferred shares carry an annual 5% dividend, payable quarterly in shares of our common stock.
The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, and operating and financial conditions and on such other factors as our board of directors may consider appropriate. Under the terms of our articles of incorporation and proposed certificate of incorporation, we are prohibited from paying dividends on our common shares unless and until all accrued and unpaid dividends are paid on our Series A and Series B Preferred Shares. Furthermore, under the terms of our loan agreement with a commercial bank, we are prohibited from paying cash dividends without the bank's prior written consent. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.
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Overview
We are a leader in engineering, developing, integrating and marketing rugged, mobile computing systems. Our innovative products and features are designed to enhance the ability of persons to perform their job outside of traditional office settings. Our line of iX Tablet PCs are designed to operate in challenging work environments, such as extreme temperatures, repeated vibrations or dirty and dusty conditions. Further, these systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mouses and cases.
Over the past several years our products have been recognized by numerous third parties, in particular for their ruggedness and versatility. In 2005, Pen Computing chose Xplore for "The Best Rugged Slate-Style Tablet PC" award, readers of the Mobile Village gave awards to both the iX product family and to its deployments, and Tablet PC2 gave us an Editor's Choice Award for our AllVue screen. More recently, Laptop Magazine recognized our line of rugged Tablet PCs with a coveted Editor's Choice Award. We believe our achievements can be attributed to having a truly rugged device at a competitive market price and being an innovator and technology leader.
Our strategy is to become the leading developer and marketer of rugged mobile wireless computer systems. We currently compete in the rugged tablet PC market, where we believe we are an innovator and technology leader. Leveraging our expertise and our existing infrastructure, we plan to penetrate other product market categories, which are larger than the existing rugged tablet PC market.
Recent Developments
Over the past few years we have undergone the following significant changes:
Relocation of our corporate headquarters. In August 2004, we closed our corporate headquarters in Mississauga, Canada and all functions were relocated to Austin, Texas, where most of our employees were based. As a result, we decreased our operating expenses by reducing our travel and communication costs, as well as through Austin's lower cost of living. In addition, we were able to operate in a more efficient and controlled fashion.
Hiring of a new management team. Beginning in 2004, our executive management team was replaced with a new management team that has many years of experience in their respective fields both with large, well-established corporations, as well as with smaller, younger companies, including turnaround situations. Our new management team has implemented business policies and processes that have made our operations more efficient. For example, we have improved our accounts receivable collection procedures, which has strengthened our working capital position and cash flow management.
New market focus. We have broadened our sales strategy to focus more on Fortune 500 and Global 2000 companies, as opposed to relying primarily on public safety customers. This strategy shift has enabled us to grow our revenues at a faster rate since we believe the average number of computers per order from a Fortune 500 customer is generally significantly higher than the average from public safety customers.
Geographic expansion. We have expanded our revenues generated from sales in Europe. Over the near term, we plan to judiciously grow our European team to take advantage of the market demand. In addition, we intend to increase our presence in the Asia-Pacific region by building a larger network of value-added partners and by increasing the size and improving the quality of our sales team, which is same approach we used to achieve sales growth in the U.S.
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Products
Our family of iX advanced rugged Tablet Personal Computers is comprised of:
Our line of iX Tablet PCs are designed to operate in challenging work environments, such as extreme temperatures, repeated vibrations or dirty and dusty conditions. Our systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, Global Positioning System modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mouses and cases.
Our family of iX computers are based primarily on the following features:
Rugged As opposed to some of our competitors, which have primarily placed non-rugged computers in rugged cases, we have built our devices from the inside out, developing over 30 proprietary design elements that provide a heightened and proven level of durability. Our products meet some of strictest specifications in the world, including those established by the U.S. military, including Military Standard Testing for Environmental Extremes. These specifications are designed to allow our products to withstand damage from being dropped onto concrete from up to 4 feet, from being submerged for up to 30 minutes in up to 12 inches of water, and from being exposed to extreme temperatures that are as low as -40° Fahrenheit and as high as 167° Fahrenheit. In addition, our products continue to function when subjected to vibration, sand storms and other challenging outdoor work environments.
Screen Technology We seek to be a leader of screen technology with award winning displays. We have designed the unique AllVue screen which is viewable in virtually all challenging lighting conditions, including direct sunlight and dimly-lit environments, as well as its Dual Mode screen that allows the use of a digitizer pen and/or the finger to control the unit. The Dual Mode supports more precise inputs through the pen with more directional finger touch inputsall in a single unit with auto switching capabilities.
Processing Power We have the ability to provide processing power alternatives on a timely and cost-effective basis. Our systems use Intel Pentium M Centrino® processors and associated chipsets, as well as other performance enhancement technologies that we believe are essential in many field applications (such as mapping and remote connectivity). In addition, Lithium ION batteries support usage times between 3-5 hours and a "warm" swap feature allows users to switch batteries in the field without having to power down the system.
Remote Connectivity Our current products provide a complete range of wireless alternatives and radio card options as well as global positioning system options.
Accessories We offer a broad range of add-on modules and accessories that better enable customers to adapt our computers to their intended use. In particular, we believe our functional, durable and reliable docking solutions are tailored to customer needs. Service, desktop, vehicle, forklift, armored vehicle, and mobile cart docking systems have been deployed to customers.
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Heightened Safety Standards All of our wireless-enabled tablet PC systems have been tested and certified for use in hazardous locations both in North America and in the European Union.
Our computers are designed to be used as a mobile computing system. These systems are comprised of an Xplore hardware platform that is fully integrated with one or more software applications. Through its wide feature set, we believe the iX family of products allows the customization of a platform that best suits a given application. Our computers combine processing power, viewability, ruggedness and connectivity that can perform in extreme environments. We believe we have established ourselves as an innovative leader in our market with products such as the Dual Mode and/or AllVue.
Strategy
Our strategy is to become the leading developer and marketer of rugged mobile wireless computer systems. We currently compete in the rugged tablet PC market, where we believe we are an innovator and technology leader. Leveraging our expertise and our existing infrastructure, we plan to penetrate other product market categories, which are larger than the existing rugged tablet PC market.
Leverage Existing Markets
We seek to continue to analyze the needs of the vertical markets we are involved in so that we can maintain our leadership role and continue to grow our business. We intend to continue to focus on customer specific applications by leveraging our core products and technology, as well as our key strategic alliances.
Our strategy includes the following key elements:
Identifying and targeting vertical markets, major account and OEM opportunities To achieve broad penetration of our products, we intend to continue to focus on specific vertical market applications, major accounts and OEM relationships, such as Dell, Inc., Psion Teklogix Inc. and Peak Technologies.
Investment and nurturing of key relationships We intend to continue to outsource our manufacturing and other select activities so that we can continue to focus our efforts on our innovative technology and product development, customer application and project deployment activities, through our collaborations on engineering and manufacturing matters with our partners, such as Wistron.
Flexible product design and customer-centric approach We believe the design of our products provides us with the flexibility to respond to customer-specific requirements. We involve our customers in product development and enhancements. This approach is intended to result in improved communication flow throughout the entire sales cycle and is designed to position our products as the optimal mobile computing platform for our customers.
Delivery of high quality, reliable systems We seek to have our manufacturing partners implement rigorous quality assurance programs that incorporate our processes, in concert with performing our custom-designed test programs.
Marketing and distribution relationships Within each targeted vertical industry, we intend to focus on co-marketing relationships with key application providers and systems integrators. This strategy allows us to define multiple channels of sale within a region while maintaining key strategic alliances.
Expand into New Rugged Product Markets
We are evaluating other market opportunities, such as the growing need for rugged notebooks, which are broader in scope and opportunity. An increasing number of companies are requiring their employees to transmit data from the field or non-traditional office environments. We believe this need is supported by a white paper published by the Mobile and Wireless Practice of Venture Development Corporation (which we refer to as VDC) in August 2005, which projects worldwide sales in the rugged
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mobile computing market to grow to over $6.7 billion by 2009 and the market for large form factor rugged devices to grow to $2.9 billion in 2009. We currently do not have any products in the large form factor rugged mobile computer market, but expect to have three products available for sale in this segment by 2008.
According to VDC, over the product lifecycle, total cost of deploying non-rugged devices into mobile enterprise applications can often cost businesses 4-5 times the original purchase price. We believe that Microsoft's advancement of Windows XP Tablet PC operating system is encouraging the growing trend to mobilize an increasing segment of workers into the field and within the job site.
We believe our family of rugged tablet PCs are uniquely positioned to capitalize on the convergence of three current market trends:
We believe companies recognize the total cost of ownership is improved by rugged computing solutions.
Sales
We sell our systems through a multi-tiered distribution network which provides for direct and indirect sales. The network is supported by a sales team of 17 individuals who have geographic responsibilities for direct and indirect sales opportunities. While the sales team has its own prospects, it also works closely with system integrators that resell our products in defined regions based upon a standard channel agreement. We have non-exclusive agreements with system integrators based on the reseller's ability to add value to our systems in the form of application software, professional services, wireless devices, integration activities and customer support programs. We currently have approved system integrators selling into the public safety, utility, field service, logistics and military markets.
We currently have more than 60 relationships with distribution partners. These include large computer companies such as Dell, Inc. and Hewlett-Packard Company, specialized system integrators such as Psion Teklogix Inc. and Peak Technologies, as well as leading software vendors such as Environmental Systems Research Institute (geographic information system technology).
Our customers include Daimler Chrysler, Hydro One, the City of Cleveland Police Department, Shell Oil UK, Proctor & Gamble, the Royal Netherlands Air Force, the Rome Fire Department and the U.S. Federal Emergency Management Agency. Proctor & Gamble and Burlington Northern Santa Fe Railway have adopted our Tablet PC as their standard rugged tablet computer.
Our sales from Europe, as well as from other parts of the world, have been growing due to strong market demand for our iX line of Tablet PCs. Our sales outside of North America grew from 22.6% of total sales in fiscal year 2005 to 36.6% of total sales in fiscal year 2006.
Marketing
We have marketing programs aimed at increasing awareness of our products and services, product management and corporate communications. Key elements of our marketing program include:
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We also market our products through a number of different industry participants, including independent software vendors with application software for a specific industry, systems integrators that bring elements such as wireless communication systems to the project, agents that specialize in rugged mobile computing devices and other consultants. We believe the driving force behind these relationships is an active project where the combination of our systems with the application software and support services seeks to provide a tailored solution designed to meet customers' needs.
An increasing number of companies and agencies have workforces that require mobile computers that can endure and perform reliably in challenging work environments where dust, shock, vibration, extremely hot or cold temperatures or moisture are present. We provide a competitively priced rugged computer by partnering with Wistron Corporation, a leading contract manufacture located in Taiwan. The market pricing for rugged computers is higher than commercial grade computers used in traditional office settings. We believe the pricing reflects the theory that the total cost of ownership of a rugged computer over a three to five year period can be significantly lower as compared to a non-rugged computer. In fact, several of our customers have disclosed in our customer-based market research studies that they used non-rugged devices and experienced firsthand the direct costs of this decision ( e.g. more frequent damage, information retrieval costs, replacement costs), as well as the indirect costs such as prolonged downtime.
We recognize that, as a small company, our key to success depends on our ability to provide a better product than our larger competitors and to be more responsive to our customers' needs. Some of our accomplishments, such as the AllVue screen and the Dual Mode functionality, were the result of customer feedback. When embarking on the development of a new device or an upgrade of an existing one, we devote resources to soliciting customer feedback. We believe this process, combined with our flexibility to make quick decisions and the support of a significant manufacturing partner like Wistron, has enabled us to deliver innovative products and market leading technology ahead of our competitors.
Market Segments
We target a number of different sectors where we believe the deployment of rugged mobile computers can greatly improve operating efficiencies and reduce related costs.
Logistics. We believe globalization, increased competition and heightened consumer expectations are contributing factors to the adoption of mobile computing technologies by many leading warehousing, distribution and retail entities. These operations typically require real time price modifications, product introductions and transitions, and timely inventory management. We believe these sectors will continue to automate order fulfilment, inventory control and management systems as part of an overall effort to integrate enterprise resource planning and supply chain management information systems. Our customers in this sector include DaimlerChrysler, Andersen Windows and Clare Rose.
Utilities & Energy. Generally, utilities and energy related companies continuously have to respond to customers' requests and power outages more expeditiously and efficiently to remain competitive. We believe the reliable and real-time movement of information to and from the field is vital to the success
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of any field automation system. Hydro One utility in Canada is a major customer in this sector, as well as Shell Oil.
Public Safety. Given the focus in the U.S. on security issues and the continued commitment by Federal, state and municipal governments on law enforcement, fire and emergency medical services, members of the public safety arena are searching for efficiencies that will better enable them to do their jobs. Rugged mobile computing devices assist these groups in a variety of ways. For example, having a reliable and durable Tablet PC provides law enforcement agencies with immediate and reliable access in the field to national and local criminal databases. In this market segment, we have sold to over 300 public safety organizations in the U.S., including the Detroit and Cleveland Police Departments, and multiple international organizations, including the Rome Fire Department.
Military. As the military continues to transition to commercial and industrial grade rugged mobile computing systems, we expect this segment will represent a significant opportunity. In particular, we believe the U.S. Department of Defense is generally moving away from full military specifications adherence, except for system-critical operations, and instead, is increasing emphasis on purchasing commercial, off-the-shelf equipment. Our customers in this sector include the U.S. Air Force and the Royal Dutch Air Force.
Field Service. According to VDC, the second largest mobile computing market segment is the field service industry. This market segment includes mobile technicians from the telecommunications, cable and appliance sectors who typically must have real time access to mission critical data including work tickets, schematics, manuals, customer service records, inventory levels and order status. We believe that companies in this market segment recognize that linking field service personnel through the entire enterprise system can improve customer response, billing, inventory management and throughput metrics, thereby increasing operational efficiencies. Our customers in this market segment include Cincinnati Bell, Boeing and HydroChem.
Research and Development
We have assembled an experienced engineering and product development team. Through the collaboration of our employees, engineering and manufacturing partners, including Wistron, we believe we are able to bring significant resources to the research, development and design of our products.
We seek to design and manage product life cycles through a controlled and structured process. We involve customers and industry experts from our target markets in the definition and refinement of product development. Product development emphasis is placed on meeting industry standards and product specifications, ease of integration, ease of use, cost reduction, design-for manufacturability, quality and reliability.
We continue to invest in research and development to enhance and expand our rugged mobile computing systems. Additional form factors, operating systems and screen technologies are all considered for integration into our rugged platform as we seek to expand into additional markets.
Competition
Competition in our industry is intense and is characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and rapid changes in customer requirements. To be competitive, we must continue to develop and introduce, on a timely and cost-effective basis, new products and product features that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers. The principal competitive factors affecting the market for our products are the product's technical characteristics, price, customer service, reputation in the industry and brand loyalty. In order to
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compete, we will be required to continue to respond promptly and effectively to the challenges of technological changes and our competitors' innovations.
Our primary competitors in the mobile rugged computer market include the following:
Panasonic. Panasonic is the largest provider of mobile rugged computers and offers a series of traditional and convertible notebooks. Panasonic promotes a rugged computer, known as the Toughbook, to the rugged niche market.
Itronix. Itronix markets its semi-rugged pen tablet computer systems as part of its mobile portfolio, which also includes rugged notebooks. Last year, Itronix was acquired by General Dynamics Corp.
Walkabout. Walkabout promotes a Tablet PC as its main product. Last year, Walkabout was acquired by DRS Technologies, Inc., a multibillion dollar supplier to military agencies.
Manufacturing
We outsource the majority of our manufacturing services to third parties, including board production, certain parts procurement, assembly, some quality assurance testing, warranty repair and service. We have a design and manufacturing agreement with Wistron. Wistron makes computers and components for some of the world's largest technology companies, such as Dell, Inc. and Hewlett-Packard Company. Wistron collaborates with Xplore on product specifications and provides us with the flexibility to make changes to our products as market conditions change.
We maintain build-to-order capabilities and quality control functions in-house, which are the responsibility of our production and engineering teams. This includes manufacture engineering, development of production and assembly test procedures, definition of quality assurance program and development of test fixtures, build-to-order production and "out-of-box" quality assurance testing.
Intellectual Property
Our performance and ability to compete are dependent to a significant degree on our proprietary technology. We rely primarily upon a combination of patent, copyright and trade secret laws and license agreements to establish and protect proprietary rights in our products and technology. We have four U.S. patents and one Canadian patent, along with two U.S. patent applications and one Canadian patent application. We are seeking to obtain patent protection for certain key components of our technology. It may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization or to develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries.
Facilities
We maintain our corporate functions along with sales support, marketing, finance, engineering and operating groups at a leased premise totalling approximately 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas. The lease expires on August 31, 2009, and has a current annual base rent of approximately $232,000. We have the option to renew this lease for an additional three years. We also lease a satellite office in Helsinki, Finland, on a three-month renewable basis. We believe that our existing leases will be renegotiated as they expire or that alternative properties can be leased on acceptable terms. We also believe that our present facilities are suitable for continuing our existing operations.
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Employees
As at October 31, 2007, we had 73 full-time employees, of which 42 were employed in the operations, engineering, research and development and customer support areas, 11 were involved in corporate and administrative areas, and 20 were employed in sales and marketing. Our employees are not represented by a union or other collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good.
Legal Proceedings
In June 2005, our company, our former Chief Executive Officer and our former Chief Financial Officer received notices from the staff at the Ontario Securities Commission (which we also refer to as the OSC) which stated that the OSC reviewed the facts and circumstances surrounding the recognition of revenue related to product returned from our distribution channel in fiscal years 2003 and 2004 and our accounting treatment for these transactions in our financial statements under Canadian generally accepted accounting principles. The OSC staff position was that we did not account for certain transactions between our company and some of our value added resellers and some of the revenue which we recognized in our financial statements in accordance with Canadian generally accepted accounting principles. As a result our 2002, 2003 and 2004 annual financial statements, along with our 2004 and 2005 interim and first quarter 2006 financial statements, were required to be restated. Our board of directors formed a special committee to investigate and oversee the OSC matter.
On November 9, 2005, we filed with the Canadian provincial securities regulatory authorities our audited consolidated financial statements for the year ended March 31, 2005 and our audited restated consolidated financial statements for each of the years ended March 31, 2004, 2003 and 2002, as well as our restated interim financial statements for the years March 31 2005 and 2004 and for the first quarter for fiscal year 2006, all of which were which were prepared in accordance with Canadian generally accepted accounting principles. There are no material differences between Canadian GAAP and U.S. GAAP as it relates to our financial statements.
On January 27, 2006, a panel of commissioners of the OSC approved a settlement agreement with us in connection with their investigation of our accounting treatment for revenue recognition in our financial statements for fiscal years 2002, 2003 and 2004. The settlement agreement resolved the outstanding regulatory issues with respect to such financial statements. Under the terms of settlement agreement, we reimbursed the OSC Cdn.$20,000 towards the costs of the investigation and hearing in this matter, made a settlement payment of Cdn.$50,000 to the OSC for the benefit of third parties, and were reprimanded for our failure to file financial statements in accordance with Canadian generally accepted accounting principles. In addition, we provided the OSC with a comfort letter confirming, among other things, that our new management team had instituted new practices and procedures designed to prevent the future improper recognition of revenue.
On November 9, 2006, we issued a Statement of Claim against Deloitte & Touche LLP (which we refer to as Deloitte) in the Ontario Superior Court of Justice. In the Statement of Claim, we have alleged negligence against Deloitte with respect to the auditing services provided to us in connection with its audit of our 2002, 2003 and 2004 audited financial statements. The Statement of Claim seeks damages in the amount of Cdn. $4,070,000 for direct and indirect losses. Deloitte has not yet filed an answer to the Statement of Claim.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the information included under "Our Business," "Risk Factors," "Selected Financial Data" and the financial statements included in this prospectus. It is intended to assist the reader in understanding and evaluating our financial position. Unless indicated otherwise, all financial information contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" has been presented in accordance with U.S. generally accepted accounting principles.
This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainty. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed elsewhere in this prospectus.
General
We are a leader in engineering, developing, integrating and marketing rugged, mobile computing systems. Our innovative products and features are designed to enhance the ability of persons to perform their job outside of traditional office settings. Our line of iX Tablet PCs are designed to operate in challenging work environments, such as extreme temperatures, repeated vibrations or dirty and dusty conditions. Further, these systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mouses and cases.
We have undergone significant changes over the past few years, including the relocation of our headquarters from Mississauga, Ontario to Austin, Texas, the hiring of a new management team, improvements in our products and operational processes, and the establishment of a new sales team that expanded our market focus from primarily small public safety organizations to markets including Fortune 500 and Global 2000 companies. On May 30, 2006, we completed a recapitalization that involved the conversion approximately $19 million in debt (including accrued interest) to equity through the issuance of Series A Preferred Shares.
Critical Accounting Policies
Our financial statements and accompanying notes included in this prospectus are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management's application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial condition, changes in financial condition or results of operations. Our significant accounting policies are discussed in Note 2 of the Notes to our Annual Consolidated Financial Statements as of March 31, 2006 and 2005 and for each of years in the three year period ended March 31, 2006. On an ongoing basis, we evaluate our estimates, including those related to our revenue recognition, inventory valuation, warranty reserves, tooling amortization, financial instruments, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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Our critical accounting policies are as follows:
Revenue Recognition. Our revenue is derived primarily from the sale of our rugged mobile computers. Our customers are predominantly resellers, however, in limited circumstances we sell directly to end-users. Revenue is recognized, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, and all significant contractual obligations have been satisfied, the sales price is fixed or determinable and the ability to collect is reasonably assured. Our revenue recognition criteria have generally been met when the product has been shipped. Shipments are based on firm purchase orders from our customers with stated terms. The shipping terms are generally F.O.B. shipping point and we typically do not have installation, training and other commitments subsequent to shipment. We do not hold inventory at our resellers and we do not expect resellers to hold significant inventories of our products. As a result, we expect returns to be minimal.
Warranty Reserves. Provisions are made at the time of sale for warranties and estimated returns, and the revenue related to warranty is recognized when our obligations are covered by a warranty coverage agreement provided by a third party. If our estimates for warranties and returns are too low, additional charges will be incurred in future periods and these additional charges could have a material adverse effect on our financial position and results of operations.
Inventory Valuation. We adjust our inventory values so that the carrying value does not exceed net realizable value. The valuation of inventory at the lower of average cost or net realizable value requires us to use estimates regarding the amount of current inventory that will be sold and the prices at which it will be sold and our assessment of expected orders from our customers. Additionally, the estimates reflect changes in our products or changes in demand because of various factors, including the market for our products, obsolescence, technology changes and competition. The estimates are subject to revisions and actual results may differ. This difference may have a material effect on our financial condition and results of operations.
Tooling Amortization. We amortize tooling costs over a two year period and those costs are recorded as a cost of revenue, subject to an assessment that future revenue will be sufficient to fully recover the cost of the tooling. This assessment requires an assessment of the market for our products and our future revenue expectations. On a quarterly basis, this assessment is reviewed and the cost of tooling is written down to its net realizable value if its recoverability is not reasonably expected based on estimates of future revenue.
Income Taxes. We have significant tax loss carry forwards and have not recorded a future income tax asset related to these losses. We will evaluate the prospects for recovering the value of these losses on an ongoing basis and record an income tax asset when we believe the likelihood of realization is such that the asset should be recognized in our accounts.
Financial Instruments. The debentures and the warrants we issued during fiscal years 2006 and 2005 have been valued separately using the Black Scholes methodology. The debentures were originally reflected in our financial statements at their discounted value and the difference between this discount amount and the face value of the debentures, which is repayable at maturity, has been amortized as additional non-cash interest expense during the term of the debentures. The determination of the value attributed to the warrants and debentures required the use of estimates and judgments particularly related to the assumptions used in the Black Scholes calculation. In addition, options to acquire common shares issued to employees have been valued using a Black Scholes calculation and their valuation is impacted by the assumptions used in this calculation.
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Ontario Securities Commission
In June 2005, our company, our former Chief Executive Officer and our former Chief Financial Officer received notices from the staff at the Ontario Securities Commission (which we refer to as the OSC) which stated that the OSC reviewed the facts and circumstances surrounding the recognition of revenue in fiscal year 2002 related to product returned from our distribution channel in fiscal years 2003 and 2004 and our accounting treatment with respect to the recognition of revenue in our financial statements under with Canadian generally accepted accounting principles. The OSC staff position was that we did not account for certain transactions between our company and some of our value added resellers and some of the revenue which we recognized in our financial statements in accordance with Canadian generally accepted accounting principles, and as a result, our 2002, 2003 and 2004 annual financial statements and 2004, 2005 and the first quarter of 2006 interim financial statements were required to be restated.
Our board of directors formed a special committee to investigate and oversee the OSC matter. We restated our financial statements for the fiscal years ended 2002, 2003, and 2004, and certain interim financial statements. These restated financial statements, which were prepared in accordance with Canadian generally accepted accounting principles, were filed with the OSC on November 9, 2005. On January 27, 2006, the OSC approved a settlement agreement with us.
Restatement of Financial Statements under Canadian GAAP
Historically, we have prepared our financial statements in accordance with Canadian generally accepted accounting principles. There are no material differences between Canadian GAAP and U.S. GAAP as it relates to our financial statements.
Our 2002, 2003 and 2004 annual consolidated financial statements as well as our 2004 and 2005 interim consolidated financial statements were restated in accordance with Canadian generally accepted accounting principles. The restatement generally adjusted revenue and expenses between the four annual periods ended March 31, 2005. While the restatement adjustments changed our previously reported results of operations under Canadian generally accepted accounting principles in each of the individual annual periods being reported, the adjustments did not change the cumulative results of operations for the four year period. The cumulative restated revenue and net loss for the four year period is the same as the previously reported cumulative amounts:
The restatement adjustments were as follows:
Revenue Recognition
In fiscal year 2002, approximately $9,891,000 of sales to resellers originally accounted for as revenue were restated and accounted for as inventory held by resellers. Of the $9,891,000, $2,354,000 was subsequently recognized as revenue when we were paid. The remaining $7,537,000 was subsequently returned to us. These product returns were originally accounted for as reductions in revenue and cost of revenue in fiscal years 2003 and 2004, and under the restatement adjustments were restated as inventory held by resellers. Additionally, under the restatement adjustments the March 31, 2002 allowance for doubtful accounts of $1,320,000 that specifically related to the receivables for the $7,537,000 was eliminated with the reversal of the revenue and receivables.
Inventory Valuation
Under the restatement adjustments, a $2,519,000 inventory write-down was made in fiscal year 2002 due to the determination that sales demand for certain finished goods was less than the available inventory on-hand or on consignment with our resellers. The write-down adjusted the carrying value of this inventory from its recorded cost to the lower net realizable value. This charge was previously
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recorded as an inventory write-down of $388,000 in fiscal year 2004 and $811,000 in fiscal year 2005. Additionally, inventory valuation charges were originally recorded as a reduction of the $1,320,000 allowance for doubtful accounts in fiscal years 2003 and 2004. With the elimination of the allowance for doubtful accounts, these valuation adjustments were restated and accounted for in fiscal year 2002.
We originally recorded a $1,212,000 inventory write-down in the second quarter of fiscal year 2005 for end-of-life products. Under the restatement adjustments, in fiscal year 2004 a $1,212,000 inventory write-down adjustment was made to correct for accounting errors made in the valuation of certain component parts associated with end-of-life products that were obsolete because the components were incompatible with new or other existing products.
Warranty Reserve
We originally recorded a $755,000 increase in warranty reserves for end-of-life products in the second quarter of fiscal 2005. Under the restatement adjustments, fiscal years 2002, 2003 and 2004 were restated by $89,000, $180,000 and $486,000, respectively, to correct for accounting errors in the computation of warranty reserves and to match the expense to the related sales transactions.
Tooling Depreciation Expense
We previously recorded the tooling depreciation expense as an operating expense as opposed to in cost of revenue. Under the restatement adjustments, cost of revenue for fiscal years 2005 and 2004 were restated by $456,000 and $591,000, respectively, to classify depreciation of tooling assets as a cost of revenue.
Other Adjustments
Other adjustments consisted of corrections of accounting errors. Under the restatement adjustments, certain expenditures were restated in a different reporting period to match the restated revenues related to the expenditures. In addition, other expenses were accrued in earlier periods in which the obligation was incurred but not recognized. The cumulative four year period of operating expenses reflected a net reduction of $2,122,000. This reduction primarily consisted of the reclassification of the $1,320,000 allowance for doubtful accounts in fiscal year 2002 as an inventory write-down and the reclassification of $1,047,000 of tooling depreciation to cost of revenue in fiscal years 2004 and 2005.
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Summary of Net Adjustments
The following table represents the net change to amounts previously reported arising from the restatement adjustments for the four fiscal years ended March 31, 2005 under Canadian generally accepted accounting principles:
Net increase (decrease) from amounts
previously reported, except for fiscal 2005 statement of loss |
Year ended March 31,
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Statement of Loss | ||||||||||||||||
Revenue | $ | 742 | $ | 1,277 | $ | 7,767 | $ | (9,891 | ) | $ | (105 | ) | ||||
Cost of revenues | $ | (1,784 | ) | $ | 2,287 | $ | 5,587 | $ | (4,046 | ) | $ | 2,044 | ||||
Operating expenses | $ | (1,200 | ) | $ | 751 | $ | 148 | $ | (1,821 | ) | $ | (2,122 | ) | |||
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Net loss | $ | 3,726 | ) | $ | 1,761 | $ | (2,032 | ) | $ | 4,024 | $ | 27 | ||||
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Change in loss per common share | $ | (0.07 | ) | $ | 0.07 | $ | (0.08 | ) | $ | 0.22 | ||||||
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Balance Sheet |
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Accounts receivable, net | $ | (105 | ) | $ | (486 | ) | $ | (1,592 | ) | $ | (8,571 | ) | ||||
Inventory | $ | | $ | (2,071 | ) | $ | (280 | ) | $ | 4,305 | ||||||
All other assets | $ | 78 | $ | (215 | ) | $ | (15 | ) | $ | (351 | ) | |||||
Accounts payable and accrued liabilities | $ | | $ | 981 | $ | 105 | $ | (593 | ) | |||||||
Deficit | $ | 27 | $ | 3,753 | $ | 1,915 | $ | 4,024 |
Results of Operations
Revenue. We derive revenue from sales of our rugged wireless Tablet PC systems which encompass a family of active pen and touch Tablet PC computers, embedded wireless, desktop, vehicle, fork truck docking stations and a range of supporting performance matched accessories, peripherals and support services. Our revenue also includes service revenue derived from installation related services and out-of-warranty repairs.
Cost of Revenue. Cost of revenue consists of the costs associated with manufacturing, assembling and testing our products, related overhead costs, maintenance, compensation and other costs related to manufacturing support, including depreciation of tooling assets. We use contract manufacturers to manufacture our products and supporting components, which represents a significant part of our cost of revenue. In addition, the costs associated with providing warranty repairs, as well as the costs associated with generating service revenue, are included in cost of revenue.
Gross Profit. Gross profit has been, and will continue to be, affected by a variety of factors, including competition, the product mix and average selling prices of products, maintenance, new product introductions and enhancements, the cost of components and manufacturing labor, fluctuations in manufacturing volumes, component shortages, the mix of distribution channels through which our products are sold, and warranty costs.
Sales, Marketing and Support. Sales, marketing and support expenses include salaries, commissions, agent fees and costs associated with co-operative marketing programs, as well as other personnel-related costs, travel expenses, advertising programs, trade shows and other promotional activities associated with the marketing and selling of our products. We are expanding our sales operations in order to increase awareness and sales of our products. We also believe part of our future success will be dependent upon establishing successful relationships with a variety of resellers. We expect that sales and marketing expenses will increase in absolute dollars as we expand our sales efforts, hire additional sales and marketing personnel and initiate additional marketing programs.
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Product Research, Development and Engineering. Product research, development and engineering expenses consist of salaries and related expenses for development and engineering personnel, and non-recurring engineering costs, including prototype costs, related to the design, development, testing and enhancement of our product families. We expense our research and development costs as they are incurred. There may be components of our research and development efforts that require significant expenditures, the timing of which can cause quarterly fluctuation in our expenses.
General Administration. General administration expenses consist of salaries and related expenses for finance, accounting, legal, human resources and information technology personnel, professional fees and corporate expenses, and costs associated with being a public company, including regulatory compliance costs.
Interest. Interest expense includes interest on all debenture and short-term promissory note borrowings, interest on borrowings related to the bank revolving credit facility, non-cash interest charges representing the amortization of the debenture discount and amortization of deferred financing costs consisting principally of legal fees related to the financing transactions. Debentures issued in fiscal 2005 and 2004 were originally reflected in the financial statements at their discounted value and the difference between this discount amount and the face value of the debentures, which is repayable at maturity, has been amortized as additional non-cash interest expense during the term of the debentures. Interest on our one outstanding debenture is accrued at a rate of 10% per annum and paid semi-annually.
Other Income and Expenses. Other income and expenses includes gains and/or losses on dispositions of assets, foreign exchange and other miscellaneous income and expense.
Six Months Ended September 30, 2006 vs. Six Months Ended September 30, 2005
Revenue. Total revenue for the six months ended September 30, 2006 was $17,839,000 compared to $12,708,000 for the six months ended September 30, 2005, an increase of $5,131,000. The increase in revenue was primarily attributable to a slightly larger sales force in fiscal year 2007 that initiated a greater focus on the Fortune 500/Global 2000 companies, as well as increasing demand for our product. The favorable market acceptance of our Centrino-based tablet and, most notably, our award winning AllVue outdoor readable display technology helped our sales team expand our market focus from primarily small public safety organizations to markets including Fortune 500/Global 2000 companies. For the six months ended September 30, 2006, an increase in our orders from Europe, attributable to what management believes was the July 1, 2006 effective date of Restriction of Hazardous Substances (RoHS) legislation designed to reduce hazardous materials found in electrical and electronic products, also accounted for the revenue increase over the prior year.
We operate in one segment, the sale of rugged mobile wireless Tablet PC computing systems. The majority of our revenue is derived from sales in the United States. Other than the U.S. with 52.9% and Canada with 14.9% of total revenue, no other country accounted for more than 10% of our revenue in the six months ended September 30, 2006. In the six months ended September 30, 2005, the U.S. accounted for 58.6% and Canada accounted for 12.3% of our revenue.
Cost of Revenue. Total cost of revenue for the six months ended September 30, 2006 was $12,917,000 compared to $9,587,000 for the six months ended September 30, 2005, an increase of $3,330,000. Cost of revenue increased by 34.7% from the prior period, due primarily to the costs associated with the manufacture of additional product to meet increased demand for the period.
Gross Profit. Total gross profit increased by $1,801,000 to $4,922,000 (27.6% of revenue) for the six months ended September 30, 2006 from $3,121,000 (24.6% of revenue) for the six months ended September 30, 2005. The increase in gross profit as a percentage of revenue for the six months ended
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September 30, 2006 as compared to the prior period was due to manufacturing efficiencies gained from increased sales volumes and the more favorable Centrino-based product mix.
Sales, Marketing and Support Expenses. Sales, marketing and support expenses for the six months ended September 30, 2006 were $3,127,000 compared to $2,242,000 for the six months ended September 30, 2005, an increase of $885,000. This increase was due to investments in a slightly larger sales force and related activities, such as travel, and higher commission costs commensurate with the increase in revenue.
Product Research, Development and Engineering Expenses. Product research, development and engineering expenses for the six months ended September 30, 2006 were $1,241,000 compared to $1,050,000 for the six months ended September 30, 2005, an increase of $191,000. This increase related primarily to development cost associated with our new C-3 tablet announced on July 10, 2006. Spending on enhancement initiatives for our Centrino® based tablet, including the Dual Mode AllVue tablet, and RoHs legislation compliance modifications also contributed to the increase.
General Administration Expenses. General administration expenses for the six months ended September 30, 2006 were $1,738,000 compared to $2,671,000 for the six months ended September 30, 2005, a decrease of $933,000. The second quarter of fiscal year 2006 included a charge of approximately $600,000 for estimated costs to address and resolve the matters identified in the OSC notification received in June 2005. A similar $425,000 charge was recorded in the first quarter of fiscal year 2006. These costs consisted primarily of legal and audit professional fees. If the OSC related costs are excluded, general and administrative expenses for the six months ended September 30, 2006 would have increased by $92,000 over the prior period. This increase was primarily attributable to an increase in headcount, expenses in connection with the relocation of senior management and increased executive compensation.
Interest Expense. Interest expense for the six months ended September 30, 2006 was $396,000 compared to $719,000 for the six months ended September 30, 2005, a decrease of $323,000. The decrease was attributable to the recapitalization of approximately $18.9 million of indebtedness into equity and reduced borrowings.
Other Income (Expense). Other income (expense) for the six months ended September 30, 2006 was ($909,000) compared to $230,000 for the six months ended September 30, 2005, an absolute difference of ($1,139,000). Included in other expense was non-cash interest expense associated with the amortization of deferred financing costs and the debenture discount. Non-cash interest expense for the six months ended September 30, 2006 and 2005 was $905,000 and $635,000, respectively. The charge for the six months ended September 30, 2006 was related to the value assigned to warrants issued to short-term debenture holders for the extension of the maturity date of the debentures and the charge for the six months ended September 30, 2005 was related to the debenture discount associated with the December 17, 2004 financing. The period ending September 30, 2005 included $865,000 of other income resulting primarily for the sale of previously developed rugged handheld technology to a foreign value added reseller.
Net Loss. The net loss for the six months ended September 30, 2006 was $2,489,000 ($0.04 per share) compared to a net loss of $3,331,000 ($0.06 per share) for the six months ended September 30, 2005.
Fiscal Year Ended March 31, 2006 vs. Fiscal Year Ended March 31, 2005
Revenue. Total revenue for the year ended March 31, 2006 was $27,480,000 compared to $17,530,000 for the year ended March 31, 2005, an increase of $9,950,000. This increase was primarily attributable to the favorable impact of a full year of sales of our Centrino-based tablet, benefits from a
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new and slightly larger sales force that initiated a greater focus on the Fortune 500/Global 2000 companies and increasing demand for our product in Europe. The favorable market acceptance of our Centrino-based tablet, for which supply became available in the fourth quarter of fiscal 2005, accounted for the majority of our 2006 revenue. We believe favorable market acceptance was based on the processing power of the Centrino-based tablet and, most notably, our award winning AllVue outdoor readable display technology. Additionally, fiscal year 2006 had a full year's benefit of a new sales team established in the first half of fiscal year 2005. This team expanded our market focus from primarily small public safety organizations to markets including Fortune 500/Global 2000 companies.
We operate in one segment, the sale of rugged mobile wireless Tablet PC computing systems. European sales, as well as sales from other parts of the world outside of North America, have been growing due to strong demand for our Tablet PC. From fiscal year 2005 to fiscal year 2006, our sales outside of North America grew from 22% to 37% of total sales, with Europe contributing most of this growth. In fact, revenue from Europe in fiscal year 2006 was $8,629,000, over three times the prior year's amount of $2,752,000.
The majority of our revenue is derived from sales in the U.S. Other than the Netherlands, with 12.5% of the total revenue, no other country besides the U.S. accounted for more than 10% of our total revenue in fiscal year 2006. In fiscal year 2005, there was no one country, other than the U.S., that accounted for more than 10% of our total revenue. In fiscal years ended March 31, 2006 and 2005, revenues from customers within the U.S. totaled approximately $14.8 million and $13.1 million, respectively, and revenues from customers outside the U.S. totaled approximately $12.7 million and $4.4 million, respectively.
We have a number of customers, however, in a given year a single customer can account for a significant portion of our sales. For the fiscal year ended March 31, 2006, we had one customer that represented more than 10% of our total revenue and that customer was located in the Netherlands. In fiscal year 2005, there were no customers that accounted for more than 10% of our total revenue.
Service revenue was not significant for the 2006 and 2005 fiscal years.
Cost of Revenue. Total cost of revenue for the year ended March 31, 2006 was $20,671,000 compared to $13,860,000 for the year ended March 31, 2005, an increase of $6,811,000. Cost of revenue increased by approximately 49% from fiscal year 2005 to fiscal year 2006, and most of this was attributable to the approximately 57% increase in revenue from fiscal year 2005 to fiscal year 2006. The cost of revenue did not grow at the same rate as revenue in fiscal year 2006. This was in part because the tooling depreciation expense for fiscal year 2006 was less than fiscal year 2005 by approximately $450,000 as the majority of the tooling assets became fully depreciated during fiscal year 2005. Additionally, fiscal year 2006 cost of revenue benefited from volume-related manufacturing and supply chain efficiencies.
Gross Profit. Total gross profit increased by $3,139,000 to $6,809,000 (24.8% of revenue) for the year ended March 31, 2006 from $3,670,000 (20.9% of revenue) for the year ended March 31, 2005. This increase was primarily due to increased revenues and the favorable impact of fixed manufacturing costs on a higher level of sales in fiscal year 2006, as well as a reduction in tooling depreciation and the benefits of volume related efficiencies.
Sales, Marketing and Support Expenses. Sales, marketing and support expenses for the year ended March 31, 2006 were $5,284,000 compared to $4,839,000 for the year ended March 31, 2005, an increase of $445,000. This increase was primarily due to expenses related to expanding our sales staff as well as increased travel, amortization of demonstration units and commission costs commensurate with the increase in revenue. We plan to continue investing in sales generation activities as we grow our revenues.
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Product Research, Development and Engineering Expenses. Product research, development and engineering expenses for the year ended March 31, 2006 were $2,402,000 compared to $2,327,000 for the year ended March 31, 2005, an increase of $75,000. Both fiscal years had comparable levels of headcount and development activities. Fiscal year 2005 included costs related to our Centrino® based product that was completed in the third quarter of fiscal 2005, as well as some of the development costs for a rugged handheld product completed in the second quarter of fiscal 2005. We sold the handheld technology during the second quarter of fiscal year 2006. The fiscal year 2006 development costs related principally to enhancement initiatives for our Centrino® based tablet, including the new Dual Mode AllVue tablet.
General Administration Expenses. General administration expenses for the year ended March 31, 2006 were $4,143,000 compared to $4,179,000 for the year ended March 31, 2005, a decrease of $36,000. Included in fiscal year 2006 was a charge of approximately $1,025,000 for estimated costs to address and resolve the matters identified in the OSC notification received in June 2005. Without giving effect to the OSC charge, general administrative expenses declined by $1,061,000. This reduction was partially due to efficiencies gained from cost maintenance programs implemented in the middle of fiscal year 2005 and maintained during fiscal year 2006, including reductions of headcount. In addition, fiscal year 2005 included non-recurring legal costs related to our successful defense of certain litigation, various non-recurring expenses associated with our physical migration to the U.S. that was completed during the second quarter of fiscal year 2005, and increased administrative costs related to regulatory compliance requirements. All of the defense litigation matters were settled and the suits against us were dismissed in October 2004. The benefit of these expense reductions were partially offset in fiscal year 2006 by a charge of $175,000 representing future cash payments for separation pay to our former Chief Executive Officer who resigned in September 2005.
For fiscal years 2006 and 2005, the fair value of employee stock-based compensation expense was $522,000 and $305,000, respectively. This expense was recorded in the employee related functional classification. The increase in expense was primarily attributable to an option grant to all of our employees in January 2006. Fiscal year 2006 has a full year of expense for this grant as compared to only one quarter of expense in fiscal year 2005.
Depreciation and amortization expense for fiscal years 2006 and 2005 were $464,000 and $645,000, respectively. The majority of the fiscal year 2005 expense relates to the amortization of tooling costs, which were expensed over a two year period and recorded in cost of revenue. The majority of the tooling assets were fully depreciated at March 31, 2005, which accounted for the decline from fiscal year 2005 to 2006. This decline was partially offset by an increase in the amount of depreciation related to our Centrino-based demonstration units in fiscal year 2006. The cost of demonstration units is depreciated on a straight-line basis over six months. The remaining depreciation expense was recorded in general administration.
Interest Expense. Interest expense for the year ended March 31, 2006 was $2,454,000 compared to $1,208,000 for the year ended March 31, 2005, an increase of $1,246,000. Interest on debenture and short-term borrowings was $1,548,000 for fiscal year 2006 and $877,000 for fiscal year 2005. The increase in outstanding borrowings account for the increase in interest expense. Interest on our bank revolving credit facility was $121,000 in fiscal year 2006 and nil in fiscal year 2005, as the facility was established in fiscal year 2006. Non-cash interest expense associated with the amortization of the debenture discount was $635,000 for fiscal year 2006 and $310,000 for fiscal year 2005. The fluctuation was attributable to the timing of the debenture financing. Fiscal year 2006 included $150,000 of deferred financing costs as compared to $21,000 in fiscal year 2005. The increase was attributable to an increase in the number of financing transactions.
Other Income and Expense. Other income for the year ended March 31, 2006 was $901,000 compared to other expenses of $8,000 for the year ended March 31, 2005, a net increase of $909,000.
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In August 2005, we sold a previously developed rugged handheld technology to a foreign value added reseller. The sale agreement provided for an initial payment of approximately $900,000, which we received on August 5, 2005, and a future payment of approximately $700,000, net of our share of future development costs, upon the completion of certain agreed upon production activities by a third party manufacturer. As of March 31, 2006, the agreed upon production activities were not completed and it is uncertain as to whether the purchaser will complete its obligations under the sale agreement. The proceeds received in August 2005, net of related selling expenses, in the amount of $877,000 have been reflected in other income for fiscal year 2006. Our investment in the rugged handheld technology was previously expensed when incurred since the expenditures were research and development related. The technology was in a development stage and did not account for any of our revenue.
Net Loss. The net loss for the year ended March 31, 2006 was $6,573,000 ($0.12 per share) compared to a net loss of $8,891,000 ($0.18 per share) for the year ended March 31, 2005. The decrease in the amount of net loss was primarily due to the year-over-year increases in revenue and gross margin, and a relatively smaller increase in operating expenses compared to the prior period.
Fiscal Year Ended March 31, 2005 vs. Fiscal Year Ended March 31, 2004
Revenue. Total revenue for the year ended March 31, 2005 was $17,530,000 compared to $24,631,000 for the year ended March 31, 2004, a decrease of $7,101,000. Non-recurring sales to a single customer in fiscal year 2004 of approximately $5.1 million, the net reduction in Home Depot orders of approximately $3.1 million, and the net reduction in orders from the police departments of Cleveland, Ohio and Detroit, Michigan accounted for the decline in revenue. This decline was partially offset by revenue attributable to the launch of our new rugged Centrino® based iX104 systems in late December 2004 and broader penetration within the Fortune 1000 market.
In fiscal years ended March 31, 2005 and 2004, revenue from customers within the United States totaled approximately $13.1 million and $20.3 million, respectively, and revenue from customers outside the United States totaled approximately $4.4 million and $4.3 million, respectively. In fiscal year 2005 there were no customers that accounted for more than 10% of total revenue. In fiscal year 2004, there were three customers who individually accounted for more the 10% of our total revenue. All of these customers are located in the United States and together they accounted for an aggregate 52% of our total revenue. Service revenue represented 4.5% of our fiscal year 2005 revenue and 2.6% of fiscal year 2004 revenue.
Cost of Revenue. Total cost of revenue for the year ended March 31, 2005 was $13,860,000 compared to $20,880,000 for the year ended March 31, 2004, a decrease of $7,020,000. The decline in revenue from fiscal year 2004 combined with the impact of charges for inventory write-downs and warranty reserves in fiscal year 2004 account for the decline in cost of revenue. Inventory write-downs were $2.0 million in fiscal year 2004. The majority of the inventory write-down charges were related to end-of-life products that were obsolete and/or incompatible with our new products.
Gross Profit. Total gross profit decreased by $81,000 to $3,670,000 (20.9% of revenue) for the year ended March 31, 2005 from $3,751,000 (15.2% of revenue) for the year ended March 31, 2004. The net decline was primarily due to the decrease in revenues offset by an improvement in gross margin due to a more favorable product mix and manufacturing efficiencies.
Sales, Marketing and Support Expenses. Sales, marketing and support expenses for the year ended March 31, 2005 were $4,839,000 compared to $4,504,000 for the year ended March 31, 2004, an increase of $335,000. This increase was primarily due to the expansion of our sales team and increased travel expenses.
Product Research, Development and Engineering Expenses. Product research, development and engineering expenses for the year ended March 31, 2005 were $2,327,000 compared to $2,523,000 for
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the year ended March 31, 2004, a decrease of $196,000. This decrease was primarily due to the completion of development initiatives related to our Centrino® product.
General Administration Expenses. General administration expenses for the year ended March 31, 2005 were $4,179,000 compared to $4,616,000 for the year ended March 31, 2004, a decrease of $437,000. This decrease was primarily due to savings arising from the migration of our corporate headquarters from Canada to Austin, Texas, the reduction in headcount of our corporate staff and the reduction in legal fees associated with the resolution of litigation related to one of our value added resellers.
For the fiscal years 2005 and 2004, the fair value of employee stock-based compensation expense was $305,000 and $265,000, respectively. This expense was recorded in the employee related functional classification.
Depreciation and amortization expenses for the year ended March 31, 2005 were $645,000 compared to $683,000 for the year ended March 31, 2004, a decrease of $38,000. Depreciation expenses related primarily to the amortization of tooling costs, which were expensed over a two year period and recorded in cost of revenue. The remaining depreciation expense was recorded in general administration expenses.
Interest Expense. Interest expense for the year ended March 31, 2005 was $1,208,000 compared to $4,478,000 for the year ended March 31, 2004, a decrease of $3,270,000. This decrease was primarily due to the decline in non-cash interest expense associated with the amortization of the debenture discount from $3,210,000 in fiscal year 2004 to $310,000 in fiscal year 2005. The debentures were originally reflected in the financial statements at their discounted value and the difference between this discount amount and the face value of the debentures, which was repayable at maturity, was amortized as additional non-cash interest expense during the term of the debentures. The timing of the conversion of certain debentures in consideration for the payment of the exercise price for certain warrants also contributed to the decline in interest expense, offset by the issuance of new debentures in fiscal year 2005.
Other Income and Expense. Other expenses for the year ended March 31, 2005 were $8,000 compared to $329,000 for the year ended March 31, 2004, a decrease of $321,000. This decrease was primarily the result of the loss which occurred in the prior period on foreign exchange primarily related to the impact of the increase in the value of the Canadian dollar on our bank indebtedness which was denominated in Canadian dollars. This indebtedness was fully repaid in fiscal year 2004.
Net Loss. The net loss for the year ended March 31, 2005 was $8,891,000 ($0.18 per share) compared to a net loss of $12,699,000 ($0.41 per share) for the year ended March 31, 2004. The decrease in the amount of net loss was primarily due to the reduction in the non-cash interest expense of $2,900,000, a reduction in operating expenses and improved operating efficiencies as compared to the prior period.
Liquidity and Capital Resources
From inception we have financed our operations and met our capital expenditure requirements primarily from the gross proceeds of private and public sales of debt and equity securities totaling approximately $87.6 million. As at September 30, 2006, we had a balance of cash and cash equivalents of $3,205,000.
The rate of growth in the tablet market for our products and our success in gaining market share has been less than we anticipated. We have recurring losses and we expect to report operating losses through at least the end of our fiscal year ending March 31, 2007. There can be no assurance that we
67
will ever achieve positive cash flow from our operations or positive income and we face numerous risks and uncertainties associated with our business.
Prior Financings
In April 2005, we entered into a loan and security agreement with a commercial bank that enabled us to finance certain eligible accounts receivable up to a maximum $2,625,000. In September 2005, we replaced that credit facility with a new two-year $5 million credit facility with the same commercial bank.
In May and July 2005, we received aggregate gross proceeds of $3 million from one of our principal shareholders, Phoenix Venture Fund LLC (which we refer to as Phoenix), an affiliate of Phoenix and another lender, in connection with the issuance of 10% secured promissory notes in the aggregate principal amount of $3 million. The notes had an original maturity date of August 31, 2005, which was subsequently extended to September 15, 2005. The proceeds were used for working capital and development purposes. The notes were paid in full on September 15, 2005 as part of a later financing with Phoenix.
On September 15, 2005, we entered into a loan and security agreement with a commercial bank. This agreement replaced a similar agreement with the same commercial bank which provided us with up to $2.6 million of financing. Under the terms of this two-year agreement, we may finance certain eligible accounts receivable up to a maximum of $5.0 million. Borrowings under the facility bear interest at prime rate plus 2.25%. We are obligated to repay each loan advance on the earliest of the date on which a financed receivable payment is received or the date to which the financed receivable becomes ineligible or 90 days past due. In addition, we are obligated to pay a monthly fee equal to 0.25% of the unused portion of the credit facility. Borrowings are secured by all our assets and intellectual property. Pursuant to the terms of various subordination agreements between us and the commercial bank, a debenture holder and a supplier, the commercial bank has a first priority security interest in all of our assets, the supplier has a priority security interest in certain of our trade debts, and the debenture holder has a security interest in all of our assets. The loan agreement contains a number of financial and operational covenants and, as of November 8, 2006, we are in compliance with such covenants. As of November 8, 2006, there were no outstanding borrowings under this facility.
On September 15, 2005, we entered into a debenture purchase agreement with Phoenix and other lenders, including an affiliate of Phoenix (which we refer to as the Lenders), whereby the Lenders agreed to provide an aggregate of $5 million of financing to us. The debentures had an original maturity date of March 31, 2006 and borrowings under those debentures bear interest at 10% per annum. We initially drew on the facility and issued debentures to the Lenders in the aggregate amount of $3 million. We used the gross proceeds to re-pay promissory notes in the aggregate amount of $3 million previously issued by our U.S. subsidiary in May and July 2005. On September 29, 2005, November 4, 2005 and November 7, 2005, we made additional draws on the facility and issued debentures to the Lenders in the aggregate amount of $2 million. The proceeds were used for working capital and general corporate purposes. In connection with this financing, the maturity date of all of our other outstanding debentures was extended to April 30, 2007.
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We agreed to issue warrants to the holders of such debentures in the event that any these debentures were not paid in full on or prior to March 31, 2006 entitling the holder to purchase that number of our common shares equal to the number of dollars representing the aggregate amount then due on such holder's debenture. Since the debentures were not repaid on March 31, 2006, on April 10, 2006 we issued warrants to purchase 5,235,343 of our common shares to the Lenders at an exercise price of Cdn.$0.45. The warrants are exercisable through April 10, 2008 and the exercise price of the warrants was based on the average current market price of our common shares for the five days before the date of issuance. In contemplation of our recapitalization (described immediately below), the maturity date of the debentures was extended to June 30, 2006.
On April 21, 2006, we entered into a financing agreement with Phoenix pursuant to which Phoenix agreed, at its sole discretion, to provide up to $5 million in financing to us. In connection with the financing, we issued Phoenix a 10% secured debenture in the aggregate principal amount of $1.0 million, which had a maturity date of June 30, 2006. The debenture and related accrued and unpaid interest were exchanged for 2,970,185 Series A Preferred Shares as part of the recapitalization discussed below. The remaining $4 million balance under the financing could be funded at any time through June 30, 2006 (subsequently amended to July 31, 2006), in Phoenix's sole discretion, through the issuance of additional Series A Preferred Shares, at a purchase price of $0.34 per share, to Phoenix and/or its assigns.
Recapitalization and Recent Financings
On May 30, 2006, we completed a recapitalization pursuant to which approximately $18.9 million of indebtedness was exchanged for 55,520,542 of our Series A Preferred Shares. The recapitalization represented the conversion of all of our outstanding 10% secured debentures (except for one debenture in the aggregate principal amount of $250,000), including accrued interest.
On July 6, 2006, pursuant to the terms of the April 2006 financing agreement, we issued 2,920,585 Series A Preferred Shares in a private placement resulting in gross proceeds of approximately $993,000, which were used for working capital and general corporate purposes. On July 31, 2006, pursuant to the terms of the April 2006 financing agreement, we issued 5,031,768 Series A Preferred Shares in a private placement resulting in gross proceeds of approximately $1.7 million, which were used for working capital and general corporate purposes.
On August 9, 2006, we issued 9,988,513 Series B Preferred Shares resulting in gross proceeds of approximately $3.4 million. The net proceeds from this offering are being used for working capital and general corporate purposes. On September 22, 2006, we issued 2,848,253 common shares resulting in gross proceeds of approximately $1.0 million. The net proceeds from this offering are being used for working capital and general corporate purposes.
Proposed Financing
We are currently negotiating an agreement with Madison Grant Small Cap 2006 Limited Partnership, a limited partnership formed under the laws of the Province of Ontario (which we refer to as Madison Grant), pursuant to which for $25 million we will transfer some of our intellectual property to a newly formed limited partnership (which we refer to as the Partnership). We would be the general partner of the Partnership and Madison Grant would be the sole limited partner. Pursuant to the proposed terms of the agreement, $2.5 million of the purchase price would be paid at closing in cash, $2.5 million in cash would be paid on March 30, 2007 (evidenced by the issuance of a promissory note due March 30, 2007) and $20 million would be paid through the issuance of a promissory note due June 30, 2008. The proposed agreement contemplates that the Partnership would provide us with an exclusive, world-wide, royalty-free right to use the transferred assets.
69
Pursuant to the proposed arrangements, Madison Grant would enter into a call option agreement with us pursuant to which we would have the right, but not the obligation, to purchase all of Madison Grant's partnership interests in the Partnership at any time from January 15, 2008 through June 30, 2008 by issuing, subject to regulatory approval, a total of $5 million of our unregistered common stock valued at a price equal to the greater of $0.40 per share or the 90-day average price per share immediately prior to January 15, 2008 less a discount of 10% and surrendering the $20 million promissory note. If we enter into definitive agreements with Madison Grant we intend to exercise the call option.
If we do not exercise our call option by June 30, 2008, Madison Grant would have the right to cause the Partnership to sell the transferred assets to a third-party at fair market value, subject to our right of first refusal to re-acquire those assets, and we would be obligated to commit $25 million by June 30, 2009 towards marketing and promoting the Partnership. Our marketing obligations would terminate, however, if we exercised our call option or our right of first refusal.
Under the terms of the proposed agreements, one of our wholly-owned subsidiaries would be the operating general partner of the Partnership. It is contemplated that the operating general partner would operate the Partnership and administer, manage and control the Partnership's business. Under the proposed terms of the agreements we will maintain operational control of the Partnership. We intend to consolidate the Partnership into our accounts for financial reporting purposes.
In addition, pursuant to the terms of the proposed arrangement, a nominee of Madison Grant would have board observer rights until the earlier of the exercise of our call option or June 30, 2008.
We have not finalized our discussions or negotiations with Madison Grant and we have not entered into any definitive agreements with respect to this matter. In addition, we cannot assure you that this transaction will be consummated and if this transaction is consummated that the terms of any transaction would be similar to the terms we have described.
Need for Additional Financing
We will need to seek additional funding to support our ongoing losses until we reach a level of revenue which will sustain our operations and planned growth on an internal basis. We cannot assure you that additional funding will be available, or if available, that it will be available on acceptable terms to us. If adequate funds are not available, we may have to substantially reduce or eliminate expenditures for research and development, testing, production and marketing of our products. Our ability to arrange additional financing in the future will depend, in part, upon the prevailing capital market conditions as well as the business and performance of our company.
Cash Flow Results
The table set forth below provides a summary statement of cash flows for the periods indicated:
|
Year Ended March 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2006
|
2005
|
2004
|
|||||||
|
(in thousands of US dollars)
|
|||||||||
Cash used in operating activities | $ | (8,668 | ) | $ | (6,317 | ) | $ | (3,759 | ) | |
Cash provided by (used in) investing activities | $ | 288 | $ | (332 | ) | $ | (310 | ) | ||
Cash provided by financing activities | $ | 7,194 | $ | 7,177 | $ | 4,664 | ||||
Cash and cash equivalents | $ | 56 | $ | 1,242 | $ | 714 |
Fiscal 2006. Cash used in operating activities in fiscal year 2006 was $8,668,000. While our net loss was $6,573,000, our net cash used was higher in fiscal year 2006 as compared to fiscal year 2005
70
primarily due to increases in accounts receivable of $2,750,000, inventory of $759,000 and accounts payable of $897,000 commensurate with the increases in revenue and related activities in our business.
Cash provided by investing activities in fiscal year 2006 represented the net proceeds from the sale of technology of $877,000 less additions to capital assets of $589,000. Additions in the 2006 fiscal year were principally comprised of the use of our Centrino® based tablets for sales and marketing demonstrations and internal use.
The cash provided by financing activities of $7,194,000 is comprised of $1,582,000 of net borrowings from the bank indebtedness, $5 million of proceeds from the issuance of short-term debentures and $612,000 of proceeds from the issuance of shares in connection with warrants and options that were exercised in fiscal year 2006.
Fiscal 2005. Cash used in operating activities in fiscal year 2005 was $6,317,000. While our net loss was $8,891,000, our net cash used was lower due to significant improvements in our collections processes and business practices that resulted in a $3,452,000 reduction in accounts receivable during fiscal year 2005. At March 31, 2005, accounts receivable were $1,863,000 as compared to $5,315,000 at March 31, 2004 even though approximately $5 million of sales product was shipped in the fourth quarter of each fiscal year. The benefit of the accounts receivable reduction was diminished by an $896,000 increase in inventory necessary to fulfill demand related to our Centrino® based tablets, which were new to the marketplace at the end of the 2005 fiscal year.
The additions to capital assets of $332,000 represent all of the cash used in investing activities. Additions in the 2005 fiscal year were principally comprised of the use of our new Centrino® based tablets for marketing demonstrations and internal use.
The increase in cash provided by financing activities of $7,177,000 in fiscal year 2005 as compared to $4,664,000 in fiscal year 2004 is due to timings of related funding. In fiscal year 2005, we received approximately $800,000 in April 2004 in connection with the issuance of common shares, shortly after the end of the 2004 fiscal year and $5 million in the December 2004 private placement.
Fiscal 2004. In fiscal year 2004, net cash used in our operating activities was $3,759,000 in fiscal year 2004. Our net loss in fiscal year 2004 was $12,699,000. The impact was reduced on a cash basis by a $5,099,000 reduction in inventory and $3,210,000 of non-cash interest expense. We generated $6,618,000 of cash through the issuance of common shares and debentures and repaid the remaining outstanding balance of our commercial bank indebtedness of $1,969,000. With the remaining proceeds from financing activities, we funded the operating deficits and our investing activities of $310,000 which were solely fixed asset purchases.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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Tabular Disclosure of Contractual Obligations
At March 31, 2006, our contractual obligations consisted of the following:
|
Payments due by period
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual obligations
|
Total
|
Less than
1 year |
1-3 years
|
3-5 years
|
More than
5 years |
|||||||||
Bank indebtedness | $ | 1,672,000 | $ | 1,672,000 | | | | |||||||
Debentures(1) | $ | 17,005,000 | 16,755,000 | $ | 250,000 | | | |||||||
Operating leases | $ | 800,000 | $ | 244,000 | $ | 556,000 | | | ||||||
Purchase obligations | $ | 2,900,000 | $ | 2,900,000 | | | | |||||||
Other(2) | $ | 87,500 | $ | 87,500 | | | | |||||||
|
|
|
|
|
||||||||||
Total | $ | 22,464,500 | $ | 21,658,500 | $ | 806,000 | | | ||||||
|
|
|
Our future contractual obligations include future minimum lease payments under non-cancelable operating leases primarily related to our corporate headquarters in Austin, Texas. At March 31, 2006, we had purchase obligations to certain contract manufacturers and other inventory suppliers of approximately $2.9 million related to inventory and product development items extending into fiscal year 2007.
Changes in and Disagreements with Accountants in Accounting and Financial Disclosure under Canadian GAAP
On March 30, 2005, Deloitte & Touche LLP (which we refer to as Deloitte), who were our independent accountants for more than four years, resigned as our auditor. Deloitte's report with respect to its audit of our financial statements for the two years ended March 31, 2004 did not contain an adverse opinion or a disclaimer of opinion, nor was the report qualified or modified as to uncertainty, audit scope, or accounting principles. Prior to Deloitte's resignation, we had no disagreements with Deloitte on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to Deloitte's satisfaction, would have caused Deloitte to make reference to the subject matter of the disagreement(s) in connection with its report. On April 13, 2005, our Board of Directors approved a proposal to appoint Mintz & Partners LLP (who we refer to as Mintz) as our auditor effective April 11, 2005.
In June 2005, our company, our former Chief Executive Officer and our former Chief Financial Officer received notices from the Ontario Securities Commission (which we refer to as the OSC) which stated that the OSC reviewed the facts and circumstances surrounding the recognition of revenue related to product returned from our distribution channel in fiscal years 2003 and 2004 and our accounting treatment for those transactions in our financial statements. The OSC staff position was that we did not account for certain transactions between us and some of our value added resellers and some of the revenue which we recognized in our financial statements in accordance with Canadian generally accepted accounting principles. As a result our 2002, 2003 and 2004 annual financial statements (all of which were audited by Deloitte), along with our 2004 and 2005 interim and first quarter 2006 financial
72
statements, were required to be restated. In July 2005, Deloitte withdrew its opinions with respect to its audit of our 2002, 2003 and 2004 annual financial statements.
In July 2005, we requested that Mintz re-audit our financial statements for each of the years ended March 31, 2002, 2003 and 2004 in accordance with Canadian generally accepted auditing standards. On November 9, 2005, we filed those financial statements with the Canadian provincial securities regulatory authorities, along with our audited financial statements for the year ended March 31, 2005, as well as our restated interim financial statements for fiscal years 2004 and 2005 and for the first quarter for fiscal year 2006. The restatement generally adjusted revenue and expenses among the four annual periods ended March 31, 2005, however, the adjustments did not change the cumulative results of operations for that four year period.
On January 27, 2006, the OSC approved a settlement agreement with us in connection with their investigation, which resolved our outstanding regulatory issues with respect to our financial statements. Under the terms of the settlement agreement, we reimbursed the OSC Cdn.$20,000 towards the costs of the investigation and hearing, made a settlement payment of Cdn.$50,000 to the OSC for the benefit of third parties, and were reprimanded for our failure to file financial statements in accordance with Canadian generally accepted accounting principles. In addition, we provided the OSC with a letter of comfort confirming, among other things, that our new management team had instituted new practices and procedures to prevent the future improper recognition of revenue.
On November 9, 2006, we issued a Statement of Claim against Deloitte in the Ontario Superior Court of Justice. In the Statement of Claim, we have alleged negligence against Deloitte with respect to the auditing services they provided to us in connection with its audit of our 2002, 2003 and 2004 audited financial statements. The Statement of Claim seeks damages in the amount of Cdn. $4,070,000 for direct and indirect losses. Deloitte has not yet filed an answer to the Statement of Claim.
Quantitative and Qualitative Disclosure About Market Risk
Market risk sensitive instruments include all financial or commodity instruments and other financial instruments (such as investments and debt) that are sensitive to future changes in interest rates, current exchange rates, commodity prices or other market factors. We are exposed to market risk related to changes in interest and foreign currency exchange rates, each of which could adversely affect the value of our current assets and liabilities. At September 30, 2006, we had cash and cash equivalents consisting of cash on hand and highly liquid money market instruments with original terms to maturity of less than 90 days. If market interest rates were to increase immediately and uniformly by 10% from its levels at September 30, 2006, the fair value would decline by an immaterial amount. We do not believe that our results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our cash and cash equivalents, given our current ability to hold our money market investments to maturity. We do not enter into foreign exchange contracts to manage exposure to currency rate fluctuations related to our United States dollar denominated cash and money market investments.
73
Directors and Executive Officers
The following table sets forth certain information concerning the directors and executive officers of our company as of November 10, 2006:
Name
|
Age
|
Positions with our Company
|
||
---|---|---|---|---|
Philip S. Sassower | 67 | Chairman of the Board of Directors and Chief Executive Officer | ||
Mark Holleran |
|
49 |
|
President and Chief Operating Officer |
Michael J. Rapisand |
|
47 |
|
Chief Financial Officer and Corporate Secretary |
Andrea Goren |
|
39 |
|
Director |
Thomas F. Leonardis |
|
63 |
|
Director |
Brian E. Usher-Jones |
|
60 |
|
Director |
Philip S. Sassower has served as our Chief Executive Officer since February 2006 and has been a director of our company and served as Chairman of the Board of Directors since December 2004. Mr. Sassower has been Chief Executive Officer of SG Phoenix LLC, a private equity firm, since May 2003. Mr. Sassower has also been Chief Executive Officer of Phoenix Enterprises LLC, a private equity firm, since 1996. Mr. Sassower served as Chairman of the Board of Communication Intelligence Corp., an electronic signature solution provider, from 1998 to 2002 and Chairman of the Board of Newpark Resources, Inc., an environmental services company, from 1987 to 1996.
Mark Holleran has served as our President and Chief Operating Officer since February 2006. Mr. Holleran served as Vice President of Sales from April 2003 to February 2006. Prior to joining our company, Mr. Holleran was a consultant with the U.K. based consulting firm of Cox Consulting Ltd. from 2002 to 2003. Prior to that, Mr. Holleran served as President and Chief Executive Officer of Wavestat Wireless Inc., a developer of wireless products, from 2000 to 2002. Mr. Holleran served as Vice-PresidentSales and Marketing at Cabletron Systems of Canada from 1996 to 1999.
Michael J. Rapisand has served as our Chief Financial Officer and Corporate Secretary since August 2004. Prior to joining our company, Mr. Rapisand served as Chief Financial Officer of TippingPoint Technologies, Inc., a network-based security hardware manufacturer, from October 2002 to March 2004. Prior to that, Mr. Rapisand served as Chief Financial Officer and Vice President of ThinkWell Corporation, a publishing company, from October 2001 to September 2002. From March 1997 to July 2001, Mr. Rapisand served as Finance Director of Dell Inc. In October 2006, Mr. Rapisand became a director of DataMetrics Corporation, a designer and manufacturer of rugged electronic products.
Andrea Goren has been a director of our company since December 2004. Mr. Goren has been Managing Director of SG Phoenix LLC, a private equity firm, since May 2003 and associated with Phoenix Enterprises LLC since January 2003. Prior to that, Mr. Goren served as Vice President of Shamrock International, Ltd., a private equity firm, from June 1999 to December 2002.
Thomas F. Leonardis has been a director of our company since June 2005. Mr. Leonardis has been President and Chief Executive Officer of Ember Industries, Inc., a contract electronics manufacture, since November 2001. Mr. Leonardis has been a director of DataMetrics Corporation, a designer and manufacturer of rugged electronic products, since November 2001.
Brian E. Usher-Jones has been a director of our company since 1996. Since 1992, Mr. Usher-Jones has been self-employed as a merchant banker. Mr. Usher-Jones is currently a director of Wireless Age Communications Inc. From November 2000 to September 2006, Mr. Usher-Jones served as Chairman and Chief Executive Officer of Oromente Resources Inc., a mining exploration company. From
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November 2002 to September 2005, Mr. Usher-Jones served as Chairman of Greenshield Resources Ltd., a mining exploration company. From April 1997 to June 2004, Mr. Usher-Jones served as a director of Calvalley Petroleum Inc., an oil exploration company. From June 2001 to July 2004, Mr. Usher-Jones served as a director of Pivotal Self-Service Technologies Inc., which installs ATM machines. From January 2001 to December 2003, Mr. Usher-Jones served as Chairman of International Vision Direct, an internet seller of contact lenses. Mr. Usher-Jones served as Treasurer and Interim Chief Financial Officer of our company from August 1996 to November 1997 and from August 2001 to December 2001.
Audit and Executive Committees
We are required to have an Audit Committee, which presently consists of Brian E. Usher-Jones, Andrea Goren and Thomas Leonardis. Mr. Usher-Jones is Chairman of the Audit Committee. We also have an Executive Committee, which presently consists of Philip Sassower and Andrea Goren.
Executive Compensation
The following table sets forth, for each of our last three completed fiscal years, the compensation paid to our Chief Executive Officer and each of the four most highly compensated executive officers other than the Chief Executive Officer (which we refer to as "Named Executive Officers") who were serving as executive officers at the end of the most recently completed fiscal year, where the total annual salary and bonus of such individual exceeded $100,000.
|
|
Annual Compensation
|
Long-Term Compensation
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
Awards
|
Payouts
|
|||||||||||
Name and Principal
Position |
Fiscal
Year |
Salary
US($) |
Bonus
US($) |
Other Annual
Compensation US($)(1) |
Restricted
Stock Award(s)($) |
Securities
Under Options/SARs Granted(#) |
LTIP
payouts ($) |
All Other
Compensation US$ |
|||||||||
Philip Sassower
Chief Executive Officer(2) |
2006
2005 2004 |
|
|
|
150,000
|
|
|||||||||||
Brian R. Groh(3) President and Chief Executive Officer |
|
2006 2005 2004 |
|
84,642 201,002 107,546 |
|
|
|
|
|
|
|
300,000 367,328 562,000 |
|
|
|
144,108 54,643 |
(8) (9) |
Michael J. Rapisand(4) Chief Financial Officer |
|
2006 2005 2004 |
|
145,000 96,330 |
|
50,000 |
(10) |
|
|
|
|
830,000 |
|
|
|
|
|
Richard Perley(5) Senior Vice President |
|
2006 2005 2004 |
|
140,000 130,000 116,000 |
|
|
|
|
|
|
|
200,000 340,420 255,000 |
|
|
|
|
|
Mark Holleran(6) President and Chief Operating Officer |
|
2006 2005 2004 |
|
147,973 137,846 156,611 |
|
|
|
123,737 106,865 |
(11) (11) |
|
|
340,000 78,334 175,000 |
|
|
|
|
|
Steven Sienkiewcz(7) Vice President of Operations |
|
2006 2005 2004 |
|
56,341 143,346 |
|
|
|
|
|
|
|
830,000 |
|
|
|
|
|
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The following table sets forth information concerning options granted to purchase common shares to the Named Executive Officers during the most recently completed fiscal year.
Option Grants During the Fiscal Year Ended March 31, 2006
|
|
|
|
|
|
Potential
Relalizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1) |
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
Market Value
of Securities Underlying Options on the Date of Grant C($) |
|
|
||||||||||
|
|
% of Total Options
Granted to Employees in Financial Year |
|
|
|
|||||||||||
Name
|
Securities Under
Options Granted(#) |
Exercise
Price C($) |
|
|
||||||||||||
Expiration Date
|
5%(C$)
|
10%(C$)
|
|
|||||||||||||
Philip S. Sassower | 150,000 | 9.5% | $0.93 | $0.93 | June 21, 2010 | 146,475 | 153,450 | |||||||||
Brian R. Groh | 300,000 | 19.0% | $0.93 | $0.93 | June 21, 2010 | 292,950 | 306,900 | |||||||||
Michael J. Rapisand | | | | | | | | |||||||||
Richard Perley | 200,000 | 12.7% | $0.93 | $0.93 | June 21, 2010 | 195,300 | 204,600 | |||||||||
Mark Holleran | 340,000 | 21.5% | $0.93 | $0.93 | June 21, 2010 | 332,010 | 347,820 | |||||||||
Steven Sienkiewicz | | | | | | | |
The 5% or 10% assumed rates of appreciation are suggested by the rules of the SEC and do not represent our estimate or projection of the future common stock price. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock.
The following table sets forth information concerning the exercise of options to purchase common shares during the most recently completed fiscal year by each of the Named Executive Officers and the financial year-end value of unexercised options, on an aggregated basis.
Aggregated Options Exercises During the Fiscal Year Ended March 31, 2006
and Fiscal Year-End Option Values
Name
|
Shares
Acquired on Exercise (#) |
Aggregate
Value Realized C($) |
Unexercised Options at
March 31, 2006 (#) Exercisable/ Unexercisable |
Value of
Unexercised in-the-Money Options at March 31, 2006 C($) Exercisable/ Unexercisable(1) |
||||
---|---|---|---|---|---|---|---|---|
Philip S. Sassower | | | 0/150,000 | $0/$0 | ||||
Brian R. Groh | | | 666,006/0 | $0/$0 | ||||
Michael J. Rapisand | | | 394,167/435,833 | $0/$0 | ||||
Richard Perley | | | 396,388/0 | $0/$0 | ||||
Mark Holleran | | | 195,001/554,999 | $0/$0 | ||||
Steven Sienkiewicz | | | 0/0 | $0/$0 |
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Compensation of Directors
In June 2006, our board of directors approved a compensation program for our directors pursuant to which we pay each of our directors who is not our employee, whom we refer to as a non-employee director, fees for attendance at board meetings. Each non-employee director receives $1,500 for each board meeting he attends in person and $750 for each board meeting he attends by teleconference. In addition, from time to time, we have granted options to our directors to purchase our common shares.
We reimburse each director of our board of directors for out-of-pocket expenses incurred in connection with attending our board and board committee meetings. Compensation for our directors, including cash and equity compensation, is determined, and remains subject to adjustment, by our board of directors.
Employee Agreements
Mark Holleran
On June 30, 2006, we entered into an employment agreement with Mark Holleran, our President and Chief Executive Officer. The agreement is for a period of two years, and may be renewed for an additional one year period. In consideration for his services, during the term Mr. Holleran is entitled to receive a base salary of $250,000 per year, subject to any increase as may be approved by our board of directors. Mr. Holleran is also entitled to receive a performance bonus of up to 100% of his base salary based on his achievement of certain defined objectives to be established by our board of directors and Mr. Holleran. In addition, we may award, in our sole discretion, Mr. Holleran additional performance bonuses in recognition of his performance. In connection with entering into the employment agreement, Mr. Holleran was awarded options to purchase 1.2 million of our common shares at a price of $0.34 per share. The options will vest in equal annual installments over a period of three years. As part of this grant, Mr. Holleran agreed to the extinguishment of any options previously granted to him that did not vest on or before June 22, 2006.
Mr. Holleran is also eligible to participate in a transaction bonus pool in the event of the sale of our company during the term of Mr. Holleran's employment agreement. The amount of the transaction bonus pool will be based upon the total consideration received by our shareholders from the sale of our company, less our transaction expenses. Mr. Holleran will be entitled to receive 50% of the total amount of the transaction bonus pool, while 30% will be allocated to our Chief Financial Officer and the remaining 20% will be distributed among our senior management team as decided by our board of directors.
If we do not renew Mr. Holleran's employment agreement after the initial period of two years, he will be entitled to continue to receive his base salary for an additional period of one year, less any amounts he earns from any employment or self-employment during that time. Mr. Holleran will also be entitled to receive an amount equal to the average of his performance bonus paid to him during the term of his employment agreement. In addition, Mr. Holleran may be eligible to continue to participate in our group health plans during this one year period.
As part of the employment agreement, we agreed to reimburse Mr. Holleran up to $80,000 of his expenses incurred in connection with his relocation from Toronto, Canada to Austin, Texas. We also agreed that if we terminate Mr. Holleran's employment without cause during the term of his employment agreement, in addition to any payments due to him under the terms of the agreement, we will reimburse Mr. Holleran up to $80,000 of his expenses incurred in connection with his relocation back to Canada. The employment agreement also contains customary non-compete, non-solicitation, non-disparagement and confidentiality provisions.
Brian R. Groh
Brian R. Groh, our former President and Chief Executive Officer, entered into a corporate relocation agreement with our company in September 2005. In addition to the reimbursement of
77
certain relocation costs and expenses related to his relocation to Austin, Texas, the agreement provided for an annual salary of $200,000, of which $150,000 and $175,000 were paid in cash and $50,000 and $25,000 in stock compensation in the first year and second year, respectively. In 2004, Mr. Groh also received options to purchase 150,000 common shares under our Share Option Plan.
Effective January 3, 2006, in connection with his resignation from our company, we entered into an agreement with Mr. Groh whereby, among other things, we agreed to pay him a total of $175,000, consisting of an up-front payment of $25,000 and 12 monthly payments of $12,500 each, and extend the maturity date of his options to purchase 95,672 of our common shares to April 28, 2006 and his options to purchase 570,334 of our common shares to November 1, 2006. In return, Mr. Groh agreed to terminate his prior agreement with us and acknowledged that he was not entitled to any payments or benefits from our company other than as set forth in the separation agreement. The agreement also contains provisions prohibiting Mr. Groh from soliciting any of our employees or competing against us for a period of one year. We made our last payment to Mr. Groh in October 2006 and on November 1, 2006, all of his options to purchase our common shares expired unexercised.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Andrea Goren, Brian E. Usher-Jones and Thomas Leonardis. Mr. Goren is co-manager of the managing member of Phoenix Venture Fund LLC, one of our principal shareholders. Mr. Usher-Jones served as our Interim Chief Financial Officer from August 1996 to November 1997 and from August 2001 to December 2001.
Interest of Management and Others in Material Transactions
In April 2003, we raised gross proceeds of $2,000,000 through two private placements of 10% secured debentures and common share purchase warrants to acquire up to an aggregate of 9,090,912 common shares. Each warrant entitles the holder to acquire one common share at an exercise price of C$0.33 until April 2006. In connection with this financing, The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (which we refer to as the Sassower Trust), of which Philip S. Sassower, our Chairman of the Board and Chief Executive Officer, is Trustee, purchased $502,500 aggregate principal amount of 10% secured debentures and common share purchase warrants to acquire up to an aggregate of 2,284,092 common shares.
In March 2004, we raised gross proceeds of $3,234,000 through a private placement of 4,042,000 units at $0.80 per unit, each unit comprised of one common share and one common share purchase warrant. Kilgorie Investments Ltd., a corporation controlled by Richard Hamm, one of our former directors, purchased 156,250 units in this transaction. In addition, Phoenix Enterprises LLC, of which Philip S. Sassower, our Chairman of the Board and Chief Executive Officer, is Chief Executive Officer, assisted us with this financing and received an advisory fee of $90,000.
During the year ended March 31, 2004, we issued warrants to Brian E. Usher-Jones, one of our directors, in consideration for a $270,000 bridge loan that he provided to us on October 18, 2002. These warrants entitled Mr. Usher-Jones to acquire up to 270,000 common shares at an exercise price of C$0.50.
In September 2004, we issued a 10% senior secured debenture in the original principal amount of $1.05 million to the Sassower Trust. The principal and accrued interest under this debenture were paid in full with the proceeds from our December 2004 private placement of convertible debentures.
78
In November 2004, we issued a 10% senior secured debenture in the principal amount of $1.6 million to Phoenix. Mr. Sassower and Andrea Goren, a director of our company, are the co-managers of the managing member of Phoenix. The principal and accrued interest under this debenture were paid in full with the proceeds from our December 2004 private placement of convertible debentures.
In December 2004, we completed a $5 million private placement of 10% secured convertible debentures and common share purchase warrants to acquire an aggregate of 9,100,000 common shares at $0.55 per share. The principal amount of each debenture could be converted, at the holder's option, into common shares at a conversion price of $0.44 per share. Interest accrued on the debentures could be satisfied, at the option of the holder, by the issuance of our common shares. The debentures had an original maturity date of October 31, 2005. Pursuant to this transaction, we issued a $4.9 million debenture and a warrant to purchase 8,918,000 common shares to Phoenix.
In May 2005, we raised $1.5 million through the issuance of a 10% secured promissory note to Phoenix. The original maturity date of the note, July 20, 2005, was subsequently amended to August 31, 2005 and then to September 15, 2005. The principal amount of this note was paid in full from the proceeds of our September 2005 private placement of debentures.
In July 2005, we raised $1.5 million through the issuance of 10% secured promissory notes to Phoenix, the Sassower Trust and another lender. The original maturity dates of the notes, August 31, 2005, was subsequently amended to September 15, 2005. The principal amount of these notes was paid in full from the proceeds of our September 2005 private placement of debentures.
On September 15, 2005, we entered into a debenture purchase agreement with Phoenix, the Sassower Trust and another lender (which we refer to as the Lenders), whereby the Lenders agreed to provide an aggregate of $5 million of financing to us. The debentures had an original maturity date of March 31, 2006, which was subsequently amended to June 30, 2006. Borrowings under those debentures bore interest at 10% per annum. We initially drew on the facility and issued debentures to the Lenders in the aggregate amount of $3 million. We used the gross proceeds to re-pay promissory notes in the aggregate amount of $3 million previously issued by our U.S. subsidiary in May and July 2005. On September 29, 2005, November 4, 2005 and November 7, 2005, we made additional draws on the facility and issued debentures to the Lenders in the aggregate amount of $2 million. The proceeds were used for working capital and general corporate purposes. In connection with this financing, the maturity date of all of our other outstanding debentures was extended to April 30, 2007. Of this $5 million facility, we issued debentures in an aggregate principal amount of $4.5 million to Phoenix and the Sassower Trust.
Since the debentures issued pursuant to this debenture purchase agreement were not paid in full by March 31, 2006, in accordance with the terms of the agreement, we issued warrants to the holders of those debentures entitling the holder to purchase that number of our common shares equal to the number of dollars representing the aggregate amount then due on such holder's debenture. Thus, on April 10, 2006, we issued to Phoenix and the Sassower Trust warrants to purchase 4,724,144 of our common shares at an exercise price of Cdn.$0.45. The warrants are exercisable through April 10, 2008 and the exercise price of the warrants was based on the average current market price of our common shares for the five days before the date of issuance.
On April 21, 2006, we entered into a financing agreement with Phoenix pursuant to which Phoenix agreed, at its sole discretion, to provide up to $5 million in financing to us. In connection with this financing, we issued a $1 million 10% secured debenture to Phoenix, which had a maturity date of June 30, 2006. The debenture (including accrued and unpaid interest) was exchanged for 2,970,185 Series A Preferred Shares as part of our recapitalization. The remaining $4 million balance under the financing could be funded at any time through June 30, 2006 (subsequently amended to July 31, 2006), in Phoenix's sole discretion, through the issuance of additional Series A Preferred Shares, at a purchase
79
price of $0.34 per share, to Phoenix and/or its assigns. Phoenix later assigned its right to purchase $2,703,800 of the remaining $4 million debentures to non-affiliated third parties (except for $50,000 which was assigned to Michael J. Rapisand, our Chief Financial Officer), which was subsequently exchanged for 7,952,353 Series A Preferred Shares, including 147,059 Series A Preferred Shares issued to Mr. Rapisand.
On April 21, 2006, we entered into a purchase and exchange agreement with Phoenix and certain other debenture holders, whereby the debenture holders agreed to exchange their outstanding debentures for our Series A Preferred Shares at the rate of one Series A Preferred Share for every $0.34 of principal and accrued and unpaid interest. On May 30, 2006, we completed a recapitalization, pursuant to which approximately $18.9 million of indebtedness, representing all of our outstanding 10% secured debentures, including accrued interest (except for one debenture in the aggregate principal amount of $250,000), was exchanged for 55,520,542 of our Series A Preferred Shares. Pursuant to this recapitalization, we issued 45,012,677 Series A Preferred Shares to Phoenix, the Sassower Trust, Mr. Sassower and another entity controlled by Mr. Sassower in exchange for debentures in the aggregate principal amount of $14,307,500.
80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficially ownership of our capital stock as of October 31, 2006 by (i) each person known by us to be the beneficial owner of more than 5% of any class of our voting securities, (ii) each of our directors, (iii) each of our "named executive officers" and (iv) our directors and executive officers as a group.
|
Common Shares
Beneficially Owned |
Series A Preferred Shares
Beneficially Owned |
Series B Preferred Shares
Beneficially Owned |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of
Beneficial Owner(1) |
Number of
Common Shares(2) |
Percentage of
Class(3) |
Number of
Series A Preferred Shares |
Percentage
of Class(4) |
Number of
Series B Preferred Shares |
Percentage
of Class(5) |
Percentage
of Combined Classes(6) |
||||||||
Philip S. Sassower | 2,842,417 | (7) | 4.6 | % | 13,676,370 | (15) | 21.5 | % | | | 12.2 | % | |||
Mark Holleran | 366,668 | (8) | * | | | | | * | |||||||
Michael J. Rapisand | 435,834 | (9) | * | 147,059 | * | | | * | |||||||
Brian E. Usher-Jones | 413,750 | (10) | * | | | | | * | |||||||
Andrea Goren | 60,000 | (11) | * | | | | | * | |||||||
Thomas F. Leonardis | 50,000 | (12) | * | | | | | * | |||||||
Phoenix Venture Fund LLC
110 East 59 th Street New York, NY 10022 |
13,117,452 | (13) | 17.7 | % | 31,032,014 | (16) | 48.9 | % | | | 29.9 | % | |||
Alex and James Goren
150 East 52 nd Street New York, NY 10022 |
| | 3,595,961 | (17) | 5.7 | % | | | 2.7 | % | |||||
William Freas
c/o Joseph Gunnar & Co. 30 Broad Street New York, NY 10004 |
| | | | 2,941,177 | 29.4 | % | 2.2 | % | ||||||
Ross Irvine
c/o Sky Capital LLC 110 Wall Street New York, NY 10005 |
| | | | 1,000,000 | 10.0 | % | * | |||||||
All directors and executive officers as a group (6 persons) | 4,168,669 | (7)(14) | 6.7 | % | 13,823,429 | (15)(18) | 21.8 | % | | | 13.2 | % |
81
82
INTEREST OF MANAGEMENT IN THE DOMESTICATION
No person who has been a director or executive officer of our company since the beginning of our last fiscal year nor any of their associates or affiliates has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in the domestication other than those interests arising from their ownership of our capital stock.
Certain legal matters under United States law relating to the issuance of shares of capital stock of Xplore Technologies in connection with the domestication will be passed upon by Brown Raysman Millstein Felder & Steiner LLP.
The consolidated financial statements of Xplore Technologies as of March 31, 2006 and 2005, and for each of the years in the three-year period ended March 31, 2006, have been included in this prospectus in reliance upon the report of Mintz & Partners LLP, independent registered auditors, appearing elsewhere in this prospectus, and upon the authority of said firm as experts in accounting and auditing.
Any shareholder's proposal that is intended to be presented at the 2007 annual meeting of shareholders must be received by the company no later than August 10, 2007. The proposal can then be included in the proxy statement (or management information circular if the domestication is not approved or not consummated) and the proxy for the 2007 annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes part of a registration statement on Form S-4 that we filed with the SEC. You may read and copy this prospectus at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this prospectus by mail from the Public Reference Section of the SEC at prescribed rates. To obtain information on the operation of the Public Reference Room, you can call the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, including Xplore Technologies, that file electronically with the SEC. The address of the SEC's Internet website is http://www.sec.gov.
Additional information relating to our company is also available on SEDAR at www.sedar.com. Financial information for our most recently completed financial year is provided in the comparative financial statements and management's discussion and analysis for our most recently completed financial year. Copies of our audited consolidated financial statements and management's discussion and analysis, may be obtained upon request from our Corporate Secretary at 14000 Summit Drive, Suite 900, Austin, Texas 78728.
The contents and the sending of this circular have been approved by the board of directors of Xplore Technologies Corp.
DATED: , 2007.
|
Name: Michael J. Rapisand Title: Corporate Secretary and Chief Financial Officer |
83
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF
XPLORE TECHNOLOGIES CORP.
Interim Financial Statements |
|
|
Consolidated Balance Sheets as at March 31, 2006 and September 30, 2006 (unaudited) |
|
F-2 |
Consolidated Statements of Loss for the three months and six months ended September 30, 2006 and 2005 (unaudited) |
|
F-3 |
Consolidated Statements of Cash Flows for the three months and six months ended September 30, 2006 and 2005 (unaudited) |
|
F-4 |
Notes to Consolidated Financial Statements (unaudited) |
|
F-5 |
Annual Financial Statements |
|
|
Report of Independent Registered Auditors |
|
F-11 |
Consolidated Balance Sheets as at March 31, 2006 and 2005 |
|
F-12 |
Consolidated Statements of Loss for the years ended March 31, 2006, 2005 and 2004 |
|
F-13 |
Consolidated Statement of Stockholder's Deficiency |
|
F-14 |
Consolidated Statements of Cash Flows for the years ended March 31, 2006, 2005 and 2004 |
|
F-15 |
Notes to the Consolidated Financial Statements |
|
F-16 |
F-1
XPLORE TECHNOLOGIES CORP.
Consolidated Balance Sheets
(in thousands of United States dollars)
|
UNAUDITED
|
AUDITED
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
September 30, 2006
|
March, 31, 2006
|
||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 3,205 | $ | 56 | ||||||
Accounts receivable, net | 5,464 | 4,613 | ||||||||
Inventory | 5,963 | 3,713 | ||||||||
Prepaid expenses and other current assets | 127 | 826 | ||||||||
|
|
|||||||||
Total current assets | 14,759 | 9,208 | ||||||||
|
|
|||||||||
Fixed assets, net | 671 | 597 | ||||||||
Deferred charges | | 1,419 | ||||||||
|
|
|||||||||
$ | 15,430 | $ | 11,224 | |||||||
|
|
|||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) |
|
|
|
|
|
|
|
|||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|||
Accounts payable and accrued liabilities | $ | 7,145 | $ | 7,042 | ||||||
Bank indebtedness (Note 4) | | 1,672 | ||||||||
Short-term debentures (Note 5) | | 5,000 | ||||||||
|
|
|||||||||
Total current liabilities | 7,145 | 13,714 | ||||||||
|
|
|||||||||
Debentures (Note 5) |
|
|
250 |
|
|
12,005 |
|
|||
|
|
|||||||||
7,395 | 25,719 | |||||||||
|
|
|||||||||
Commitments and contingencies (Notes 4, 5 and 9) |
|
|
|
|
|
|
|
|||
SHAREHOLDERS' EQUITY (DEFICIENCY): |
|
|
|
|
|
|
|
|||
Series A Preferred Shares (Note 5 and 6) | 20,704 | | ||||||||
Series B Preferred Shares (Note 6) | 2,908 | | ||||||||
Share capitalCommon Shares (Note 6) | 64,994 | 63,834 | ||||||||
Additional paid-in capital (Note 5) | 3,906 | 3,659 | ||||||||
Accumulated other comprehensive loss | (2,474 | ) | (1,104 | ) | ||||||
Accumulated deficit | (82,003 | ) | (80,884 | ) | ||||||
|
|
|||||||||
8,035 | (14,495 | ) | ||||||||
|
|
|||||||||
$ | 15,430 | $ | 11,224 | |||||||
|
|
See accompanying notes to unaudited consolidated financial statements.
F-2
XPLORE TECHNOLOGIES CORP.
Consolidated Statements of LossUnaudited
(in thousands of United States dollars, except loss per common share)
|
Three Months Ended
|
Six Months Ended
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
September 30, 2006
|
September 30, 2005
|
September 30, 2006
|
September 30, 2005
|
|||||||||
REVENUE | $ | 8,660 | $ | 6,583 | $ | 17,839 | $ | 12,708 | |||||
COST OF REVENUE | 6,246 | 4,891 | 12,917 | 9,587 | |||||||||
|
|
|
|
||||||||||
GROSS PROFIT | 2,414 | 1,692 | 4,922 | 3,121 | |||||||||
|
|
|
|
||||||||||
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing and support | 1,553 | 1,123 | 3,127 | 2,242 | |||||||||
Product research, development and engineering | 641 | 716 | 1,241 | 1,050 | |||||||||
General administration | 938 | 1,458 | 1,738 | 2,671 | |||||||||
|
|
|
|
||||||||||
3,132 | 3,297 | 6,106 | 5,963 | ||||||||||
|
|
|
|
||||||||||
LOSS FROM OPERATIONS | (718 | ) | (1,605 | ) | (1,184 | ) | (2,842 | ) | |||||
|
|
|
|
||||||||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (Notes 4, 5 and 7) | (34 | ) | (403 | ) | (396 | ) | (719 | ) | |||||
Amortization of deferred financing costs (Note 5) | | (365 | ) | (905 | ) | (635 | ) | ||||||
Other income (expense) (Note 10) | (2 | ) | 886 | (4 | ) | 865 | |||||||
|
|
|
|
||||||||||
(36 | ) | 118 | (1,305 | ) | (489 | ) | |||||||
|
|
|
|
||||||||||
NET LOSS |
|
$ |
(754 |
) |
$ |
(1,487 |
) |
$ |
(2,489 |
) |
$ |
(3,331 |
) |
|
|
|
|
||||||||||
LOSS PER SHARE |
|
$ |
(0.01 |
) |
$ |
(0.03 |
) |
$ |
(0.04 |
) |
$ |
(0.06 |
) |
|
|
|
|
||||||||||
Weighted average number of common shares outstanding (Note 3) |
|
|
58,155 |
|
|
55,008 |
|
|
58,006 |
|
|
54,997 |
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-3
XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Cash FlowsUnaudited
(in thousands of United States dollars)
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
September 30,
2006 |
September 30,
2005 |
September 30,
2006 |
September 30,
2005 |
||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Cash used in operations: | ||||||||||||||||
Net loss | $ | (754 | ) | $ | (1,487 | ) | $ | (2,489 | ) | $ | (3,331 | ) | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 108 | 58 | 221 | 119 | ||||||||||||
Net gain on sale of technology | | (877 | ) | | (877 | ) | ||||||||||
Amortization of deferred financings costs | | 365 | 905 | 635 | ||||||||||||
Stock-based compensation expense | 233 | 165 | 293 | 325 | ||||||||||||
Equity instruments issued in exchange for services | 23 | | 40 | | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 238 | 485 | (851 | ) | (817 | ) | ||||||||||
Inventory | (2,113 | ) | (68 | ) | (2,250 | ) | (1,690 | ) | ||||||||
Prepaid expenses and other current assets | 273 | (64 | ) | 699 | 269 | |||||||||||
Accounts payable and accrued liabilities | 872 | (972 | ) | 1,239 | 196 | |||||||||||
|
|
|
|
|||||||||||||
Net cash used (provided by) in operating activities | (1,120 | ) | (2,395 | ) | (2,193 | ) | (5,171 | ) | ||||||||
|
|
|
|
|||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net proceeds from sale of technology | | 877 | | 877 | ||||||||||||
Additions to fixed assets | (122 | ) | (110 | ) | (219 | ) | (151 | ) | ||||||||
|
|
|
|
|||||||||||||
Net cash provided by (used in) investing activities | (122 | ) | 767 | (219 | ) | 726 | ||||||||||
|
|
|
|
|||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Proceeds from bank borrowings | 3,900 | 1,810 | 12,825 | 2,897 | ||||||||||||
Repayments of bank indebtedness | (5,811 | ) | (1,881 | ) | (14,497 | ) | (2,227 | ) | ||||||||
Proceeds from notes payable to related parties | | 1,500 | | 3,000 | ||||||||||||
Repayment of notes payable to related parties | | (3,000 | ) | | (3,000 | ) | ||||||||||
Proceeds from issuance of debentures | | 3,750 | 1,000 | 3,750 | ||||||||||||
Proceeds on issuance of Common Shares | 944 | | 944 | | ||||||||||||
Net proceeds from issuance of Series A Preferred Shares | 1,815 | | 2,251 | | ||||||||||||
Net proceeds from issuance of Series B Preferred Shares | 2,908 | | 2,908 | | ||||||||||||
Proceeds from exercise of warrants | | | 130 | | ||||||||||||
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities | 3,756 | 2,179 | 5,561 | 4,420 | ||||||||||||
|
|
|
|
|||||||||||||
CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
2,514 |
|
|
551 |
|
|
3,149 |
|
|
(25 |
) |
|||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 691 | 666 | 56 | 1,242 | ||||||||||||
|
|
|
|
|||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 3,205 | $ | 1,217 | $ | 3,205 | $ | 1,217 | ||||||||
|
|
|
|
|||||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: | ||||||||||||||||
Payments for interest | $ | 30 | $ | 703 | $ | 247 | $ | 730 | ||||||||
|
|
|
|
|||||||||||||
Payments for income taxes | $ | | $ | | $ | | $ | | ||||||||
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-4
XPLORE TECHNOLOGIES CORP.
Notes to the Consolidated Financial Statements (unaudited)
(in thousands of United States dollars, except share and per share amounts)
1. DESCRIPTION OF BUSINESS
Xplore Technologies Corp. (the "Company"), a corporation amalgamated under the laws of Canada, is engaged in the business of the development, integration and marketing of rugged mobile wireless Tablet PC computing systems. The Company's products enable the extension of traditional computing systems to a range of field and on-site personnel, regardless of location or environment. Using a range of wireless communication mediums together with the Company's rugged computing products, the Company's end-users are able to receive, collect, analyze, manipulate and transmit information in a variety of environments not suited to traditional non-rugged computing devices. The Company's end-users are in the following markets: utility, warehousing/logistics, public safety, field service, transportation, manufacturing, route delivery, military and homeland security.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Xplore Technologies Corporation of America.
The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has accumulated significant losses as it has been developing its current and next generation rugged computer products. The Company's ability to continue as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required and ultimately to achieve and maintain profitable operations. However, no assurance can be given at this time as to whether the Company will achieve any of these conditions. The Company has had recurring losses and expects to report operating losses for fiscal 2007. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.
The preparation of financial statements in accordance with United States generally accepted accounting principles ("GAAP") requires the use of management's estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at fiscal year end, and the reported amounts of revenues and expenses during the fiscal year. Significant accounting estimates used in the preparation of these financial statements included assessment of the allowance for returns, the inventory valuation reserve and the warranty provision. Actual results could differ from these estimates.
3. LOSS PER SHARE
Loss per share has been computed based on the weighted-average number of common shares issued and outstanding during the period, and is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The options granted under the Company's share option plan, the effect of the exercise of outstanding options, the effect of the exercise of outstanding warrants and the effect of the conversion of convertible Series A Preferred Shares, Series B Preferred Shares and debentures were excluded from the loss per share calculation for the three and six months ended September 30, 2006 and 2005 as their inclusion is anti-dilutive. Accordingly, diluted loss per share has not been presented.
F-5
4. BANK INDEBTEDNESS
On April 22, 2005, the Company entered into a loan and security agreement with a commercial bank. Under the terms of this agreement, the Company could finance certain eligible accounts receivable up to a maximum $2,625. Borrowings yielded interest at prime rate plus 3%. The Company was obligated to repay each loan advance on the earliest of the date on which the financed receivable payment was received or the date to which the financed receivable became ineligible or 90 days past due. Borrowings were secured by all assets and intellectual property of the Company.
On September 15, 2005, the Company entered into a loan and security agreement with the same commercial bank which replaced the April 22, 2005 agreement. Under the terms of this two year agreement, the Company may finance certain eligible accounts receivable up to a maximum of $5,000. Borrowings under the facility bear interest at prime rate plus 2.25%. The Company is obligated to repay each loan advance on the earliest of the date on which the financed receivable payment is received or the date to which the financed receivable becomes ineligible or 90 days past due. The Company is committed to pay a fee equal to .25% of the unused portion of the credit facility. Borrowings are secured by all assets and intellectual property of the Company. Pursuant to the terms of various subordination agreements between the commercial bank, the Company's one debenture holder and one of its suppliers, the commercial bank has a first priority security interest in all of the assets of the Company, under certain circumstances the supplier has a priority security interest in certain trade debts of the Company, and the Company's one debenture holder has a security interest in all of the assets of the Company. The loan agreement contains a number of financial and operational covenants. As of November 8, 2006, the Company was in full compliance with these covenants and there were no borrowings outstanding.
5. DEBENTURES
The Company issued debentures as detailed in the tables below.
Debenture Issuance Date
|
March 31,
2006 Balance |
New
Issuances |
Value
Assigned to Warrants |
Payments
|
Accretion of
Non-cash Interest |
Converted
Series A Preferred Shares (Note 6) |
September 30,
2006 Balance |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Short-term Debentures: | ||||||||||||||||||
September 15, 2005 |
|
$ |
3,000 |
|
|
|
|
|
|
|
|
|
|
|
(3,000 |
) |
$ |
|
September 29, 2005 | 750 | | | | | (750 | ) | | ||||||||||
November 7, 2005 | 1,250 | | | | | (1,250 | ) | | ||||||||||
April 21, 2006 | | 1,000 | | | | (1,000 | ) | | ||||||||||
|
|
|
|
|
|
|
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$ | 5,000 | $ | 1,000 | | | | (6,000 | ) | $ | | ||||||||
|
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|
|
|
|
|
||||||||||||
Long-term Debentures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 5, 2002 |
|
$ |
4,590 |
|
|
|
|
|
|
|
|
|
|
$ |
(4,590 |
) |
$ |
|
December 6, 2002 | 970 | | | | | (720 | ) | 250 | ||||||||||
April 9, 2003 | 725 | | | | | (725 | ) | | ||||||||||
April 29, 2003 | 720 | | | | | (720 | ) | | ||||||||||
December 17, 2004 | 5,000 | | | | | (5,000 | ) | | ||||||||||
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|
|
|
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|
||||||||||||
$ | 12,005 | | | | | $ | (11,755 | ) | $ | 250 | ||||||||
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|
|
|
F-6
On April 21, 2006, the Company entered into a financing agreement with Phoenix Venture Fund LLC ("Phoenix"). Under this agreement, Phoenix agreed, at its sole discretion, to provide up to $5,000 in financing to the Company. In connection with the financing, the Company initially issued a 10% secured debenture in the aggregate principal amount of $1,000 to Phoenix on April 21, 2006, which had a maturity date of June 30, 2006. The debenture and related accrued and unpaid interest were exchanged for 2,970,185 Series A Preferred Shares as part of the recapitalization discussed below. Of the remaining $4,000 of available financing, the Company received gross proceeds of approximately $800 in June 2006 and approximately $1,904 in July 2006 in exchange for a total of 7,952,353 Series A Preferred Shares issued to certain investors, as designated by Phoenix.
On May 30, 2006, the Company completed a recapitalization pursuant to which approximately $18,877 of indebtedness, represented by 10% secured debentures in the original principal amount of $17,755 and accrued interest of $1,122, was exchanged for 55,520,542 shares of Series A Preferred Shares. The Series A Preferred Shares are convertible initially on a one-for-one basis into common shares of the Company at any time at the option of the holder and will convert upon the occurrence of specified events. The conversion rate is subject to adjustment for stock dividends, splits, combinations and similar events. In the event that the Company issues additional securities at a purchase price less than the then current Series A Preferred Share conversion price, such conversion price will be adjusted in accordance with the formula specified in the Company's Articles of Incorporation. The Series A Preferred Shares are entitled to one vote per share at meetings of the Company's shareholders, are entitled to appoint two of our directors, a cumulative 5% dividend that at the holder's option may be paid in additional Series A Preferred Shares, have certain protective provisions, and contain a liquidation preference over the common shares. One debenture in the amount of $250 and related accrued interest was not exchanged and remains outstanding. This debenture bears interest at 10% per annum and the interest is payable semi-annually on June 30 and December 31. In connection with the recapitalization, the maturity of the debenture was extended to April 30, 2009. The debenture purchase agreement contains a number of financial and operational covenants and the Company is in full compliance with such covenants.
Warrants issued in connection with the certain debenture issuances have been valued separately at fair value using the Black Scholes methodology. The fair value calculations relating to the warrants associated with the first $5,000 of short-term debentures assumed a discount rate of approximately 4.8%, volatility of approximately 127% and no dividends. The value of $1,329 assigned to these warrants issued in connection with the short-term debenture financings was initially recorded as a separate component of shareholders' deficiency and as a deferred charge that was amortized as additional non-cash interest expense during the remaining term of the debentures. During the six months ended September 30, 2006, non-cash interest expense of $905 was recorded to reflect the amortization of the deferred financing costs through the date of the recapitalization when the related debentures were exchanged for Series A Preferred Shares. The remaining unamortized deferred financing cost of $424 was recorded as Series A Preferred Shares issuance costs. Other Series A Preferred Shares issuance costs incurred as of September 30, 2006 were $453 and principally consist of charges associated with the special shareholders meeting and legal fees.
In fiscal 2005, in connection with the issuance of the December 17, 2004 debentures and common share purchase warrants, the fair value calculations assumed a discount rate of approximately 3.4%, volatility of approximately 100% and no dividends. During the three months ended September 30, 2006 there was no non-cash interest expense representing the amortization of the debenture discount related
F-7
to this funding. During the six months ended September 30, 2006 interest expense representing the amortization of the debenture discount related to this funding was $905.
6. SHARE CAPITAL
On August 9, 2006, the Company issued 9,988,513 Series B Preferred Shares in a private placement for gross proceeds to the Company of approximately $3,396. The Series B Preferred Shares generally have the same rights and preferences as the Series A Preferred Shares. The Series B Preferred Shares are convertible initially on a one-for-one basis into common shares of the Company at any time at the option of the holder, subject to adjustment for stock dividends, splits, combinations and similar events. The Series B Preferred Shares are entitled to one vote per share at meetings of the Company's shareholders, are entitled to a cumulative 5% dividend paid quarterly in Common Shares, have certain protective provisions, and contain a liquidation preference over the common shares.
On September 25, 2006, the Company issued 2,848,253 Common Shares in a private placement for gross proceeds to the Company of approximately $997.
7. RELATED PARTY TRANSACTIONS
In the event that certain short-term debentures, which were issued in connection with the Company's previously disclosed September 2005 financing, were not paid in full on or prior to March 31, 2006, the Company agreed to issue warrants to the holders of such debentures, entitling the holder to purchase that number of our common shares equal to the number of dollars representing the aggregate amount then due on such holder's debenture. As the debentures were not repaid on March 31, 2006, on April 10, 2006 the Company issued to Phoenix and an affiliate of Phoenix warrants to purchase 4,724,144 Common Shares at an exercise price of Cdn.$0.45. The warrants are exercisable through April 10, 2008 and the exercise price of the warrants was based on the average current market price of our common shares for the five days before the date of issuance.
There was no interest expense for the three months ended September 30, 2006 related to borrowings from Phoenix and its affiliates. Interest expense for the three months ended September 30, 2005 includes $286 related to borrowings from Phoenix and its affiliates. For the six months ended September 30, 2006 and 2005, interest expense includes $129 and $522, respectively, related to borrowings from Phoenix and its affiliates.
8. SEGMENTED INFORMATION
The Company operates in one segment, the sale of rugged mobile wireless Tablet PC computing systems. The majority of the Company's revenue is derived from sales in the United States of America. In addition to the United States of America, the only countries that accounted for more than 10% of the Company's revenue during the three and six month periods ended September 30, 2006 and 2005
F-8
were Canada for the six month periods ended September 2006 and 2005 and the Netherlands for the second quarter of fiscal 2005. The distribution of revenue by country is segmented as follows:
|
Three Months Ended
|
Six Months Ended
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
September 30,
2006 |
September 30,
2005 |
September 30,
2006 |
September 30,
2005 |
|||||||||
Revenue by country: | |||||||||||||
United States of America | $ | 6,143 | $ | 3,824 | $ | 9,445 | $ | 7,452 | |||||
Canada | $ | 724 | $ | 626 | $ | 2,651 | $ | 1,559 | |||||
Netherlands | $ | 103 | $ | 761 | $ | 613 | $ | 777 | |||||
All other countries | $ | 1,690 | $ | 1,372 | $ | 5,130 | $ | 2,920 | |||||
|
|
|
|
||||||||||
$ | 8,660 | $ | 6,583 | $ | 17,839 | $ | 12,708 | ||||||
|
|
|
|
The Company has a variety of customers, however, in a given year a single customer can account for a significant portion of sales. For the three months ended September 30, 2006, the Company had one customer that had sales that were greater than 10% of total revenue and the customer was located in the U.S. For the six months ended September 30, 2005, the Company had one customer that had sales that accounted for 10% of total revenue and that customer was located in Canada.
Significant customers that represented 10% or more of revenue: |
|
|
|
|
|
|
|
|
Number of customers | 1 | None | None | 1 | ||||
Percent of revenue | 12.7% | n/a | n/a | 10.0% | ||||
Country | USA | n/a | n/a | Canada |
Substantially all of the Company's capital assets are owned by its wholly-owned subsidiary, Xplore Technologies Corporation of America, a corporation organized under the laws of the State of Delaware. No country, other than the United States of America, had more than 10% of the Company's assets for each of the three and six months ended September 30, 2006 and 2005.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases facilities in Austin, Texas. The annual lease commitment is $232 and the lease maturity date was extended from May 31, 2007 to August 31, 2009. The Company also leases a satellite office in Helsinki, Finland, on a 3-month renewable basis.
Minimum annual payments by fiscal year required under all of the Company's operating leases are:
2007 | $ | 244 | |
2008 | 232 | ||
2009 | 229 | ||
2010 | 95 | ||
|
|||
Total | $ | 800 | |
|
F-9
At September 30, 2006, the Company had purchase obligations of approximately $5,201 related to inventory and product development items.
The Company and its subsidiary are engaged in legal actions, arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a material adverse effect on the Company's consolidated financial position or results of operations.
10. SALE OF TECHNOLOGY
On August 3, 2005, the Company sold a previously developed rugged handheld technology to a foreign value added reseller. The sale agreement provided for an initial payment of approximately $900, which the Company received on August 5, 2005, and a future payment of approximately $700, net of the Company's share of future development costs, upon the completion of certain agreed upon production activities by a third party manufacturer. At September 30, 2006, the agreed upon production activities were not completed and it is uncertain as to whether the purchaser will complete its obligations under the sale agreement. The proceeds received in August, net of related selling expenses, have been reflected in other income for the six months ended September 30, 2005. The Company's investment in the rugged handheld technology was previously expensed when incurred since the expenditures were research and development related. The technology was in a development stage and did not account for any of the Company's revenue.
F-10
REPORT OF INDEPENDENT REGISTERED AUDITORS
To
the Board of Directors and
Stockholders of Xplore Technologies Corp.
We have audited the accompanying consolidated balance sheets of Xplore Technologies Corp. and subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of loss, stockholders' deficiency and cash flows for the years ended March 31, 2006, 2005 and 2004. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes 3 and 4 to the financial statements, previously issued financial statements have been restated as disclosed herein.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Xplore Technologies Corp. and subsidiaries as of March 31, 2006 and 2005, and the results of its operations and its cash flows for the years ended March 31, 2006, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is dependent upon is ability to generate sufficient cash flows to meet its obligations. Management's actions regarding these matters are also described in Note 19. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
MINTZ & PARTNERS LLP
CHARTERED ACCOUNTANTS
North
York, Ontario
June 20, 2006
(except for Notes 19(a) and 19(c), as to
which the date is November 8, 2006)
F-11
XPLORE TECHNOLOGIES CORP.
Consolidated Balance Sheets
(in thousands of United States dollars)
|
March 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
2006
|
2005
|
||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 56 | $ | 1,242 | ||||
Accounts receivable, net (Note 13) | 4,613 | 1,863 | ||||||
Inventory (Note 5) | 3,713 | 2,954 | ||||||
Prepaid expenses and other current assets (Note 5) | 826 | 563 | ||||||
|
|
|||||||
9,208 | 6,622 | |||||||
Fixed assets, net (Note 6) | 597 | 472 | ||||||
Deferred charges (Note 9) | 1,419 | | ||||||
|
|
|||||||
$ | 11,224 | $ | 7,094 | |||||
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|
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LIABILITIES AND SHAREHOLDERS' DEFICIENCY |
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CURRENT LIABILITIES: |
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|
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|
|
|
Bank indebtedness (Note 7) | $ | 1,672 | $ | | ||||
Accounts payable and accrued liabilities (Note 8) | 7,042 | 6,231 | ||||||
Short-term debentures (Notes 9 and 19) | 5,000 | 11,450 | ||||||
|
|
|||||||
Total current liabilities | 13,714 | 17,681 | ||||||
Debentures (Notes 9 and 19) | 12,005 | | ||||||
|
|
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25,719 | 17,681 | |||||||
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Commitments and contingencies (Notes 3, 13, 15 and 19) | ||||||||
SHAREHOLDERS' DEFICIENCY: |
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|
|
|
|
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|
|
Share capital (Notes 10 and 19) | 63,834 | 62,705 | ||||||
Additional paid-in capital (Notes 9, 10, and 19) | 3,659 | 2,123 | ||||||
Accumulated other comprehensive loss | (1,104 | ) | (454 | ) | ||||
Accumulated deficit | (80,884 | ) | (74,961 | ) | ||||
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|
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(14,495 | ) | (10,587 | ) | |||||
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$ | 11,224 | $ | 7,094 | |||||
|
|
See accompanying notes to consolidated financial statements.
F-12
XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Loss
(in thousands of United States dollars, except share and per share amounts)
|
Year Ended March 31,
|
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---|---|---|---|---|---|---|---|---|---|---|
|
2006
|
2005
|
2004
|
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REVENUE (Note 14) | $ | 27,480 | $ | 17,530 | $ | 24,631 | ||||
COST OF REVENUE | 20,671 | 13,860 | 20,880 | |||||||
|
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GROSS PROFIT | 6,809 | 3,670 | 3,751 | |||||||
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EXPENSES: |
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Sales, marketing and support | 5,284 | 4,839 | 4,504 | |||||||
Product research, development and engineering | 2,402 | 2,327 | 2,523 | |||||||
General administration (Note 3) | 4,143 | 4,179 | 4,616 | |||||||
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11,829 | 11,345 | 11,643 | ||||||||
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LOSS FROM OPERATIONS | (5,020 | ) | (7,675 | ) | (7,892 | ) | ||||
|
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|
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OTHER INCOME (EXPENSE): | ||||||||||
Interest expense (Notes 7, 9, 16 and 19) | (2,454 | ) | (1,208 | ) | (4,478 | ) | ||||
Other income (expense) (Note 17) | 901 | (8 | ) | (329 | ) | |||||
|
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|
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(1,553 | ) | (1,216 | ) | (4,807 | ) | |||||
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NET LOSS | $ | (6,573 | ) | $ | (8,891 | ) | $ | (12,699 | ) | |
|
|
|
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LOSS PER SHARE |
|
$ |
(0.12 |
) |
$ |
(0.18 |
) |
$ |
(0.41 |
) |
|
|
|
||||||||
Weighted average number of common shares outstanding |
|
|
55,938,753 |
|
|
50,091,486 |
|
|
30,832,656 |
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|
|
|
See accompanying notes to consolidated financial statements.
F-13
XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Stockholders' Deficiency
(in thousands of United States dollars)
|
Common Shares
|
|
|
|
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Additional
Paid in Capital |
Other
Comprehensive Loss |
Accumulated
Deficit |
|
||||||||||||||
|
Number
|
Amount
|
Total
|
|||||||||||||||
|
(Notes 10 and 19)
|
(Notes 9, 10 and 19)
|
|
|
|
|||||||||||||
Balances, March 31, 2003 | 23,269,941 | $ | 51,202 | $ | 3,096 | $ | 238 | $ | (54,064 | ) | $ | 472 | ||||||
Warrants issued in connection with financing | 83 | 83 | ||||||||||||||||
Warrants exercised | 10,418,181 | 2,744 | (1,473 | ) | 1,271 | |||||||||||||
Value assigned to warrants issued | 924 | 924 | ||||||||||||||||
Issuance of shares, net of issuance costs of $125 | 5,114,520 | 3,877 | 3,877 | |||||||||||||||
Shares issued for services | 143,608 | 98 | 98 | |||||||||||||||
Options issued to employees and directors | 265 | 265 | ||||||||||||||||
Options exercised | 42,000 | 15 | 15 | |||||||||||||||
Foreign currency translation adjustments | (271 | ) | (271 | ) | ||||||||||||||
Net loss | (12,428 | ) | (12,428 | ) | ||||||||||||||
|
|
|
|
|
|
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Balances, March 31, 2004 | 38,988,250 | 57,936 | 2,895 | (33 | ) | (66,492 | ) | (5,694 | ) | |||||||||
Warrants exercised | 11,806,131 | 2,550 | (2,022 | ) | 528 | |||||||||||||
Value assigned to warrants issued | 945 | 945 | ||||||||||||||||
Issuance of shares, net of issuance costs of $47 | 3,975,041 | 2,062 | 2,062 | |||||||||||||||
Shares issued for services | 65,360 | 101 | 101 | |||||||||||||||
Options issued to employees and directors | 305 | 305 | ||||||||||||||||
Options exercised | 150,835 | 56 | 56 | |||||||||||||||
Foreign currency translation adjustments | (421 | ) | (421 | ) | ||||||||||||||
Net loss | (8,469 | ) | (8,469 | ) | ||||||||||||||
|
|
|
|
|
|
|||||||||||||
Balances, March 31, 2005 | 54,985,617 | 62,705 | 2,123 | (454 | ) | (74,961 | ) | (10,587 | ) | |||||||||
Warrants exercised | 2,067,330 | 963 | (315 | ) | 648 | |||||||||||||
Value assigned to warrants issued | 1,329 | 1,329 | ||||||||||||||||
Shares issued for services | 315,440 | 126 | 126 | |||||||||||||||
Options issued to employees and directors | 522 | 522 | ||||||||||||||||
Options exercised | 100,000 | 40 | 40 | |||||||||||||||
Foreign currency translation adjustments | (650 | ) | (650 | ) | ||||||||||||||
Net loss | (5,923 | ) | (5,923 | ) | ||||||||||||||
|
|
|
|
|
|
|||||||||||||
Balances, March 31, 2006 | 57,468,387 | $ | 63,834 | $ | 3,659 | $ | (1,104 | ) | $ | (80,884 | ) | $ | (14,495 | ) | ||||
|
|
|
|
|
|
See accompany notes to consolidated financial statements.
F-14
XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Cash Flows
(in thousands of United States dollars)
|
Year Ended March 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2006
|
2005
|
2004
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITES: | |||||||||||||
Cash used in operations: | |||||||||||||
Net loss | $ | (6,573 | ) | $ | (8,891 | ) | $ | (12,699 | ) | ||||
Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||||
Depreciation and amortization | 464 | 645 | 683 | ||||||||||
Net gain on sales of technology | (877 | ) | | | |||||||||
Amortization of deferred financing costs | 635 | 310 | 3,210 | ||||||||||
Stock-based compensation expense | 522 | 305 | 265 | ||||||||||
Equity instruments issued in exchange for services | 126 | 101 | 98 | ||||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | (2,750 | ) | 3,452 | (3,230 | ) | ||||||||
Inventory | (759 | ) | (896 | ) | 5,099 | ||||||||
Prepaid expenses and other assets | (353 | ) | (61 | ) | (188 | ) | |||||||
Accounts payable and accrued liabilities | 897 | (1,282 | ) | 3,003 | |||||||||
|
|
|
|||||||||||
Net cash used in operating activities | (8,668 | ) | (6,317 | ) | (3,759 | ) | |||||||
|
|
|
|||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||
Net proceeds from sales of technology | 877 | | | ||||||||||
Additions to fixed assets | (589 | ) | (332 | ) | (310 | ) | |||||||
|
|
|
|||||||||||
Net cash provided by (used in) investing activities | 288 | (332 | ) | (310 | ) | ||||||||
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||
Proceeds on bank indebtedness | 14,592 | | | ||||||||||
Repayment of bank indebtedness | (13,010 | ) | | (1,969 | ) | ||||||||
Proceeds from notes payable to related party | 3,000 | 2,650 | | ||||||||||
Repayment of notes payable to related party | (3,000 | ) | (2,650 | ) | | ||||||||
Proceeds on issuance of debentures | 5,000 | 5,000 | 1,828 | ||||||||||
Proceeds on issuance of shares | 572 | 2,062 | 4,790 | ||||||||||
Proceeds from exercise of options | 40 | 115 | 15 | ||||||||||
|
|
|
|||||||||||
Net cash provided by financing activities | 7,194 | 7,177 | 4,664 | ||||||||||
|
|
|
|||||||||||
CHANGE IN CASH AND CASH EQUIVALENTS | (1,186 | ) | 528 | 595 | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 1,242 | 714 | 119 | ||||||||||
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 56 | $ | 1,242 | $ | 714 | |||||||
|
|
|
|||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: | |||||||||||||
Payments for interest | $ | 730 | $ | 823 | $ | 843 | |||||||
|
|
|
|||||||||||
Payments for income taxes | $ | | $ | | $ | | |||||||
|
|
|
See accompanying notes to consolidated financial statements.
F-15
XPLORE TECHNOLOGIES CORP.
Notes to the Consolidated Financial Statements
(in thousands of United States dollars, except share and per share amounts)
1. DESCRIPTION OF BUSINESS
Xplore Technologies Corp. (the "Company"), a corporation amalgamated under the laws of Canada, is engaged in the business of the development, integration and marketing of rugged mobile wireless Tablet PC computing systems. The Company's products enable the extension of traditional computing systems to a range of field and on-site personnel, regardless of location or environment. Using a range of wireless communication mediums together with the Company's rugged computing products, the Company's end-users are able to receive, collect, analyze, manipulate and transmit information in a variety of environments not suited to traditional non-rugged computing devices. The Company's end-users are in the following markets: utility, warehousing/logistics, public safety, field service, transportation, manufacturing, route delivery, military and homeland security.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared using accounting principles generally accepted in the United States of America, and reflect the following significant accounting policies:
a) Basis of consolidation and presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Xplore Technologies Corporation of America.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has accumulated significant losses as it has been developing its current and next generation rugged computer products. The Company's ability to continue as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required and ultimately to achieve and maintain profitable operations. However, no assurance can be given at this time as to whether the Company will achieve any of these conditions. The Company has had recurring losses and expects to report operating losses for fiscal 2007. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.
Comparative amounts are reclassified to conform to the current year's financial statement presentation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of management's estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at fiscal year end, and the reported amounts of revenues and expenses during the fiscal year. Significant accounting estimates used in the preparation of these financial statements included assessment of the allowance for returns, the inventory valuation reserve and the warranty provision. Actual results could differ from these estimates.
b) Cash and cash equivalents
Cash and cash equivalents comprise cash and highly liquid investments with original maturities of less than ninety days. Cash equivalents are carried at cost, which approximates market value.
F-16
c) Inventory
Inventory is recorded at the lower of average cost determined on a first-in-first-out basis or net realizable value. The valuation of inventory requires the use of estimates regarding the amount of current inventory that will be sold and the prices at which it will be sold based on an assessment of expected orders for these products from the Company's customers. Additionally, the estimates reflect changes in the Company's products or changes in demand because of various factors including the market for the Company's products, obsolescence, product discontinuation, technology changes and competition.
d) Fixed assets
Fixed assets are recorded at cost. The straight line depreciation method is used to depreciate the recorded value of fixed assets over their estimated useful lives.
Fixed Asset
|
Estimated Useful Lives
|
|
---|---|---|
Tooling and fixtures | 2 years | |
Office equipment | 2 years | |
Machine equipment | 5 years | |
Leasehold improvements | lesser of 5 years or lease term | |
Computer equipment | 2 years | |
Computer software | 2 years | |
Demonstration units | 6 months |
The Company performs reviews for the impairment of fixed assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.
e) Deferred charges
Deferred charges represent deferred financing costs consisting of the value of warrants issued to holders of short-term debentures. The value of the warrants was determined using the Black Scholes methodology. These charges are amortized over the remaining term of the short-term debentures. Also included in deferred charges are legal fees related to the Company's recapitalization discussed in Note 19.
f) Foreign currency translation
The accounts of certain of the Company's subsidiaries are translated into United States dollars using the temporal method for integrated operations. Assets and liabilities of a monetary nature are translated at the exchange rate in effect at the balance sheet date, with non-monetary assets and liabilities translated at historical rates. Exchange gains or losses are included in the determination of earnings for the period. Revenues and expenses are translated using weighted average rates. Foreign currency transactions are translated at the exchange rate in effect at the date of the transaction. Foreign currency balances are translated at the exchange rate in effect at the balance sheet date.
F-17
g) Revenue recognition
The Company's revenue is derived primarily from the sale of its rugged mobile computers. The Company's customers are predominantly resellers, however, in limited circumstances, the Company's sells directly to end-users. Revenue is recognized, net of an allowance for estimated returns, when title and risk is transferred to the customer, all significant contractual obligations have been satisfied, the sales price is fixed or determinable, and the ability to collect is reasonably assured. The Company's revenue recognition criteria have been met generally when the product has been shipped. The shipping terms are FOB shipping point. Service revenue is derived primarily from out-of-warranty repairs and is recognized upon completion of the service provided.
h) Cost of revenue
The Company's cost of revenue consists of the costs associated with manufacturing, assembling and testing its products, related overhead costs, maintenance, compensation and other costs related to manufacturing support, including the depreciation of tooling assets. The Company uses contract manufacturers to manufacture the Company's products and supporting components, and a significant portion of the Company's cost of revenue is attributable to component costs and payments to these contract manufacturers.
Cost of revenue also includes warranty costs. The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its warranty. The specific warranty terms and conditions generally included are technical support, repair parts, and labor for a period that is generally three years. The Company re-evaluates its estimates to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary and any change, based on current information, is recorded as a change in estimate.
i) Income taxes
The Company accounts for income taxes in accordance with the liability method. The determination of future tax assets and liabilities is based on the difference between financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the period in which the differences are expected to reverse. Future tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized.
j) Stock-based compensation
The Company adopted the provisions of SFAS No. 123 (revised 2004), ("FAS No. 123 (R)"), Share-Based Compensation Cost in respect of the fair value method of accounting for all of its employee stock-based compensation on a prospective basis effective April 1, 2003.
k) Loss per share
Loss per share has been computed based on the weighted-average number of common shares issued and outstanding during the period, and is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The options granted under the Company's share option plan, the effect of the exercise of outstanding options, the effect of the exercise of
F-18
outstanding warrants and the effect of the exercise of convertible debentures were excluded from the loss per share calculation for the years presented as their inclusion is anti-dilutive. Accordingly, diluted loss per share has not been presented.
l) Other comprehensive loss
Other comprehensive loss consists solely of cumulative translation adjustments arising from changes in exchange rates and are accounted for as a separate component of shareholders' deficiency.
3. ONTARIO SECURITIES COMMISSION NOTICE AND SETTLEMENT
In June 2005, the Company, the Company's then Chief Executive Officer and the Company's former Chief Financial Officer received notices from the staff at the Ontario Securities Commission (the "OSC"). The notices indicated that the staff of the OSC had reviewed the facts and circumstances surrounding the recognition of revenue in fiscal year 2002 related to product returned from the Company's distribution channel in fiscal years 2003 and 2004 ("Revenue Recognition") and the Company's accounting treatment for the Revenue Recognition in its financial statements. The OSC staff position was that the Company did not account for certain transactions between the Company and some of its value added resellers or the Revenue Recognition in its financial statements in accordance with Canadian GAAP. As a result, the Company's 2002, 2003 and 2004 annual financial statements and 2004, 2005 and the first quarter of 2006 interim financial statements were required to be restated.
The Company's Board of Directors formed a Special Committee to oversee the OSC matter and the Company dedicated significant resources to complete the restated financial statements that were filed and made available on SEDAR on November 9, 2005.
As of January 27, 2006, the OSC approved a settlement agreement between the Company and the OSC that resolved the Company's outstanding regulatory issues with respect to its financial statements. Under the terms of settlement, the Company reimbursed the OSC CAD$20 towards the costs of the investigation and hearing, made a settlement payment of CAD$50 to the OSC for allocation to and for the benefit of third parties, was reprimanded for its failure to file financial statements in accordance with generally accepted accounting principles and provided a letter of comfort to the OSC confirming, amongst other things, that the Company has instituted new practices and procedures related to preventing the future improper recognition of revenue.
General administration expense for the year ended March 31, 2006 includes $1,025 for costs to address and resolve this matter. These costs consisted primarily of legal and audit fees and the aforementioned settlement payments to the OSC.
4. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS UNDER CANADIAN GAAP
The Company's 2004 annual consolidated financial statements and 2005 interim consolidated financial statements that were prepared under Canadian GAAP have been restated. The restatement generally adjusted revenue and expenses between the four annual periods ended March 31, 2005. While the restatement adjustments changed the Company's previously reported results of operations in each of the individual annual periods being reported, the adjustments did not change the cumulative results of operations for the four year period.
F-19
The restatement adjustments were:
1. Revenue recognition
In fiscal 2002 certain sales to resellers, originally accounted for as revenue, were restated and accounted for as inventory held by resellers and subsequently recognized as revenue when the Company was paid. The product returns were originally accounted for as reductions in revenue and cost of revenue in fiscal years 2003 and 2004, and under the restatement, adjustments were restated as inventory held by resellers. The impact of these adjustments increased revenue by $1,277 for fiscal 2004 and $742 for fiscal 2005.
2. Inventory valuation
Under the restatement adjustments, an inventory write-down was made in fiscal 2002 due to the determination that sales demand for certain finished goods was less than the available inventory on-hand or on consignment with the Company's resellers. The write-down adjusted the carrying value of this inventory from its recorded cost to the lower net realizable value. This charge was previously recorded as an inventory write-down of $388 in fiscal 2004 and $811 in fiscal 2005.
The Company originally recorded a $1,212 inventory write-down in the second quarter of fiscal 2005 for end-of-life products. Under the restatement adjustments, a $1,212 inventory write-down adjustment was made in fiscal 2004 to correct for accounting errors made in the valuation of certain component parts associated with end-of-life products that were obsolete because the components were incompatible with new or other existing products.
3. Warranty reserve
The Company originally recorded a $755 increase in warranty reserves for end-of-life products in the second quarter of fiscal 2005. Under the restatement adjustments, fiscal year 2004 and prior years were restated by $486 and $269, respectively, to correct for accounting errors in the computation of warranty reserves and to match the expense to the related sales transactions.
4. Tooling depreciation expense
The Company originally recorded tooling depreciation expense as an operating expense as opposed to in cost of revenue. Under the restatement adjustments, cost of revenue for fiscal 2005 and 2004 were restated by $456 and $591, respectively, to classify depreciation of tooling assets as a cost of revenue.
5. Other adjustments
Other adjustments consist of corrections of accounting errors. Under the restatement adjustments, certain expenditures were restated in a different reporting period to match the restated revenues related to the expenditures. In addition, other expenses were accrued in earlier periods in which the obligation was incurred but not recognized. The net impact of these adjustments reduced fiscal 2005 operating expenses by $1,200 and increased fiscal 2004 operating expenses by $751.
F-20
There are no material differences between U.S. and Canadian GAAP. Any differences between U.S. and Canadian GAAP have an insignificant impact on our consolidated financial statements.
5. INVENTORY
|
March 31,
|
|||||
---|---|---|---|---|---|---|
|
2006
|
2005
|
||||
Computer components | $ | 1,422 | $ | 1,403 | ||
Finished goods | 2,291 | 1,551 | ||||
|
|
|||||
Total inventory | $ | 3,713 | $ | 2,954 | ||
|
|
Inventory sent to end-users for which revenue recognition attributes have not been completed is included in prepaid expenses and other current assets and was $370 at March 31, 2005. There was none at March 31, 2006.
Prepaid expenses and other current assets at March 31, 2006 include $580 representing advances to a supplier to secure the supply of components to be delivered in fiscal 2007.
Inventory held by resellers represents finished goods located at various resellers. The majority of the amounts reported were physically returned to the Company in fiscal 2004. The Company discontinued this practice at the end of fiscal 2004, and accordingly, there was no inventory located at resellers at March 31, 2005.
Cost of revenue for the year ended March 31, 2004 includes inventory write-downs of $2.0 million (including adjustments discussed in note 4). In fiscal 2004, the inventory write-down charges arose from management's determination that certain component parts associated with end-of-life products were obsolete because the components were incompatible with new or other existing products. Accordingly, the write-down adjusts the carrying values of the inventory from its cost to the lower net realizable values and was applied against the computer components and finished goods categories above.
F-21
6. FIXED ASSETS
|
March 31,
|
|||||
---|---|---|---|---|---|---|
|
2006
|
2005
|
||||
Cost | ||||||
Tooling and fixtures | $ | 1,246 | $ | 1,056 | ||
Office equipment and leasehold improvements | 570 | 560 | ||||
Computer equipment and demonstration units | 1,014 | 703 | ||||
Computer software | 582 | 526 | ||||
|
|
|||||
3,412 | 2,845 | |||||
|
|
|||||
Accumulated depreciation | ||||||
Tooling and fixtures | 1,056 | 1,047 | ||||
Office equipment and leasehold improvements | 370 | 284 | ||||
Computer equipment and demonstration units | 869 | 572 | ||||
Computer software | 520 | 470 | ||||
|
|
|||||
2,815 | 2,373 | |||||
|
|
|||||
Total fixed assets, net | $ | 597 | $ | 472 | ||
|
|
7. BANK INDEBTEDNESS
On April 22, 2005, the Company entered into a loan and security agreement with a commercial bank. Under the terms of this agreement, as amended, the Company could finance certain eligible accounts receivable up to a maximum $2,625. Borrowings yielded interest at prime rate plus 3%. The Company was obligated to repay each loan advance on the earliest of the date on which the financed receivable payment was received or the date to which the financed receivable became ineligible or 90 days past due. Borrowings were secured by all assets and intellectual property of the Company.
On September 15, 2005, the Company entered into a loan and security agreement with the same commercial bank which replaced the April 22, 2005 agreement. Under the terms of this two year agreement, the Company may finance certain eligible accounts receivable up to a maximum of $5,000. Borrowings under the facility bear interest at prime rate plus 2.25%. The Company is obligated to repay each loan advance on the earliest of the date on which the financed receivable payment is received or the date to which the financed receivable becomes ineligible or 90 days past due. The Company is committed to pay a fee equal to .25% of the unused portion of the credit facility. Borrowings are secured by all assets and intellectual property of the Company. Pursuant to the terms of various subordination agreements between the commercial bank, the Company's debentures holders and one of its suppliers, the commercial bank has a first priority security interest in all of the assets of the Company, under certain circumstances the supplier has a priority security interest in certain trade debts of the Company, and the Company's debenture holders have a security interest in all of the assets of the Company. The loan agreement contains a number of financial and operational covenants. As of June 20, 2006 the Company was in full compliance with these covenants. As of June 20, 2006, there was $2,183 of borrowings outstanding.
F-22
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
March 31,
|
|||||
---|---|---|---|---|---|---|
|
2006
|
2005
|
||||
Accounts payable | $ | 4,309 | $ | 2,779 | ||
Accrued interest payable | 981 | 304 | ||||
Other accrued liabilities | 1,752 | 3,148 | ||||
|
|
|||||
Total | $ | 7,042 | $ | 6,231 | ||
|
|
9. DEBENTURES
The Company had issued and outstanding debentures at March 31, 2006 and 2005, as detailed in the tables below.
Short-term Debentures:
Debenture Issuance Date
|
Balance
|
New
Issuances |
Value
Assigned to Warrants |
Payments
|
Accretion of
Non-cash Interest |
Converted to
Shares |
Balance
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31,
2005 |
|
|
|
|
|
March 31,
2006 |
|||||||||
September 15, 2005 | $ | | 3,000 | | | | | $ | 3,000 | |||||||
September 29,2005 | $ | | 750 | | | | | $ | 750 | |||||||
November 7, 2005 | $ | | 1,250 | | | | | $ | 1,250 | |||||||
|
|
|
|
|
|
|
||||||||||
$ | | 5,000 | | | | | $ | 5,000 | ||||||||
|
|
|
|
|
|
|
Long-term Debentures:
Debenture Issuance Date
|
Balance
|
New
Issuances |
Value
Assigned to Warrants |
Payments
|
Accretion of
Non-cash Interest |
Converted to
Shares |
Balance
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31,
2004 |
|
|
|
|
|
March 31,
2005 |
||||||||||||||
November 5, 2002 | $ | 5,000 | $ | | $ | | $ | | $ | | $ | (335 | ) | $ | 4,665 | ||||||
December 6, 2002 | 970 | | | | | | 970 | ||||||||||||||
April 9, 2003 | 790 | | | | | (65 | ) | 725 | |||||||||||||
April 29, 2003 | 790 | | | | | (65 | ) | 725 | |||||||||||||
December 17, 2004 | | 5,000 | (945 | ) | | 310 | | 4,365 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
$ | 7,550 | $ | 5,000 | $ | (945 | ) | $ | | $ | 310 | $ | (465 | ) | $ | 11,450 | ||||||
|
|
|
|
|
|
|
|
|
March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
November 5, 2002 | $ | 4,665 | $ | | $ | | $ | | $ | | $ | (75 | ) | $ | 4,590 | ||||||
December 6, 2002 | 970 | | | | | | 970 | ||||||||||||||
April 9, 2003 | 725 | | | | | | 725 | ||||||||||||||
April 29, 2003 | 725 | | | | | (5 | ) | 720 | |||||||||||||
December 17, 2004 | 4,365 | | | | 635 | | 5,000 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
$ | 11,450 | $ | | $ | | $ | | $ | 635 | $ | (80 | ) | $ | 12,005 | |||||||
|
|
|
|
|
|
|
F-23
From November 2002 through March 2006, the Company raised aggregate gross proceeds of $18,000 through the issuance of 10% secured debentures and common share purchase warrants. As discussed in Note 19, on May 30, 2006, all of the short-term and long-term debentures (plus accrued interest), except for one debenture in the original principal amount of $250, were exchanged for Series A Preferred Shares of the Company.
On September 15, 2005, the Company entered into a debenture purchase agreement with Phoenix Venture Fund LLC ("Phoenix") and other lenders, including an affiliate of Phoenix (collectively, the "Lenders"), whereby the Lenders provided an aggregate of $5,000 of financing to the Company through the issuance of short-term debentures. The Chairman and one Director of the Company are co-managers of Phoenix. The short-term debentures had an original maturity date of March 31, 2006 and borrowings under the short-term debentures bear interest at 10% per annum. Borrowings were secured by all of the Company's assets and were subordinated to the commercial bank credit facility and certain trade debts. The Company initially drew on the facility and issued short-term debentures to the Lenders in the aggregate amount of $3,000. The Company used the gross proceeds to re-pay promissory notes in the aggregate principal amount of $3,000 previously issued by its U.S. subsidiary due on September 15, 2005. On September 29, 2005, the Company made another draw on the facility and issued short-term debentures to the Lenders in the aggregate principal amount of $750 to be used for working capital and general corporate purposes. On November 7, 2005 a final draw in the principal amount of $1,250 was made that increased aggregate principal borrowings to $5,000.
In the event that any outstanding short-term debentures were not paid in full on or prior to March 31, 2006, the Company agreed to issue warrants to the holder of such short-term debentures. The short-term debentures were not repaid and on April 10, 2006, the Company issued to the Lenders 5,235,343 warrants with an exercise price of CAD $0.45. The warrants will be exercisable through April 10, 2008 and the exercise price of the warrants was based on the average current market price of the Company's common shares for the five days before the date of issuance. The warrants have been valued separately at fair value using the Black Scholes methodology. The fair value calculations assumed a discount rate of approximately 4.8%, volatility of approximately 127% and no dividends. The value of $1,329 assigned to these warrants issued in connection with the short-term debenture financings is reflected as a separate component of shareholders' deficiency and as a deferred charge that will be amortized as additional non-cash interest expense during the remaining term of the debentures. In connection with the Company's recapitalization (See Note 19), the maturity date of the short-term debentures was extended to June 30, 2006. These short-term debentures and accrued interest were exchanged for Series A Preferred Shares on May 30, 2006.
The Company's other outstanding debentures bear interest at 10% per annum calculated on the outstanding face value amount. The interest is payable semi-annually in arrears on June 30 and December 31. The interest payable on the December 17, 2004 debentures is convertible, at the option of the holder, at a price per share equal to the volume weighted average trading price of the Company's common shares on the Toronto Stock Exchange for the 10 trading days preceding the date of the interest payment, less the maximum discount permitted by the Toronto Stock Exchange. As of March 31, 2006, the Company had unpaid interest of approximately $400 to certain debenture holders that was due on December 31, 2005. As discussed in Note 19, on May 30, 2006, this interest amount and interest accrued since December 31, 2006 was exchanged for Series A Preferred Shares.
F-24
The December 17, 2004 debentures also have a conversion feature which permits the holder to convert the principal amount of each debenture into common shares of the Company at a conversion price of $0.44 per share. This conversion price is subject to adjustment as provided by the debenture agreement for dividends, distributions, subdivisions, combinations and reorganizations of the Company. The maturity date of the outstanding debentures was October 31, 2005; however, in September 2005 the maturity date was extended to April 30, 2007, subject to acceleration on the occurrence of certain specified events.
The December 17, 2004 debentures included the issuance of $4,900 in debentures to Phoenix. The debenture purchase agreements provide that, as long as any amounts owed under the debentures remain outstanding, Phoenix will have the right to designate two members of the Board of Directors of the Company and to designate two persons as members of each committee of the Board.
The Company's outstanding debentures are secured by all assets and intellectual property of the Company. The December 17, 2004 debenture holders had a priority security interest over the security interest granted to the remaining debenture holders.
The debenture purchase agreements contained a number of financial and operational covenants which, through June 20, 2006, and the Company was in full compliance with these covenants.
The debentures and the warrants have been valued separately at fair value using the Black Scholes methodology. In fiscal 2005, in connection with the issuance of the December 17, 2004 debentures and common share purchase warrants the fair value calculations assumed a discount rate of approximately 3.4%, volatility of approximately 100% and no dividends. The debentures have been reflected in the financial statements at their discounted value of $4,055 and the difference between this discount amount and the face value of $5,000, which is repayable at maturity, will be amortized as additional non-cash interest expense during the term of the debentures. The value assigned to warrants issued in connection with the debenture financings are reflected as a separate component of shareholders' deficiency. Upon exercise of the warrants, the related value assigned to such warrants is reclassified into share capital. The 2005 warrants issued are reflected as a separate component of shareholders' deficiency with a value of $945.
The calculations for issuances in fiscal 2004 assumed a discount rate of approximately 3.37% and volatility of approximately 106%. Warrants issued in connection with fiscal 2004 debenture financings had an assigned value of $942. In March 2004, the debenture holders and the Company agreed to extend the maturity date of the debentures to October 31, 2005. As a result of this amendment, the Company determined that the modification of the terms represented a settlement of the original debt. As a result, the balance of the unamortized debenture discount and the associated deferred financing costs were charged to expense for the fiscal year ended March 31, 2004, resulting in a $451 increase in interest expense.
Upon exercise of the warrants, the related value assigned to such warrants is reclassified into share capital.
During the years ended March 31, 2006, 2005 and 2004, certain of the debenture holders surrendered their debentures to the Company as consideration for the exercise price of warrants they held. As a result, the face value of the outstanding debentures was reduced by $80 in 2006, $465 in
F-25
2005 and $450 in 2004. Additionally, during the years ended March 31, 2006, 2005 and 2004, the amounts of non-cash interest expense of $635, $310 and $3,210, respectively, were recorded relating to the amortization of debenture discount (see Note 19).
10. SHARE CAPITAL
The Company is authorized to issue an unlimited number of common shares (see Note 19).
Year-ended March 31, 2006
During the year ended March 31, 2006, a number of warrant holders elected to exercise their warrants. The Company issued 2,067,330 common shares upon the exercise by warrant holders of 2,067,330 warrants. The Company received cash proceeds of $572 and received surrendered debentures in the face amount of $80 as payment for the warrant exercise price.
Year-ended March 31, 2005
During the year ended March 31, 2005, a number of warrant holders elected to exercise their warrants. The Company issued 1,853,408 common shares upon the exercise by warrant holders of 1,853,408 warrants. The Company received cash proceeds of $59 and received surrendered debentures in the face amount of $465 as payment for the warrant exercise price. Further, in fiscal 2005 the Company issued 9,952,723 common shares upon the exercise, on a cashless basis in accordance with their terms, of 12,500,744 warrants.
During the year ended March 31, 2005, the Company raised gross proceeds of $800 through the completion of a private placement of 1,000,030 units at $0.80 per unit, each unit comprised of one common share of the Company and one common share purchase warrant.
In December 2004, the Company agreed with a key supplier to sell 2,975,011 common shares of the Company for approximately $1.3 million. In addition, the supplier entered into an intercreditor agreement with the debenture holders whereby the supplier was granted a priority security interest in certain trade debts of the Company in excess of $2 million.
In connection with the issuance of the December 17, 2004 debentures in a private placement, the Company issued 9,100,000 warrants. The warrants are exercisable for common shares of the Company at an exercise price per share of $0.55 until the later of 36 months after December 17, 2004 and 24 months after the debentures are fully repaid or converted; provided, however, that in no event will any warrant be exercisable on or after December 17, 2009.
Year-ended March 31, 2004
During the year ended March 31, 2004, a number of warrant holders elected to exercise their warrants. The Company issued 4,260,562 common shares upon the exercise by warrant holders of 4,260,562 warrants. The Company received cash proceeds of $900 and received surrendered debentures in the face amount of $450 as payments for the warrants exercise price. Included in warrants exercised are 270,000 warrants which were issued to a Director of the Company in consideration for a bridge loan in the amount of Cdn$270,000 provided to the Company in November 2003. The Director's
F-26
warrants had an exercise price of Cdn$0.50. Further, the Company issued 6,157,619 common shares upon the exercise, on a cashless basis in accordance with their terms, of 8,664,226 warrants.
In March 2004, the Company raised gross proceeds of $4,092 through the private placements of 5,114,520 units, at $0.80 per unit, each unit comprised of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to acquire one common share of the Company at exercise prices in the range of $1.20 to $1.50 depending upon the exercise date, and expires in March 2006.
During the year ended March 31, 2004, the Company issued 9,090,912 warrants in connection with its April 2003 debenture financings in the aggregate amount of $2.0 million and 250,000 warrants to a commercial bank. These warrants have an exercise price of Cdn$0.33 and expire in April 2006.
The fair value of the warrants issued to the commercial bank and the Director of the Company were calculated using the Black Scholes methodology and recorded as additional paid in capital in the amount of $83.
Warrants outstanding
There were 15,789,919 warrants outstanding at March 31, 2006 as detailed in the table below:
Number Outstanding
|
Exercise Price
|
Expiry Date
|
||
---|---|---|---|---|
454,546 | C$0.33 | April 9 April 28, 2006(1) | ||
1,000,030 | US$1.30 US$1.50 | April 22, 2006(2) | ||
9,100,000 | US$0.55 | December 17, 2007 | ||
5,235,343 | C$0.45 | April 10, 2008 |
11. STOCK-BASED COMPENSATION PLAN
In 1995, the Board of Directors approved a Share Option Plan, as amended and restated in December 2004. The Share Option Plan is administered by the Board of Directors and provides that options may be granted to employees, officers, Directors and consultants to the Company. The exercise price of an option is determined at the time of grant and is to be based on the closing price of the common shares on The Toronto Stock Exchange, or other applicable Exchange, on the day preceding the grant. Unless otherwise provided for, the options are exercisable only during the term of engagement of the employee, officer or consultant or during the period of service as a Director of the Company. The maximum aggregate number of common shares reserved for issuance upon the exercise of all options granted under the Share Option Plan, as amended, is not to exceed 11,400,000 common shares of the Company. The options under the plan generally vest over a 3-year period in equal annual amounts.
The options have been valued separately using the Black Scholes methodology and the calculations for issuances in fiscal 2006, 2005 and 2004 assumed discount rates of approximately 4.2%, 3.8% and
F-27
3.37%, respectively, and volatility of approximately 127%, 83% and 106%, respectively, and no dividends for all years. The Company recorded compensation cost of $522 in fiscal 2006, $305 in fiscal 2005 and $265 in fiscal 2004 for option grants issued since April 1, 2003.
A summary of the activity in the Company's Share Option Plan during the years ended March 31, 2006, 2005 and 2004 is as follows:
|
Year ended March 31,
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2006
|
2005
|
2004
|
||||||||||||
|
Options
|
Weighted Average
Exercise Price (Cdn$) |
Options
|
Weighted Average
Exercise Price (Cdn$) |
Options
|
Weighted Average
Exercise Price (Cdn$) |
|||||||||
Outstanding at beginning of year | 6,821,588 | $ | 1.05 | 3,886,679 | $ | 1.63 | 1,461,826 | $ | 3.67 | ||||||
Granted | 1,579,500 | $ | 0.88 | 4,409,748 | $ | 0.76 | 2,584,000 | $ | 0.54 | ||||||
Exercised | 100,000 | $ | 0.47 | 150,835 | $ | 0.46 | 42,000 | $ | 0.46 | ||||||
Forfeited | 2,769,738 | $ | 1.25 | 1,324,004 | $ | 1.83 | 117,147 | $ | 3.57 | ||||||
|
|
|
|
|
|
||||||||||
Outstanding at end of year | 5,531,350 | $ | 0.91 | 6,821,588 | $ | 1.05 | 3,886,679 | $ | 1.63 | ||||||
|
|
|
|
|
|
At March 31, 2006, the total number of common shares issued in connection with the exercise of options is 521,385 since the inception of the Share Option Plan.
A summary of the options outstanding and exercisable as at March 31, 2006 is as follows:
|
Options outstanding
|
Options exercisable
|
||||
---|---|---|---|---|---|---|
|
|
Weighted Average Remaining Contractual Life
|
||||
Range of Exercise Prices
|
Number
Outstanding |
Number Exercisable
|
||||
Cdn$
|
|
|
|
|||
$0.40 0.47 | 1,469,669 | 1.4 | 1,175,672 | |||
$0.50 $0.56 | 2,024,979 | 3.4 | 601,011 | |||
$0.65 1.18 | 1,222,500 | 3.8 | 159,837 | |||
$1.24 1.85 | 384,502 | 2.2 | 242,507 | |||
$2.29 7.10 | 429,700 | 0.1 | 429,367 | |||
|
|
|||||
5,531,350 | 2,608,394 | |||||
|
|
During the year ended March 31, 2006, grants covering 300,000 common shares were issued to non-executive Directors of the Company at an exercise price of C$0.93.
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12. INCOME TAXES
The provision for income taxes varies from the expected provision at statutory rates for the following reasons:
|
2006
|
2005
|
2004
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Combined basic Canadian statutory rates | 37 | % | 37 | % | 37 | % | |||||
|
|
|
|||||||||
Recovery of income taxes based on the above rates | $ | (2,432 | ) | $ | (3,289 | ) | $ | (4,699 | ) | ||
Increase (decrease) in income taxes resulting from: | |||||||||||
Effect of differences between US and foreign tax rates | 73 | 179 | 254 | ||||||||
Permanent differencefinancing fees | 235 | 115 | 1,188 | ||||||||
Permanent differenceissuance costs | | (17 | ) | (80 | ) | ||||||
Permanent differencestock compensation | 193 | 113 | 98 | ||||||||
Non-recognition of loss carry forwards | 1,931 | 2,899 | 3,239 | ||||||||
|
|
|
|||||||||
Provision for income taxes | $ | | $ | | $ | | |||||
|
|
|
The Company has non-capital losses for income tax purposes totalling approximately $62,868, which under certain conditions, may be carried forward and applied to reduce future year's taxable income. The potential benefit associated with these losses is not reflected in these statements as management does not believe that recovery is more likely than not. The right to claim these losses expires as follows:
Expiry Year
|
Canada
|
United States
|
Total
|
||||||
---|---|---|---|---|---|---|---|---|---|
2007 | 490 | | 490 | ||||||
2008 | 1,857 | | 1,857 | ||||||
2010 | 3,195 | | 3,195 | ||||||
2014 | 4,823 | | 4,823 | ||||||
2015 | 2,889 | | 2,889 | ||||||
2016 | 1,707 | 1,282 | 2,989 | ||||||
2017 | | 737 | 737 | ||||||
2018 | | 5,293 | 5,293 | ||||||
2019 | | 2,978 | 2,978 | ||||||
2020 | | 1,486 | 1,486 | ||||||
2021 | | 3,116 | 3,116 | ||||||
2022 | | 6,412 | 6,412 | ||||||
2023 | | 10,746 | 10,746 | ||||||
2024 | | 4,433 | 4,433 | ||||||
2025 | | 7,764 | 7,764 | ||||||
2026 | | 3,660 | 3,660 | ||||||
|
|
|
|||||||
$ | 14,961 | $ | 47,907 | $ | 62,868 | ||||
|
|
|
F-29
13. FINANCIAL INSTRUMENTS
Fair value of financial instruments
The estimated fair value of accounts receivable, accounts payable, accrued liabilities and debentures is equal to the book value given their short-term nature and terms.
Interest rate risk
At March 31, 2006, all of the Company's debentures bear interest at a fixed rate of 10% and the Company is not exposed to future fluctuations in interest rates. At September 15, 2005, the Company entered into a loan and security agreement with a commercial bank and the interest rate has a variable component based on bank's prime rate. If the Company borrowed 100% of the facility's available line for a full year and the bank's prime rate increased by 1%, the Company's borrowing costs would increase by $50,000.
Foreign exchange risk
The United States dollar is the Company's reporting currency. As the majority of the Company's revenues and expenses are in United States dollars, foreign exchange is limited to nonU.S. dollar denominated revenues and net expenditures in Canadian dollars, which represents 2%, 1%, and 7% of revenues and 9%, 8% and 9% of net expenditures in each of the years ended March 31, 2006, 2005 and 2004, respectively.
Credit risk
The Company's exposure to accounts receivable credit risk is as follows:
As of
March 31, |
Accounts Receivable
(in millions) |
Number of Customers
with Receivable Balance > 10% of Total Receivables |
Customer Share as a
Percent of Total Receivables |
Percentage Share of
Total Receivables |
||||||
---|---|---|---|---|---|---|---|---|---|---|
2006 | $ | 4.6 | 1 | 42% | 42 | % | ||||
2005 | $ | 1.9 | 2 | 13% & 11% | 24 | % |
The receivable representing 42% of the accounts receivable balance at March 31, 2006 was subsequently collected on May 16, 2006.
14. SEGMENTED INFORMATION
The Company operates in one segment, the sale of rugged mobile wireless Tablet PC computing systems. The majority of the Company's revenue is derived from sales in the United States of America. Other than the Netherlands with 12.5% of the total revenue, no other country outside of the United
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States of America accounted for more than 10% of the Company's revenue for the year ended March 31, 2006. The distribution of revenue by country is segmented as follows:
|
Year ended March 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2006
|
2005
|
2004
|
|||||||
Revenue by country: | ||||||||||
United States of America | $ | 14,839 | $ | 13,089 | $ | 20,335 | ||||
Netherlands | $ | 3,467 | $ | 24 | $ | | ||||
All other countries | 9,174 | 4,417 | 4,296 | |||||||
|
|
|
||||||||
$ | 27,480 | $ | 17,530 | $ | 24,631 | |||||
|
|
|
The Company has a variety of customers, however, in a given year a single customer can account for a significant portion of sales. For the year ended March 31, 2006, the Company had one customer that had sales that were 10% or greater of total revenue and the customer was located in the Netherlands. In fiscal 2005, there were no customers who accounted for more than 10% of total revenue and in fiscal 2004, there were three customers, all located in the United States, who accounted for more than 10% of total revenue. The percentages of total revenue from these customers are as follows:
Fiscal Year
|
Total Revenue
(in millions) |
Number of Customers
with Revenue > 10% of Total Revenue |
Customer Share as a
Percent of Total Revenue |
Percentage Share of
Total Revenue |
||||||
---|---|---|---|---|---|---|---|---|---|---|
2006 | $ | 27.5 | 1 | 10% | 10 | % | ||||
2005 | $ | 17.5 | None | | | |||||
2004 | $ | 24.6 | 3 | 21%, 16% & 15% | 52 | % |
Substantially all of the Company's capital assets are owned by its wholly-owned subsidiary, Xplore Technologies Corporation of America, a corporation organized under the laws of the State of Delaware. No country, other than the United States of America, had more than 10% of the Company's assets for the two years ended March 31, 2006.
15. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases facilities in Austin, Texas. The annual lease commitment is $232 and the lease maturity date was extended from May 31, 2007 to August 31, 2009. The Company also leases a satellite office in Helsinki, Finland, on a 3-month renewable basis.
F-31
Minimum annual payments by fiscal year required under all of the Company's operating leases are:
2007 | $ | 244 | |
2008 | 232 | ||
2009 | 229 | ||
2010 | 95 | ||
|
|||
$ | 800 | ||
|
On January 3, 2006, the Company entered into an agreement with the former Chief Executive Officer ("CEO") of the Company whereby the Company is obligated to pay the former CEO $175 over an eleven month period ending November 1, 2006. In addition, the expiration dates of approximately 666,000 vested option shares were extended to periods through November 1, 2006. Amongst other terms, the Company and former CEO agreed to certain confidentiality and non-compete provisions.
At March 31, 2006, the Company had purchase obligations extending into fiscal 2007 of approximately $2,900 related to inventory and product development items.
In December 2003, the Company received notice of a third party claim in connection with ongoing litigation between one of its value added resellers (VARs) and the VAR's customer. This third party claim was made in connection with a subcontract performance bond issued by the Company in the amount of $1.7 million to its reseller during fiscal 2001 and the bond surety also made a claim against the Company in the matter. In April 2004, this VAR voluntarily dismissed its claim against the Company. In October 2004, the remaining parties to this litigation dismissed their claim against the Company.
The Company and its subsidiaries are engaged in legal actions, arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a material adverse effect on the Company's consolidated financial position or results of operations.
16. RELATED PARTY TRANSACTIONS
On May 20, 2005, the Company raised $1,500 through the issuance of a 10% secured promissory note due August 31, 2005 (subsequently extended to September 15, 2005) in the original principal amount of $1,500 to Phoenix. The note was repaid on September 15, 2005.
On July 19, 2005, the Company raised $1,500 through the issuance of 10% secured promissory notes due August 31, 2005 (subsequently extended to September 15, 2005) to Phoenix and other lenders, including an affiliate of Phoenix in the aggregate original principal amount of $1,500. The notes were repaid on September 15, 2005.
During the fiscal year ended March 31, 2005, the Company had short-term borrowings of $2,650 from Phoenix and affiliates. The 10% interest bearing notes were secured by assets of the Company
F-32
and repaid with proceeds from the $5,000 December 17, 2004 private placement. A description of borrowings from Phoenix and other affiliates is included in Note 9.
Interest expense for the fiscal years ended 2006, 2005 and 2004 includes $1,167, $520, and $378 respectively, related to borrowings from Phoenix and its affiliates. At March 31, 2006, 2005, and 2004 outstanding debentures issued to such affiliates were $13,208, $8,708 and $3,808, respectively.
17. SALE OF TECHNOLOGY
On August 3, 2005, the Company sold previously developed rugged handheld technology to a foreign value added reseller. The sale agreement provided for an initial payment of approximately $900, which the Company received on August 5, 2005, and a future payment of approximately $700, net of the Company's share of future development costs, upon the completion of certain agreed upon production activities by a third party manufacturer. At March 31, 2006, the agreed upon production activities were not completed and it is uncertain as to whether the purchaser will complete its obligations under the sale agreement. The proceeds received in August, net of related selling expenses, have been reflected in other income for the year ended March 31, 2006. The Company's investment in the rugged handheld technology was previously expensed when incurred since the expenditures were research and development related. The technology was in a development stage and did not account for any of the Company's revenue.
18. QUARTERLY OPERATING RESULTS
The following tables provide a summary of the Company's unaudited operating results for each of the quarters ended on the date indicated:
Quarter ended
|
June 30,
2005 |
September 30,
2005 |
December 31,
2005 |
March 31,
2006 |
||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenue | $ | 6,125 | 6,583 | 7,218 | 7,554 | |||||
Gross profit | 1,429 | 1,692 | 1,768 | 1.920 | ||||||
Operating expenses | 2,666 | 3,297 | 3,171 | 2,695 | ||||||
Loss from operations | (1,237 | ) | (1,605 | ) | (1,403 | ) | (776 | ) | ||
Other expenses | (607 | ) | 118 | (550 | ) | (513 | ) | |||
Net loss | $ | (1,844 | ) | (1,487 | ) | (1,953 | ) | (1,289 | ) | |
Loss per common share | $ | (0.03 | ) | (0.03 | ) | (0.03 | ) | (0.03 | ) | |
Average shares outstanding (000s) | 54,986 | 55,008 | 56,455 | 57,326 |
F-33
Quarter ended
|
June 30,
2004 |
September 30,
2004 |
December 31,
2004 |
March 31,
2005 |
||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenue | $ | 4,479 | 3,052 | 4,881 | 5,118 | |||||
Gross profit | 943 | 311 | 1,180 | 1,236 | ||||||
Operating expenses | 2,975 | 3,623 | 2,487 | 2,260 | ||||||
Loss from operations | (2,032 | ) | (3,312 | ) | (1,307 | ) | (1,024 | ) | ||
Other expenses | (194 | ) | (230 | ) | (275 | ) | (517 | ) | ||
Net loss | $ | (2,226 | ) | (3,542 | ) | (1,582 | ) | (1,541 | ) | |
Loss per common share | $ | (0.05 | ) | (0.07 | ) | (0.03 | ) | (0.03 | ) | |
Average shares outstanding (000s) | 43,212 | 49,900 | 52,303 | 54,983 |
19. SUBSEQUENT EVENTS
On April 21, 2006, the Company entered into a financing agreement with Phoenix pursuant to which Phoenix agreed, at its sole discretion, to provide up to $5,000 in financing to us. In connection with the financing, the Company issued a $1,000 10% secured debenture to Phoenix, which had a maturity date of June 30, 2006. The debenture and related accrued and unpaid interest were exchanged for 2,970,185 Series A Preferred Shares as part of the recapitalization discussed below. Of the remaining $4,000 of available financing, the Company received gross proceeds of approximately $800 in June 2006 and approximately $1,904 in July 2006 in exchange for a total of 7,952,353 Series A Preferred Shares issued to certain investors, as designated by Phoenix.
On June 1, 2006, the Company announced that it completed a recapitalization pursuant to which $18,877 of indebtedness, represented by 10% secured debentures and accrued interest, was exchanged for 55,520,542 Series A Preferred Shares. The Series A Preferred Shares were issued on May 30, 2006 and are convertible initially on a one-for-one basis into common shares of the Company at any time at the option of the holder and will convert upon the occurrence of specified events. The conversion rate is subject to adjustment for stock dividends, splits, combinations and similar events. In the event that the Company issues additional securities at a purchase price less than the then current Series A Preferred Share conversion price, such conversion price will be adjusted in accordance with the formula specified in the Company's articles of incorporation. The Series A Preferred Shares are entitled to one vote per share at meetings of the Company's shareholders, are entitled to appoint two of our directors, a cumulative 5% dividend that may be paid in preferred shares, have certain protective provisions, and contain a liquidation preference over the common shares. One debenture in the amount of $250 and related accrued interest was not exchanged and remains outstanding.
On August 9, 2006, the Company issued 9,988,513 Series B Preferred Shares in a private placement for gross proceeds to the Company of approximately $3,396. The Series B Preferred Shares generally have the same rights and preferences as the Series A Preferred Shares. The Series B Preferred Shares are convertible initially on a one-for-one basis into common shares of the Company at any time at the option of the holder, subject to adjustment for stock dividends, splits, combinations and
F-34
similar events. The Series B Preferred Shares are entitled to one vote per share at meetings of the Company's shareholders, are entitled to a cumulative 5% dividend paid quarterly in common shares, have certain protective provisions, and contain a liquidation preference over the common shares.
On September 25, 2006, the Company issued 2,848,253 Common Shares in a private placement for gross proceeds to the Company of approximately $997.
F-35
RESOLVED AS A SPECIAL RESOLUTION THAT:
A-1
EXHIBIT B
CERTIFICATE OF DOMESTICATION
OF
XPLORE TECHNOLOGIES CORP.
The undersigned, for the purposes of domesticating a corporation under Section 388 of the General Corporation Law of the State of Delaware, does certify that:
FIRST : The corporation was incorporated on August 20, 1996 and the jurisdiction of incorporation was the province of Ontario, Canada. The corporation was subsequently continued under the federal laws of Canada on March 22, 2000 and, on March 25, 2000, was amalgamated with its parent corporation under the federal laws of Canada to continue as Xplore Technologies Corp.
SECOND : The name of the corporation immediately prior to the filing of this certificate is Xplore Technologies Corp.
THIRD : The name of the corporation as named in the Certificate of Incorporation filed in accordance with Section 388(b)(2) of the Delaware General Corporation Law is Xplore Technologies Corp.
FOURTH : The jurisdiction constituting the principal place of business of the corporation immediately prior to the filing of this certificate was Austin, Texas.
FIFTH : The domestication has been approved by the shareholders of Xplore Technologies Corp. in accordance with Canadian law.
Executed on this day of , 2007.
|
|
Name: Title: |
B-1
EXHIBIT C
CERTIFICATE OF INCORPORATION
OF
XPLORE TECHNOLOGIES CORP.
The undersigned (the " Sole Incorporator "), for the purpose of organizing a corporation to conduct the business and promote the purposes hereinafter stated, under the provisions and subject to the requirements of the State of Delaware hereby certifies that:
FIRST: The name of the corporation is Xplore Technologies Corp. (hereinafter called the " Corporation ").
SECOND: The address of the Corporation's registered office in the State of Delaware is 160 Greentree Drive, Suite 101, Dover, Delaware 19904, County of Kent. The name of the registered agent of the Corporation at such address is National Registered Agents, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation is authorized to issue is Three Hundred Ninety Million (390,000,000) shares of capital stock consisting of: (i) Three Hundred Million (300,000,000) shares of common stock, $.001 par value (the " Common Stock "), and (ii) Ninety Million (90,000,000) shares of Preferred Stock, $.001 par value (the " Preferred Stock ").
Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Preferred Stock Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Preferred Stock Designation (as defined below) relating to any series of Preferred Stock).
FIFTH: The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is expressly authorized, subject to any limitations prescribed by law, to provide for the issue of all or any of the shares of the Preferred Stock in one or more series and to file a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a " Preferred Stock Designation ") to fix the number of shares and to determine or alter, for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares and as may be permitted by the General Corporation Law of the State of Delaware. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of all of the outstanding shares of the Corporation entitled to vote thereon, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. The
C-1
authority of the Board of Directors with respect to each additional series shall include, but not be limited to, determination of the following:
(A) The number of shares constituting that series and the distinctive designation of that series;
(B) Whether that series shall be entitled to dividends and, if so, the dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(C) Whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights;
(D) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(E) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(F) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund;
(G) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and
(H) Any other relative rights, preferences and limitations of that series.
A. SERIES A PREFERRED STOCK
The first such series of Preferred Stock shall be designated as Series A Convertible Preferred Stock (" Series A Preferred Stock ") and the number of shares constituting such series shall be Sixty-Four Million (64,000,000) shares. The Series A Preferred Stock shall have the following rights, designations, powers and privileges:
1. Dividends.
(a) From and after the date of the issuance of any Series A Preferred Stock (which for purposes hereof includes the issuance by the Corporation prior to its domestication under Section 388 of the Delaware General Corporation Law), dividends at the rate per annum of 5% of the Series A Original Issue Price (as hereinafter defined) per share shall accrue on such shares of Series A Preferred Stock (the " Series A Dividends "). Series A Dividends shall accrue, whether or not declared, and shall be cumulative. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of shares of the Corporation other than any other series of Preferred Stock entitled to receive dividends in priority to or concurrently with the holders of the Series A Preferred Stock unless the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, the Series A Dividends. The " Series A Original Issue Price " shall mean $0.34 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock.
(b) The Series A Dividends shall be mandatory and shall be paid, out of funds legally available, quarterly on the first day Business Day (as defined below) of March, June, September and December of each year (each a " Series A Dividend Payment Date "), commencing on the first
C-2
Business Day next succeeding the Series A Initial Dividend Period (as defined below). Subject to the approval of the Toronto Stock Exchange, or such other Canadian or United States securities exchange or quotation system which on the date of determination constitutes the principal securities market for the Common Stock (the " Principal Securities Market "), the Series A Dividends shall be paid, out of funds legally available, in that number of shares of Common Stock as is determined by dividing (i) the aggregate amount of the Series A Dividends then payable by (ii) the U.S. dollar equivalent (as determined based on the noon rate of exchange posted by the Bank of Canada on the third trading day immediately preceding the Series A Dividend Payment Date) of the volume weighted average trading price of the Common Stock on the Principal Securities Market over the 10 trading days ending on the third trading day immediately preceding the Series A Dividend Payment Date, less, if applicable, the maximum discount permitted by the Principal Securities Market at that time. Notwithstanding anything contained herein to the contrary, in the event of a Liquidation (as defined in Section 2(a) below), an amount equal to all accrued but unpaid Series A Dividends shall be paid in cash, out of funds legally available. If any Series A Dividend is not paid on a Series A Dividend Payment Date, then the amount of such unpaid dividend shall continue to accrue from the applicable Series A Dividend Payment Date until paid.
(c) For greater certainty, the amount of Series A Dividends payable for each full Series A Dividend Period (as defined below) for the Series A Preferred Stock shall be 1.25% of the Series A Original Issue Price. For greater certainty, the amount of Series A Dividends payable for (i) the Series A Initial Dividend Period shall be equal to 5% of the Series A Original Issue Price multiplied by the quotient obtained by dividing the number of days in the period for which the shares of Series A Preferred Stock were outstanding by 365, and (ii) any other period shorter than a full Series A Dividend Period shall be equal to 1.25% of the Series A Original Issue Price multiplied by the quotient obtained by dividing the number of days elapsed since the first day of the applicable Series A Dividend Period by 90.
(d) Fractional shares of Common Stock will not be issued upon payment of any Series A Dividends and any amount of fractional shares of Common Stock otherwise issuable upon payment of any Series A Dividends shall, in the sole discretion of the Board of Directors, either be paid in cash or, to the fullest extent permitted by law, continue to accrue until the next Series A Dividend Payment Date.
(e) Series A Dividends to be paid on a Series A Dividend Payment Date shall be paid, out of funds legally available, to the holders of record of the Series A Preferred Stock as they appear on the share register of the Corporation at the close of business fifteen (15) days preceding the applicable Series A Dividend Payment Date. Holders of Series A Preferred Stock shall be entitled to receive dividends, out of funds legally available, in preference to and in priority over dividends upon the Common Stock and any other series or class of the Corporation's capital stock that ranks junior as to dividends to the Series A Preferred Stock, and shall be on parity as to dividends with any series or class of the Corporation's share capital that does not rank senior or junior as to dividends with the Series A Preferred Stock. The holders of Series A Preferred Stock shall not be entitled to dividends in excess of full cumulative dividends as herein provided.
(f) The term " Business Day " shall mean any day other than a Saturday, Sunday or day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close. The term " Series A Dividend Period " shall mean quarterly dividend periods commencing on the first day of March, June, September and December of each year and ending on and including the day preceding the first day of the next succeeding Series A Dividend Period (other than the Series A Initial Dividend Period). The term " Series A Initial Dividend Period " shall mean the period commencing on the Series A Original Issue Date and ending on (and including) February 28, 2007.
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2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
(a) Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a " Liquidation "), the holders of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its stockholders (on a pari passu basis with the holders of any series of Preferred Stock ranking on liquidation on a parity with the Series A Preferred Stock), and before any payment shall be made to the holders of Common Stock or any other class or series of shares ranking on liquidation junior to the Series A Preferred Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) one (1) times the Series A Original Issue Price, plus an amount equal to any Series A Dividends accrued but unpaid thereon which dividends shall be paid in cash (and not in Common Stock), and (ii) such amount per share as would have been payable had each such share been converted into Common Stock pursuant to Section 4 immediately prior to such Liquidation (the amount payable pursuant to this sentence is hereinafter referred to as the " Series A Liquidation Amount "). If upon any such Liquidation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of Series A Preferred Stock and any series of Preferred Stock ranking on liquidation on a parity with the Series A Preferred Stock the full amount to which they shall be entitled under this Section 2(a) , the holders of Series A Preferred Stock and any series of Preferred Stock ranking on liquidation on a parity with the Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
(b) Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment of all preferential amounts required to be paid to the holders of Series A Preferred Stock pursuant hereto, the holders of Series A Preferred Stock will not be entitled to share in any of the remaining assets of the Corporation available for distribution.
(c) Deemed Liquidation Events.
(i) To the fullest extent permitted by law, each of the following events shall be deemed to be a liquidation of the Corporation for purposes of this Section 2 (a " Series A Deemed Liquidation Event "), unless the holders of at least a majority of the voting power of Series A Preferred Stock vote or consent otherwise at least five days prior to the effective date of any such event:
(A) a merger or consolidation in which
(I) the Corporation is a constituent party, or
(II) a subsidiary of the Corporation is a constituent party and the Corporation issues shares pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of the Corporation outstanding immediately prior to such merger, or consolidation continue to represent, or are converted into or exchanged for shares which represent, immediately following such merger or consolidation at least a majority of the voting power (determined on a fully diluted basis assuming the exercise, conversion or exchange of all exercisable, convertible or exchangeable securities, respectively), of the shares of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation ( provided that , for the purpose of this Subsection 2(c)(i) , all shares of Common Stock issuable upon exercise of
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Options (as defined below) outstanding immediately prior to such merger, or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
(B) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
(ii) The Corporation shall not, without the vote or written consent described in Section 2(c)(i) , effect a Series A Deemed Liquidation Event referred to in Subsection 2(c)(i)(A)(I) above unless the agreement or plan of merger, arrangement or consolidation for such transaction provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of shares in the capital of the Corporation in accordance with Subsections 2(a) and 2(b) above.
(iii) In the event of a Series A Deemed Liquidation Event pursuant to Subsection 2(c)(i)(A)(II) or (B) above, if the Corporation does not effect a dissolution of the Corporation under the Delaware General Corporation Law within 90 days after such Series A Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of Series A Preferred Stock no later than the 90th day after the Series A Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such Series A Preferred Stock, out of funds legally available therefor, and (B) if the holders of at least a majority of the voting power of Series A Preferred Stock so request in a written instrument delivered to the Corporation not later than 120 days after such Series A Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Series A Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the " Series A Net Proceeds "), to the extent legally available therefore, on the 150th day after such Series A Deemed Liquidation Event to redeem all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Series A Net Proceeds are not sufficient to redeem all outstanding shares of Series A Preferred Stock and any other series of Preferred Stock ranking on redemption on parity with the Series A Preferred Stock that is required to then be redeemed, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem the pro rata portion of each holder's shares of Series A Preferred Stock and any other series of Preferred Stock ranking on redemption on parity with the Series A Preferred Stock on a pari passu basis based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. To the fullest extent permitted by law, prior to the distribution or redemption provided for in this Subsection 2(c)(iii) , the Corporation shall not expend or
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dissipate the consideration received for such Series A Deemed Liquidation Event without the written consent or affirmative vote of the holders of at least a majority of the voting power of Series A Preferred Stock, consenting or voting (as the case may be) separately as a class, unless the Board of Directors of the Corporation, including the Series A Directors (as hereinafter defined), has approved such expenditure.
(iv) The amount deemed paid or distributed to the holders of Series A Preferred Stock upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation in accordance with the following guidelines:
(A) For securities not subject to investment letters or other similar restrictions on free marketability,
(I) if traded on the Toronto Stock Exchange, the New York Stock Exchange, a national securities exchange or the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the 30-day period ending three trading days prior to the closing of such transaction;
(II) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three trading days prior to the closing of such transaction; or
(III) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.
(B) The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall take into account an appropriate discount (as determined in good faith by the Board of Directors of the Corporation) from the market value as determined pursuant to clause (A) above so as to reflect the approximate fair market value thereof.
3. Voting.
(a) General. To the fullest extent permitted by law, on any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of shares of Common Stock into which the Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as otherwise required by law or by the provisions of Subsection 3(b) or 3(c) below, holders of Series A Preferred Stock shall vote together with the holders of Common Stock, and with the holders of any other series of Preferred Stock entitled to vote at such meeting or by written consent, as a single class.
(b) Election of Directors. The holders of record of a majority of the voting power of the Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation (the " Series A Directors "). Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of a majority of the voting power of the holders of the Series A Preferred Stock given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent
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of holders of the Series A Preferred Stock then outstanding. At any meeting held for the purpose of electing a Series A Director, the presence in person or by proxy of the holders of a majority of the voting power of Series A Preferred Stock shall constitute a quorum for the purpose of electing such director. A vacancy in any directorship filled by the holders of Series A Preferred Stock shall be filled only by written consent or affirmative vote of the holders of at least a majority of the voting power of Series A Preferred Stock or appointed by any remaining director elected by the holders of Series A Preferred Stock pursuant to this Subsection 3(b) . The rights of the holders of the Series A Preferred Stock to elect the Series A Directors shall permanently terminate on the first date following the Series A Original Issue Date (as defined below) on which there are issued and outstanding less than ten percent (10%) of the total shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, subdivision or other similar recapitalization affecting such shares) that were outstanding on the last Series A Original Issue Date (63,472,895 shares of Series A Preferred Stock).
(c) Protective Provisions. At any time when at least ten percent (10%) of the total shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, subdivision or other similar recapitalization affecting such shares) that were outstanding on the last Series A Original Issue Date (63,472,895 shares of Series A Preferred Stock) are issued and outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the voting power of Series A Preferred Stock, consenting or voting (as the case may be) separately as a class:
(i) liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Series A Deemed Liquidation Event, or consent to any of the foregoing;
(ii) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock;
(iii) create, or authorize the creation of, or issue any additional class or series of shares unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation and the payment of dividends, or increase the authorized number of shares of Series A Preferred Stock;
(iv) purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares in the capital of the Corporation other than dividends or distributions on the shares of Series A Preferred Stock and the shares of Series B Preferred Stock as expressly authorized herein;
(v) create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security unless such debt security has received the prior approval of the Board of Directors, including the approval of the Series A Directors;
(vi) increase or decrease the authorized number of directors constituting the Board of Directors; or
(vii) terminate the employment of the Corporation's then current Chief Executive Officer, President or Chief Financial Officer or hire or appoint anyone to any such offices or their respective equivalents.
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4. Optional Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the " Series A Conversion Rights "):
(a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock calculated by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion. Subject to the approval of the Principal Securities Market, the shares of Series A Preferred Stock that are converted into Common Stock pursuant to this Section 4 shall be entitled to receive, out of funds legally available, an amount equal to any accrued but unpaid Series A Dividends thereon through the Series A Conversion Time calculated in accordance with Section 1 and payable to the holders of such Series A Preferred Stock in accordance with Section 4(d) concurrently with the issuance and delivery of certificates representing shares of Common Stock issuable upon such conversion. The " Series A Conversion Price " shall initially be equal to the Series A Original Issue Price. Such initial Series A Conversion Price and the rate at which Series A Preferred Stock may be converted into Common Stock shall be subject to adjustment as provided below.
(b) Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Series A Deemed Liquidation Event, the Series A Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A Preferred Stock.
(c) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
(d) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to voluntarily convert shares of Series A Preferred Stock into Common Stock, such holder shall surrender the certificate or certificates for such Series A Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Series A Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of
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conversion (the " Series A Conversion Time "), and the Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Series A Conversion Time, issue and deliver to such holder of Series A Preferred Stock, or to his, her or its nominees, a certificate or certificates for the full number of shares of Common Stock issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the shares of Series A Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, and cash as provided in Subsection 4(c) in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion.
(ii) To the fullest extent permitted by law, the Corporation shall at all times when shares of the Series A Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued shares, for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its shares of duly authorized Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation.
(iii) All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, shall immediately cease and terminate at the Series A Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of an amount equal to any dividends accrued but unpaid thereon out of funds legally available. Any shares of Series A Preferred Stock so converted shall, upon the taking of appropriate action by the Board of Directors, be retired and shall not be reissued as shares of such series, and the Corporation (without the need for stockholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
(iv) Upon any such conversion, no adjustment to the Series A Conversion Price shall be made for any accrued but unpaid dividends on the Series A Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
(v) To the fullest extent permitted by law, the Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of the Series A Preferred Stock pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the Series A Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
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(e) Adjustments to Series A Conversion Price for Diluting Issues.
(i) Special Definitions . For purposes of this Article Fifth A., the following definitions shall apply:
(A) " Option " shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(B) " Series A Original Issue Date " shall mean the date on which the shares of Series A Preferred Stock were actually issued.
(C) " Convertible Securities " shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(D) " Additional Shares of Common Stock " shall mean all shares of Common Stock issued (or, pursuant to Subsection 4(e)(iii) below, deemed to be issued) by the Corporation after the Series A Original Issue Date, other than the following (" Exempted Securities "):
(I) Common Stock, Options or Convertible Securities issued or deemed issued as a dividend or distribution on the Series A Preferred Stock or the Series B Preferred Stock;
(II) Common Stock, Options or Convertible Securities issued or issuable by reason of a dividend, stock split, split-up or other distribution on the Common Stock that is covered by Subsection 4(f) , 4(g) , 4(h) and 4(i) below;
(III) Common Stock, Options or Convertible Securities issued to employees or directors of, or consultants to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement either in effect as of the Series A Original Issue Date or approved by the Board of Directors of the Corporation, including the Series A Directors; or
(IV) Common Stock or Convertible Securities actually issued upon the exercise of Options, or Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security.
(ii) No Adjustment of Conversion Price. No adjustment in the Series A Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of at least a majority of the voting power of Series A Preferred Stock agreeing that no such adjustment shall be made as a result of the issuance or deemed issuance of such Additional Shares of Common Stock.
(iii) Deemed Issue of Additional Shares of Common Stock.
(A) If the Corporation at any time or from time to time after the Series A Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exerciseability, convertibility or exchangeability, but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options
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therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(B) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series A Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series A Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no re-adjustment pursuant to this clause (B) shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, and (ii) the Series A Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(C) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) below (either because the consideration per share (determined pursuant to Subsection 4(e)(v) hereof) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Series A Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series A Original Issue Date), are revised after the Series A Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4(e)(iii)(A) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(D) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, the Series A Conversion Price shall be readjusted to such Series A Conversion Price as would have obtained had such Option or Convertible Security, or portion thereof, never been issued.
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(E) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series A Conversion Price provided for in this Subsection 4(e)(iii) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (B) and (C) of this Subsection 4(e)(iii) ). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at the time such Option or Convertible Security is issued or amended, any adjustment to the Series A Conversion Price that would result under the terms of this Subsection 4(e)(iii) at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series A Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series A Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4(e)(iii) ), without consideration or for a consideration per share less than the applicable Series A Conversion Price in effect immediately prior to such issue, then the Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP 2 = (CP 1 * (A + B)) ÷ (A + C)
For purposes of the foregoing formula, the following definitions shall apply:
(A) " CP 2 " shall mean the Series A Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(B) " CP 1 " shall mean the Series A Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(C) " A " shall mean the number of shares of Common Stock outstanding and deemed outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or upon conversion or exchange of Convertible Securities (including the Series A Preferred Stock) outstanding (assuming exercise of any outstanding Option therefor) immediately prior to such issue);
(D) " B " shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and
(E) " C " shall mean the number of such Additional Shares of Common Stock issued in such transaction.
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(v) Determination of Consideration. For purposes of this Subsection 4(e) , the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property : Such consideration shall:
(I) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors of the Corporation.
(B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4(e)(iii) , relating to Options and Convertible Securities, shall be determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) above then, upon the final such issuance, the Series A Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any adjustments as a result of any subsequent issuances within such period).
(f) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series A Original Issue Date effect a subdivision of the outstanding shares of Common Stock, the Series A Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall
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at any time or from time to time after the Series A Original Issue Date combine the outstanding shares of Common Stock, the Series A Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
(g) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Series A Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series A Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (ii) that no such adjustment shall be made if the holders of Series A Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series A Preferred Stock had been converted into shares of Common Stock on the date of such event.
(h) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series A Preferred Stock shall receive, out of funds legally available simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding Series A Preferred Stock had been converted into shares of Common Stock on the date of such event.
(i) Adjustment for Merger or Reorganization, etc. Subject to the provisions of Section 2(c) , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the shares of Common Stock (but not the shares of Series A Preferred Stock) are converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections (f) , (g) or (h) of this Section 4 ), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Series A
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Preferred Stock shall thereafter be convertible (in lieu of the Common Stock into which it was convertible prior to such event) into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation, including the Series A Directors) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Series A Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Series A Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the shares of Series A Preferred Stock.
(j) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) trading days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series A Preferred Stock is convertible) and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series A Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of the shares of Series A Preferred Stock.
(k) Notice of Record Date. In the event:
(i) the Corporation shall take a record of the holders of its Common Stock (or other shares or securities at the time issuable upon conversion of the Series A Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other security; or
(ii) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Series A Deemed Liquidation Event; or
(iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series A Preferred Stock a notice specifying, as the case may be, (A) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (B) the effective date on which such reorganization, reclassification, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other shares or securities at the time issuable upon the conversion of the Series A Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other shares or securities) for securities or other property deliverable upon such reorganization, reclassification, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Stock and the Common Stock. Such notice shall be sent at least five (5) days prior to the record date or effective date for the event specified in such notice.
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5. Mandatory Conversion.
(a) Trigger Events. Upon the earlier of: (i) the closing of the sale of shares of Common Stock to the public at a price of not less than $0.85 per share (subject to appropriate adjustment for stock splits, combinations and other similar recapitalizations affecting such shares), in a firm-commitment underwritten public offering pursuant to a prospectus or an effective registration statement resulting in at least $20,000,000 of proceeds, net of the underwriting discount and commissions, to the Corporation, and (ii) a date specified by vote or written consent of the holders of at least a majority of the voting power of Series A Preferred Stock (the earlier of (i) and (ii) above being the " Series A Mandatory Conversion Date "), each share of Series A Preferred Stock then outstanding shall automatically be converted into such number of fully paid and nonassessable shares of Common Stock calculated by dividing the Series A Original Issue Price by the Series A Conversion Price then in effect on the Series A Mandatory Conversion Date, and such shares may not be reissued by the Corporation. Subject to the approval of the Principal Securities Market, the shares of Series A Preferred Stock that are converted into Common Stock pursuant to this Section 5 shall be entitled to receive an amount equal to any accrued but unpaid Series A Dividends out of funds legally available through the Series A Mandatory Conversion Date, calculated in accordance with Section 1 ; and payable to the holders of such Series A Preferred Stock in accordance with Section 5(b) concurrently with the issuance and delivery of certificates representing the shares of Common Stock issuable upon such conversion.
(b) Procedural Requirements. All holders of record of Series A Preferred Stock shall be given written notice of the Series A Mandatory Conversion Date and the place designated for mandatory conversion of all such Series A Preferred Stock pursuant to this Section 5. Upon receipt of such notice, each holder of Series A Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 5 . On the Series A Mandatory Conversion Date, all outstanding shares of Series A Preferred Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Series A Preferred Stock so converted, including, without limitation, the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefore, to receive certificates for the number of shares of Common Stock into which such Series A Preferred Stock has been converted, and, if applicable, payment of any accrued but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Series A Mandatory Conversion Date and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series A Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 4(c) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) Effect of Mandatory Conversion. All shares of Series A Preferred Stock shall, from and after the Series A Mandatory Conversion Date, no longer be deemed to be outstanding and, notwithstanding the failure of the holder or holders thereof to surrender the certificates for such
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shares on or prior to such time, all rights with respect to such shares shall immediately cease and terminate on the Series A Mandatory Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends accrued but unpaid thereon. Such converted shares of Series A Preferred Stock shall be retired, upon the taking of appropriate action by the Board of Directors, and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
6. Redeemed or Otherwise Acquired Shares. Any shares of Series A Preferred Stock which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be immediately retired, upon the taking of appropriate action by the Board of Directors, and shall not be reissued, sold or transferred. The Corporation shall not exercise any voting or other rights granted to the holders of Series A Preferred Stock following redemption.
7. Waiver. To the fullest extent permitted by law, any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth herein may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of the holders of at least a majority of the voting power of Series A Preferred Stock.
8. Notices. Any notice required or permitted by the provisions hereto to be given to a holder of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation and shall be deemed sent upon such mailing.
9. Withholding Rights. Notwithstanding anything herein inconsistent with this Section 9 , the Corporation is entitled to deduct and withhold from any dividend or other amount payable to any holder of Series A Preferred Stock such amounts as the Corporation is required to deduct and withhold with respect to such payment under any provision of provincial, federal, territorial, state, local or foreign tax law. Any amounts so deducted and withheld will be treated for all purposes hereof as having been paid to the holder of the Series A Preferred Stock in respect of which such deduction and withholding was made.
B. SERIES B PREFERRED STOCK
The second such series of Preferred Stock shall be designated as Series B Convertible Preferred Stock (" Series B Preferred Stock ") and the number of shares constituting such series shall be Ten Million (10,000,000) shares. The Series B Preferred Stock shall have the following rights, designations, powers and privileges:
(a) From and after the date of the issuance of any Series B Preferred Stock (which for purposes hereof includes the issuance by the Corporation prior to its domestication under Section 388 of the Delaware General Corporation Law), dividends at the rate per annum of 5% of the Series B Original Issue Price (as hereinafter defined) per share shall accrue on such shares of Series B Preferred Stock (the " Series B Dividends "). Series B Dividends shall accrue, whether or not declared, and shall be cumulative. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of shares of the Corporation, other than the Corporation's Series A Preferred Stock and any other series of Preferred Stock entitled to receive dividends in priority to or concurrently with the holders of the Series B Preferred Stock, unless the holders of the Series B Preferred Stock then outstanding shall first receive, or simultaneously receive, the Series B Dividends. The " Series B Original Issue Price " shall mean $0.34 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock.
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(b) The Series B Dividends shall be mandatory and shall be paid, out of funds legally available, quarterly on the first day Business Day of March, June, September, and December of each year (each a " Series B Dividend Payment Date "), commencing on the first Business Day next succeeding the Series B Initial Dividend Period (as defined below). Subject to the approval of the Principal Securities Market, the Series B Dividends shall be paid, out of funds legally available, in that number of shares of Common Stock as is determined by dividing (i) the aggregate amount of the Series B Dividends then payable by (ii) the U.S. dollar equivalent (as determined based on the noon rate of exchange posted by the Bank of Canada on the third trading day immediately preceding the Series B Dividend Payment Date) of the volume weighted average trading price of the Common Stock on the Principal Securities Market over the 10 trading days ending on the third trading day immediately preceding the Series B Dividend Payment Date less, if applicable, the maximum discount permitted by the Principal Securities Market at that time. Notwithstanding anything contained herein to the contrary, in the event of a Liquidation, an amount equal to all accrued but unpaid Series B Dividends shall be paid in cash, out of funds legally available. If any Series B Dividend is not paid on a Series B Dividend Payment Date, then the amount of such unpaid dividend shall continue to accrue from the applicable Series B Dividend Payment Date until paid.
(c) For greater certainty, the amount of Series B Dividends payable for each full Series B Dividend Period (as defined below) for the Series B Preferred Stock shall be 1.25% of the Series B Original Issue Price. For greater certainty, the amount of Series B Dividends payable for (i) the Series B Initial Dividend Period shall be equal to 1.25% of the Series B Original Issue Price multiplied by the quotient obtained by dividing the number of days in the period for which the shares of Series B Preferred Stock were outstanding by 90, and (ii) any other period shorter than a full Series B Dividend Period shall be equal to 1.25% of the Series B Original Issue Price multiplied by the quotient obtained by dividing the number of days elapsed since the first day of the applicable Series B Dividend Period by 90.
(d) Fractional shares of Common Stock will not be issued upon payment of any Series B Dividends and any amount of fractional shares of Common Stock otherwise issuable upon payment of any Series B Dividends shall, in the sole discretion of the Board of Directors, either be paid in cash or, to the fullest extent permitted by law, continue to accrue until the next Series B Dividend Payment Date.
(e) Series B Dividends to be paid on a Series B Dividend Payment Date shall be paid, out of funds legally available, to the holders of record of the Series B Preferred Stock as they appear on the share register of the Corporation at the close of business fifteen (15) days preceding the applicable Series B Dividend Payment Date. Holders of Series B Preferred Stock shall be entitled to receive dividends, out of funds legally available, in preference to and in priority over dividends upon the Common Stock and any other series or class of the Corporation's capital stock that ranks junior as to dividends to the Series B Preferred Stock, and shall be on parity as to dividends with any series or class of the Corporation's share capital that does not rank senior or junior as to dividends with the Series B Preferred Stock. The Series B Preferred Stock shall rank on parity with the Series A Preferred Stock with respect to dividends. The holders of Series B Preferred Stock shall not be entitled to dividends in excess of full cumulative dividends as herein provided.
(f) The term " Series B Dividend Period " shall mean quarterly dividend periods commencing on the first day of March, June, September and December of each year and ending on and including the day preceding the first day of the next succeeding Series B Dividend Period (other than the Series B Initial Dividend Period). The term " Series B Initial Dividend Period " shall mean the period commencing on the Series B Original Issue Date and ending on (and including) August 31, 2006.
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2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
(a) Payments to Holders of Series B Preferred Stock. In the event of a Liquidation, the holders of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its stockholders (on a pari passu basis with the holders of the Series A Preferred Stock and any other series of Preferred Stock ranking on liquidation on a parity with the Series B Preferred Stock), and before any payment shall be made to the holders of Common Stock or any other class or series of shares ranking on liquidation junior to the Series B Preferred Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) one (1) times the Series B Original Issue Price, plus an amount equal to any Series B Dividends accrued but unpaid thereon, which dividends shall be paid in cash (and not in shares of Common Stock), and (ii) such amount per share as would have been payable had each such share been converted into Common Stock pursuant to Section 4 immediately prior to such Liquidation (the amount payable pursuant to this sentence is hereinafter referred to as the " Series B Liquidation Amount "). If upon any such Liquidation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Series A Preferred Stock and Series B Preferred Stock and any other series of Preferred Stock ranking on liquidation on a parity with the Series B Preferred Stock the full amount to which they shall be entitled under this Section 2(a) , the holders of the Series A Preferred Stock and Series B Preferred Stock and any other series of Preferred Stock ranking on liquidation on a parity with the Series B Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The Series B Preferred Stock shall rank on parity with the Series A Preferred Stock with respect to a Liquidation or a Series B Deemed Liquidation Event (as defined below).
(b) Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment of all preferential amounts required to be paid to the holders of Series B Preferred Stock pursuant hereto, and holders of the Series A Preferred Stock and any other series of Preferred Stock ranking on liquidation on parity with or priority to the Series B Preferred Stock, the holders of Series B Preferred Stock will not be entitled to share in any of the remaining assets of the Corporation available for distribution.
(c) Deemed Liquidation Events.
(i) To the fullest extent permitted by law, each of the following events shall be deemed to be a liquidation of the Corporation for purposes of this Section 2 (a " Series B Deemed Liquidation Event "), unless the holders of at least a majority of the voting power of Series B Preferred Stock vote or consent otherwise at least five days prior to the effective date of any such event:
(A) a merger or consolidation in which
(I) the Corporation is a constituent party, or
(II) a subsidiary of the Corporation is a constituent party and the Corporation issues shares pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares which represent, immediately following such merger, or consolidation at least a majority of the voting power (determined on a fully diluted basis assuming the exercise, conversion or exchange of all exercisable, convertible or exchangeable securities, respectively), of the
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shares of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger, or consolidation, the parent corporation of such surviving or resulting corporation ( provided that , for the purpose of this Subsection 2(c)(i) , all shares of Common Stock issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
(B) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
(ii) The Corporation shall not, without the vote or written consent described in Section 2(c)(i) , effect a Series B Deemed Liquidation Event referred to in Subsection 2(c)(i)(A)(I) above unless the agreement or plan of merger, arrangement or consolidation for such transaction provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of shares in the capital of the Corporation in accordance with Subsections 2(a) and 2(b) above.
(iii) In the event of a Series B Deemed Liquidation Event pursuant to Subsection 2(c)(i)(A)(II) or (B) above, if the Corporation does not effect a dissolution of the Corporation under the Delaware General Corporation Law within 90 days after such Series B Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of Series B Preferred Stock no later than the 90th day after the Series B Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such Series B Preferred Stock, out of funds legally available therefor, and (B) if the holders of at least a majority of the voting power of Series B Preferred Stock so request in a written instrument delivered to the Corporation not later than 120 days after such Series B Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Series B Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the " Series B Net Proceeds "), to the extent legally available therefore, on the 150th day after such Series B Deemed Liquidation Event to redeem all outstanding shares of Series B Preferred Stock at a price per share equal to the Series B Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Series B Net Proceeds are not sufficient to redeem all outstanding shares of Series B Preferred Stock and any other series of Preferred Stock (including the Series A Preferred Stock) ranking on redemption on parity with the Series B Preferred Stock that is required to then be redeemed, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem a pro rata portion of each holder's shares of Series B Preferred Stock and any other series of Preferred Stock (including the Series A Preferred Stock) ranking on redemption on parity with the Series B
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Preferred Stock on a pari passu basis based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. To the fullest extent permitted by law, prior to the distribution or redemption provided for in this Subsection 2(c)(iii) , the Corporation shall not expend or dissipate the consideration received for such Series B Deemed Liquidation Event; provided, however, that following the approval of the Board of Directors of the Corporation, the Corporation may discharge expenses incurred in the ordinary course of business.
(iv) The amount deemed paid or distributed to the holders of Series B Preferred Stock upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation in accordance with the following guidelines:
(A) For securities not subject to investment letters or other similar restrictions on free marketability,
(I) if traded on the Toronto Stock Exchange, the New York Stock Exchange, a national securities exchange or the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the 30-day period ending three trading days prior to the closing of such transaction;
(II) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three trading days prior to the closing of such transaction; or
(III) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.
(B) The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall take into account an appropriate discount (as determined in good faith by the Board of Directors of the Corporation) from the market value as determined pursuant to clause (A) above so as to reflect the approximate fair market value thereof.
3. Voting.
(a) General. To the fullest extent permitted by law, on any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series B Preferred Stock shall be entitled to cast the number of votes equal to the number of shares of Common Stock into which the Series B Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as otherwise required by law or by the provisions of Subsection 3(b) below, holders of Series B Preferred Stock shall vote together with the holders of Common Stock, and with the holders of any other series of Preferred Stock entitled to vote at such meeting or by written consent, as a single class.
(b) Protective Provisions. At any time when at least ten percent (10%) of the shares of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend,
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stock split, combination, subdivision or other similar recapitalization affecting such shares) that were outstanding on the Series B Original Issue Date are issued and outstanding, the Corporation shall not, either directly or indirectly, by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the voting power of Series B Preferred Stock, consenting or voting (as the case may be) separately as a class:
(i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series B Preferred Stock;
(ii) create, or authorize the creation of, or issue any additional class or series of shares unless the same ranks junior to the Series B Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation and the payment of dividends, or increase the authorized number of shares of Series B Preferred Stock; or
(iii) purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares in the capital of the Corporation other than dividends or distributions on the Series A Preferred Stock and the shares of Series B Preferred Stock as expressly authorized herein.
4. Optional Conversion. The holders of the Series B Preferred Stock shall have conversion rights as follows (the " Series B Conversion Rights "):
(a) Right to Convert. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock calculated by dividing the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion. Subject to the approval of the Principal Securities Market, the shares of Series B Preferred Stock that are converted into Common Stock pursuant to this Section 4 shall be entitled to receive, out of funds legally available, an amount equal to any accrued but unpaid Series B Dividends thereon through the Series B Conversion Time, calculated in accordance with Section 1 and payable to the holders of such Series B Preferred Stock in accordance with Section 4(d) concurrently with the issuance and delivery of certificates representing shares of Common Stock issuable upon such conversion. The " Series B Conversion Price " shall initially be equal to the Series B Original Issue Price. Such initial Series B Conversion Price and the rate at which Series B Preferred Stock may be converted into Common Stock shall be subject to adjustment as provided below.
(b) Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Series B Deemed Liquidation Event, the Series B Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any amounts distributable on such event to the holders of Series B Preferred Stock.
(c) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series B Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series B Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
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(d) Mechanics of Conversion.
(i) In order for a holder of Series B Preferred Stock to voluntarily convert shares of the Series B Preferred Stock into Common Stock, such holder shall surrender the certificate or certificates for such Series B Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series B Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Series B Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of conversion (the " Series B Conversion Time "), and the Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Series B Conversion Time, issue and deliver to such holder of Series B Preferred Stock, or to his, her or its nominees, a certificate or certificates for the full number of shares of Common Stock issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the shares of Series B Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, and cash as provided in Subsection 4(c) in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion.
(ii) To the fullest extent permitted by law, the Corporation shall at all times when shares of the Series B Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued shares, for the purpose of effecting the conversion of the Series B Preferred Stock, such number of its shares of duly authorized Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation.
(iii) All shares of Series B Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, shall immediately cease and terminate at the Series B Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of an amount equal to any dividends accrued but unpaid thereon, out of funds legally available. Any shares of Series B Preferred Stock so converted shall, upon the taking of appropriate action by the Board of Directors, be retired and shall not be reissued as shares of such series, and the Corporation (without the need for
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stockholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series B Preferred Stock accordingly.
(iv) Upon any such conversion, no adjustment to the Series B Conversion Price shall be made for any accrued but unpaid dividends on the Series B Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
(v) To the fullest extent permitted by law, the Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of the Series B Preferred Stock pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the Series B Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
(e) Adjustments to Series B Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Article Fifth B., the following definitions shall apply:
(A) " Option " shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(B) " Series B Original Issue Date " shall mean the date on which the first shares of Series B Preferred Stock were issued.
(C) " Convertible Securities " shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(D) " Additional Shares of Common Stock " shall mean all shares of Common Stock issued (or, pursuant to Subsection 4(e)(iii) below, deemed to be issued) by the Corporation after the Series B Original Issue Date, other than the following (" Exempted Securities "):
(I) Common Stock, Options or Convertible Securities issued or deemed issued as a dividend or distribution on the Series A or Series B Preferred Stock;
(II) Common Stock, Options or Convertible Securities issued or issuable by reason of a dividend, stock split, split-up or other distribution on the Common Stock that is covered by Subsection 4(f) , 4(g) , 4(h) and 4(i) below;
(III) Common Stock, Options or Convertible Securities issued to employees or directors of, or consultants to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement either in effect as of the Series B Original Issue Date or approved by the Board of Directors of the Corporation, including those directors appointed by the holders of Series A Preferred Stock; or
(IV) Common Stock or Convertible Securities actually issued upon the exercise of Options, or Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security.
(ii) No Adjustment of Conversion Price. No adjustment in the Series B Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of
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Common Stock if the Corporation receives written notice from the holders of at least a majority of the voting power of Series B Preferred Stock agreeing that no such adjustment shall be made as a result of the issuance or deemed issuance of such Additional Shares of Common Stock.
(iii) Deemed Issue of Additional Shares of Common Stock.
(A) If the Corporation at any time or from time to time after the Series B Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exerciseability, convertibility or exchangeability, but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(B) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series B Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series B Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no re-adjustment pursuant to this clause (B) shall have the effect of increasing the Series B Conversion Price to an amount which exceeds the lower of (i) the Series B Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, and (ii) the Series B Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(C) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) below (either because the consideration per share (determined pursuant to Subsection 4(e)(v) hereof) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Series B Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series B Original Issue Date), are revised after the Series B Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms
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pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4(e)(iii)(A) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(D) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, the Series B Conversion Price shall be readjusted to such Series B Conversion Price as would have obtained had such Option or Convertible Security, or portion thereof, never been issued.
(E) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series B Conversion Price provided for in this Subsection 4(e)(iii) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (B) and (C) of this Subsection 4(e)(iii) ). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at the time such Option or Convertible Security is issued or amended, any adjustment to the Series B Conversion Price that would result under the terms of this Subsection 4(e)(iii) at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series B Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series B Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4(e)(iii) ), without consideration or for a consideration per share less than the applicable Series B Conversion Price in effect immediately prior to such issue, then the Series B Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP 2 = (CP 1 * (A + B)) ÷ (A + C)
For purposes of the foregoing formula, the following definitions shall apply:
(A) " CP 2 " shall mean the Series B Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(B) " CP 1 " shall mean the Series B Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
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(C) " A " shall mean the number of shares of Common Stock outstanding and deemed outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or upon conversion or exchange of Convertible Securities (including the Series B Preferred Stock) outstanding (assuming exercise of any outstanding Option therefor) immediately prior to such issue);
(D) " B " shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and
(E) " C " shall mean the number of such Additional Shares of Common Stock issued in such transaction;
provided , however , that in no event shall the Series B Conversion Price be adjusted to an amount less than $0.255.
(v) Determination of Consideration. For purposes of this Subsection 4(e) , the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors of the Corporation.
(B) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4(e)(iii) , relating to Options and Convertible Securities, shall be determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of
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Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) above then, upon the final such issuance, the Series B Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any adjustments as a result of any subsequent issuances within such period).
(f) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series B Original Issue Date effect a subdivision of the outstanding shares of Common Stock, the Series B Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series B Original Issue Date combine the outstanding shares of Common Stock, the Series B Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
(g) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Series B Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series B Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series B Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series B Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (ii) that no such adjustment shall be made if the holders of Series B Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series B Preferred Stock had been converted into shares of Common Stock on the date of such event.
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(h) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series B Preferred Stock shall receive, out of funds legally available, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding Series B Preferred Stock had been converted into shares of Common Stock on the date of such event.
(i) Adjustment for Merger or Reorganization, etc. Subject to the provisions of Section 2(c) , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the shares of Common Stock (but not the shares of Series B Preferred Stock) are converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections (f) , (g) or (h) of this Section 4) , then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Series B Preferred Stock shall thereafter be convertible (in lieu of the Common Stock into which it was convertible prior to such event) into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series B Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Series B Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Series B Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series B Preferred Stock.
(j) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series B Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) trading days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series B Preferred Stock is convertible) and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series B Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series B Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series B Preferred Stock.
(k) Notice of Record Date. In the event:
(i) the Corporation shall take a record of the holders of its Common Stock (or other shares or securities at the time issuable upon conversion of the Series B Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other security; or
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(ii) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Series B Deemed Liquidation Event; or
(iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series B Preferred Stock a notice specifying, as the case may be, (A) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (B) the effective date on which such reorganization, reclassification, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other shares or securities at the time issuable upon the conversion of the Series B Preferred Stock) shall be entitled to exchange their Common Stock (or such other shares or securities) for securities or other property deliverable upon such reorganization, reclassification, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series B Preferred Stock and the Common Stock. Such notice shall be sent at least five (5) days prior to the record date or effective date for the event specified in such notice.
5. Mandatory Conversion.
(a) Trigger Events. Upon the earlier of: (i) the closing of the sale of shares of Common Stock to the public at a price of not less than $0.85 per share (subject to appropriate adjustment for stock splits, combinations and other similar recapitalizations affecting such shares), in a firm-commitment underwritten public offering pursuant to a prospectus or an effective registration statement resulting in at least $20,000,000 of proceeds, net of the underwriting discount and commissions, to the Corporation, (ii) the conversion of 100% of the Corporation's outstanding Series A Preferred Stock, and (iii) a date specified by vote or written consent of the holders of at least a majority of the voting power of Series B Preferred Stock (the earlier of (i), (ii) and (iii) above being the " Series B Mandatory Conversion Date "), each share of Series B Preferred Stock then outstanding shall automatically be converted into such number of fully paid and nonassessable shares of Common Stock calculated by dividing the Series B Original Issue Price by the Series B Conversion Price then in effect on the Series B Mandatory Conversion Date, and such shares may not be reissued by the Corporation. Subject to the approval of the Principal Securities Market, the Series B Preferred Stock that are converted into Common Stock pursuant to this Section 5 shall be entitled to receive an amount equal to any accrued but unpaid Series B Dividends, out of funds legally available, through the Series B Mandatory Conversion Date, calculated in accordance with Section 1 ; and payable to the holders of such Series B Preferred Stock in accordance with Section 5(b) concurrently with the issuance and delivery of certificates representing the shares of Common Stock issuable upon such conversion.
(b) Procedural Requirements. All holders of record of Series B Preferred Stock shall be given written notice of the Series B Mandatory Conversion Date and the place designated for mandatory conversion of all such Series B Preferred Stock pursuant to this Section 5. Upon receipt of such notice, each holder of Series B Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 5 . On the Series B Mandatory Conversion Date, all outstanding shares of Series B Preferred Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of
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record, and all rights with respect to the Series B Preferred Stock so converted, including, without limitation, the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefore, to receive certificates for the number of shares of Common Stock into which such Series B Preferred Stock has been converted, and, if applicable, payment of any accrued but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Series B Mandatory Conversion Date and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series B Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 4(c) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) Effect of Mandatory Conversion. All shares of Series B Preferred Stock shall, from and after the Series B Mandatory Conversion Date, no longer be deemed to be outstanding and, notwithstanding the failure of the holder or holders thereof to surrender the certificates for such shares on or prior to such time, all rights with respect to such shares shall immediately cease and terminate on the Series B Mandatory Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends accrued but unpaid thereon. Such converted shares of Series B Preferred Stock shall be retired, upon the taking of appropriate action by the Board of Directors, and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series B Preferred Stock accordingly.
6. Redeemed or Otherwise Acquired Shares. Any shares of Series B Preferred Stock which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be immediately retired, upon the taking of appropriate action by the Board of Directors, and shall not be reissued, sold or transferred. The Corporation shall not exercise any voting or other rights granted to the holders of Series B Preferred Stock following redemption.
7. Waiver. To the fullest extent permitted by law, any of the rights, powers, preferences and other terms of the Series B Preferred Stock set forth herein may be waived on behalf of all holders of Series B Preferred Stock by the affirmative written consent or vote of the holders of at least a majority of the voting power of Series B Preferred Stock.
8. Notices. Any notice required or permitted by the provisions hereto to be given to a holder of Series B Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation and shall be deemed sent upon such mailing.
9. Withholding Rights. Notwithstanding anything herein inconsistent with this Section 9, the Corporation is entitled to deduct and withhold from any dividend or other amount payable to any holder of Series B Preferred Stock such amounts as the Corporation is required to deduct and withhold with respect to such payment under any provision of provincial, federal, territorial, state, local or foreign tax law. Any amounts so deducted and withheld will be treated for all purposes hereof as having been paid to the holder of the Series B Preferred Stock in respect of which such deduction and withholding was made.
SIXTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:
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(1) The business and the affairs of the Corporation shall be managed by or under the direction of its Board of Directors. Subject to the rights of the holders of any series of Preferred Stock, the number of directors which shall constitute the whole Board of Directors shall be fixed by a resolution adopted by a majority of the whole Board. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the Corporation would have if there were no vacancies.
(2) Subject to the rights of the holders of any series of Preferred Stock then outstanding, any newly created directorship on the Board of Directors that results from an increase in the number of directors and any vacancy occurring in the Board of Directors shall be filled only by a majority of the directors then in office, although less than a quorum (and not by stockholders), or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. No decrease in the total number of directors shall shorten the term of any incumbent director.
(3) Unless and except to the extent that the By-Laws of the Corporation shall so require, the election of the directors of the Corporation need not be by written ballot.
(4) Special meetings of stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution adopted by a majority of the whole Board.
SEVENTH: A director of this Corporation shall not be personally liable, to the fullest extent of the General Corporation Law of the State of Delaware, to this Corporation or its stockholders for monetary damages for breach of fiduciary duty by such director as a director, except for liability (i) for any breach of the director's duty of loyalty to this Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived any improper personal benefit. Any repeal or modification of this Article Seventh shall not increase the liability of any director of the Company for any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection of a director of this Corporation existing at the time of such repeal or modification.
EIGHTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
NINTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws of the Corporation may provide. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the By-Laws of the Corporation. The books
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of the Corporation may be kept outside the State of Delaware at such place or places as may be designated by the Board of Directors or in the By-Laws.
TENTH: Subject to the rights of the holders of Preferred Stock, a majority of the whole Board shall be authorized to make, amend, alter, change, add to or repeal the By-Laws of the Corporation in any manner not inconsistent with the laws of the State of Delaware, and the stockholders shall also have the power to amend, alter, change, add to or repeal the By-Laws; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of a majority in voting power of all of the outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to alter, amend or repeal any provision of the By-Laws.
ELEVENTH: The name and the mailing address of the Sole Incorporator is as follows:
Michael
J. Rapisand
c/o Xplore Technologies Corp.
14000 Summit Drive
Austin, Texas 78728
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IN WITNESS WHEREOF , the undersigned has caused this Certificate of Incorporation to be executed on this day of 2007.
Michael J. Rapisand Sole Incorporator |
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EXHIBIT D
BY-LAWS
OF
XPLORE TECHNOLOGIES CORP.
(the "
Corporation
")
SECTION 1.1 Place of Meeting. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.
SECTION 1.2 Annual Meetings.
(a) Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting.
(b) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice with respect to such meeting, (ii) by or at the direction of the Board of Directors, or (iii) by any stockholder of record of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in subsections (c) and (d) of this Section 1.2 and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation.
(c) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 1.2(b), (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation; (ii) in the case of business other than nominations, such other business must be a proper matter for stockholder action; (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice (as that term is defined herein), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation's voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice; and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 1.2, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 1.2. To be timely, a stockholder's notice must be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not fewer than 45 days nor more than 75 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting; provided, that in the event that the date of the annual meeting is more than 30 days before or delayed by more than 30 days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the
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adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the " Exchange Act ") and Rule 14a-11 thereunder, or any successor provisions, including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, (B) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (C) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a " Solicitation Notice ").
(d) Notwithstanding anything in the second sentence of Section 1.2(c) to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least eighty days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by these By-Laws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.
SECTION 1.3 Special Meetings.
(a) Special meetings of stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by a majority of the Whole Board. For purposes of these By-Laws, the term " Whole Board " shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The Board of Directors may postpone or reschedule any previously scheduled special meeting.
(b) Only such business as shall have been brought before the special meeting of the stockholders pursuant to the Corporation's notice of meeting pursuant to Section 1.4 of these By-Laws shall be conducted at such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of record of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 1.3, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 1.2. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by Section 1.2 shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Notwithstanding the foregoing provisions of this Section 1.3, a stockholder shall also comply
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with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 1.3. Nothing in this Section 1.3 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 1.4 Notice of Meetings; Waiver.
(a) Except as otherwise provided herein or required by law, the Secretary of the Corporation or any Assistant Secretary shall cause written notice of the place, if any, date and time of each meeting of the stockholders and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which such meeting is called, to be given not fewer than ten nor more than sixty days prior to the meeting, to each stockholder of record entitled to vote at such meeting. If such notice is mailed, it shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the record of stockholders of the Corporation or, if a stockholder shall have filed with the Secretary of the Corporation a written request that notices to such stockholder be mailed to some other address, then directed to such stockholder at such other address. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law.
(b) A written waiver of any notice of any annual or special meeting signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether given before or after the time of the event for which notice is to be given, shall be deemed the equivalent of notice. Neither the business to be transacted at nor the purpose of any annual or special meeting of the stockholders need be specified in such a waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened.
SECTION 1.5 Quorum; Adjournment.
(a) Unless or except to the extent that the presence of a larger number may be required by law, at any meeting of stockholders the presence, in person or by proxy, of the holders of record of capital stock representing a majority of the votes entitled to be cast at such meeting shall constitute a quorum for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any stockholders. Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.
(b) In the absence of a quorum, the Chairman of the meeting shall have power to adjourn the meeting from time to time until a quorum is present. Notice of any adjourned meeting of stockholders of the Corporation need not be given if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 1.10 of these By-Laws, a notice of the adjourned meeting, conforming to the requirements of Section 1.4 of these By-Laws, shall be given to each stockholder of record entitled to vote at such meeting. At an adjourned meeting, any business may be transacted that might have been transacted on the original date of the meeting.
SECTION 1.6 Voting. Except as otherwise required by law or by the Certificate of Incorporation, all elections shall be determined by a plurality of the votes cast and all other matters
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submitted to a meeting of stockholders shall be decided by a majority of the votes cast affirmatively or negatively.
SECTION 1.7 Proxies. Any stockholder entitled to vote at any meeting of the stockholders may authorize another person or persons to vote at any such meeting and express such vote on behalf of him or her by proxy. A stockholder may authorize a valid proxy by a transmission permitted by law or by executing a written instrument signed by such stockholder filed in accordance with the procedure established for the meeting. No such proxy shall be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 1.7 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
SECTION 1.8 Organization; Procedure. At every meeting of stockholders the presiding officer shall be an officer chosen by the Board of Directors or, in the absence of such a person, the Chairman of the Board or, in the event of his or her absence, the Chief Executive Officer. The order of business and all other matters of procedures of procedure may be determined by such presiding officer. The Chairman shall have the power to adjourn the meeting to another place, if any, date and time. The Secretary of the Corporation or, in the event of his or her absence, an Assistant Secretary or such person as the Chairman of the meeting appoints, shall act as secretary of the meeting.
SECTION 1.9 Stockholder Action By Written Consent.
(a) Unless otherwise provided in the Certificate of Incorporation, any action which may be taken or required to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written shall be given to those stockholders who have not consented in writing.
(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting (including by telegram, cablegram or other electronic transmission as permitted by law), the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board of Directors pursuant to the first sentence of this Section 1.9(b)). If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action
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by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
SECTION 1.10 Record Date. In order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty nor fewer than ten days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided; however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty days prior to such action. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.
SECTION 1.11 Stockholder List. The Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting during ordinary business hours, for a period of at least ten days prior to the meeting in the manner provided by law. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 1.12 Inspectors of Elections. Preceding any meeting of the stockholders, the Board of Directors shall appoint one or more persons to act as Inspectors of Elections, and may designate one or more alternate inspectors. In the event that no inspector or alternate is able to act, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of the duties of an inspector, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability.
SECTION 1.13 General.
(a) Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these By-Laws. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these By-Laws and, if any proposed nomination or business is not in compliance with these By-Laws, to declare that such defective nomination or proposal shall be disregarded.
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(b) For purposes of these By-Laws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of these By-Laws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these By-Laws. Nothing in these By-Laws shall be deemed to affect any substantive rights of (i) stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act, or (ii) the holders of any series of the Corporation's Preferred Stock, if any, to elect directors if so provided under the Certificate of Incorporation or any applicable Preferred Stock Certificate of Designations (as defined in the Certificate of Incorporation).
SECTION 2.1 Powers. Except as may otherwise be required by law or the Certificate of Incorporation, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation.
SECTION 2.2 Number of Directors. The number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board; provided, however, that the Board of Directors shall at no time consist of fewer than three and no more than nine directors.
SECTION 2.3 Election of Directors. At each annual meeting of stockholders, directors shall be elected to serve until the next annual meeting and until their respective successors are elected and qualified, or until the earlier of their death, resignation or removal.
SECTION 2.4 Vacancies; Removal of Directors. Subject to the rights of the holders of any series of Preferred Stock then outstanding, vacancies and newly created directorships resulting from any increase in the number of directors shall be filled pursuant to the terms of the Certificate of Incorporation. Directors may be removed, with or without cause, by the affirmative vote of the holders of a majority of the voting power of all shares of the Corporation entitled to vote at an election of directors, voting as a single class; provided, that Series A Directors (as that term is defend in the Certificate of Incorporation) may only be removed with or without cause by the affirmative vote of the holders of a majority of the Corporation's Series A Convertible Preferred Stock entitled to vote at an election of directors.
SECTION 2.5 Chairman of the Board. The directors shall elect from among the members of the Board a "Chairman of the Board." The Chairman of the Board shall be deemed an officer of the Corporation and shall have such duties and powers as set forth in these By-Laws or as shall otherwise be conferred upon the Chairman of the Board from time to time by the Board of Directors. The Chairman of the Board shall, if present, preside over all meetings of stockholders and the Board of Directors.
SECTION 2.6 Meetings.
(a) Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting.
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(b) Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board or the Chief Executive Officer and shall be called by the Chief Executive Officer, Secretary, Assistant Secretary or any other executive officer if directed by a majority of the directors then in office.
(c) A meeting of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders. Notice need not be given of regular meetings of the Board of Directors.
SECTION 2.7 Notice of Meeting. It shall be sufficient notice to a director to send notice (i) by mail at least 72 hours before the meeting addressed to such person at his usual or last known business or residence address, or (ii) in person, by telephone, facsimile transmission or electronic transmission at least 24 hours before the meeting. The requirement of notice to any director may be waived by a waiver of notice, executed or otherwise given by such person before or after the meeting or meetings, and filed with the records of the meeting, or by attendance at the meeting without protesting prior thereto or at its commencement that such meeting was not lawfully called or convened. A notice or waiver of notice of a directors' meeting need not specify the purposes of the meeting.
SECTION 2.8 Quorum. A majority of the total number of the Whole Board shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise required by law, the vote of at least a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.
SECTION 2.9 Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all of the members of the Board of Directors consent thereto in writing or by electronic transmission and such consent is filed with the minutes of the Board of Directors.
SECTION 2.10 Action By Telephonic Communications. Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
SECTION 2.11 Resignations. Any director may resign at any time by delivering a notice of resignation given in writing or by electronic transmission to the Chairman of the Board or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery.
SECTION 2.12 Reliance on Accounts and Reports. A director, officer or a member of any committee designated by the Board of Directors shall, in the performance of such director's, officer's or member's duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, any committees designated by the Board of Directors, or by any other person as to the matters the director or the member reasonably believes are within such other person's professional or expert competence and who the director, officer or member reasonably believes or determines has been selected with reasonable care by or on behalf of the Corporation.
SECTION 2.13 Compensation. Each director, in consideration of such person serving as a director, may be entitled to receive from the Corporation such amount per annum and such fees (payable in cash or stock-based compensation) for attendance at meetings of the Board of Directors or of committees thereof, or both, as the Board of Directors shall determine from time to time. In addition, each director may be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person's
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duties as a director. Nothing contained in this Section 2.13 shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving compensation therefore.
SECTION 3.1 Committees. The Board of Directors, by resolution adopted by the affirmative vote of a majority of directors then in office, may designate from among its members one or more committees of the Board of Directors, each committee to consist of such number of Directors as from time to time may be fixed by the Board of Directors. Any such committee shall serve at the pleasure of the Board of Directors. Each such committee shall have the powers and duties delegated to it by the Board of Directors, subject to the limitations set forth in the Delaware General Corporation Law. The Board of Directors may appoint a Chairman of any committee, who shall preside at meetings of any such committee.
SECTION 3.2 Powers. Each committee shall have and may exercise such powers of the Board of Directors as may be provided by resolution or resolutions of the Board of Directors. No committee shall have the power or authority to approve or adopt, or recommend to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to the stockholders for approval, or to adopt, amend or repeal the By-Laws of the Corporation.
SECTION 3.3 Proceedings. Each committee may fix its own rules of procedure and may meet at such place (within or without the State of Delaware), at such time and upon such notice, if any, as it shall determine from time to time. Each committee shall keep minutes of its proceedings.
SECTION 3.4 Quorum and Manner of Acting. Except as may be otherwise provided in the resolution creating such committee or in the rules of such committee, at all meetings of any committee, the presence of members (or alternate members) constituting a majority of the total authorized membership of such committee shall constitute a quorum for the transaction of business. The act of the majority of the members present at any meeting at which a quorum is present shall be the act of such committee. Any action required or permitted to be taken at any meeting of any committee may be taken without a meeting, if all members of such committee shall consent to such action in writing or by electronic transmission and such consent is filed with the minutes of the committee.
SECTION 3.5 Actions by Telephonic Communications. Unless otherwise provided by the Board of Directors, members of any committee may participate in a meeting of such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
SECTION 3.6 Absent or Disqualified Members. In the absence or disqualification of a member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
SECTION 3.7 Resignations. Any member of any committee may resign at any time by delivering a notice of resignation in writing or by electronic transmission, signed by such member, to the Board of Directors or the Chairman of the Board. Unless otherwise specified therein, such resignation shall take effect upon delivery.
SECTION 3.8 Removal. Any member of any committee may be removed at any time, either for or without cause, by resolution adopted by a majority of the directors then in office.
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SECTION 3.9 Vacancies. Except as otherwise required by law, if any vacancy shall occur in any committee, by reason of disqualification, death, resignation, removal or otherwise, the remaining members shall continue to act, and any such vacancy may be filled by the Board of Directors.
SECTION 4.1 Chief Executive Officer. The Board of Directors shall select a Chief Executive Officer to serve at the pleasure of the Board of Directors who shall (i) supervise the implementation of policies adopted or approved by the Board of Directors, (ii) exercise a general supervision and superintendence over all the business and affairs of the Corporation, and (iii) possess such other powers and perform such other duties as may be assignee to him or her by these By-Laws, as may from time to time be assigned by the Board of Directors and as may be incident to the office of Chief Executive Officer. The Chairman of the Board may also be the Chief Executive Officer.
SECTION 4.2 President of the Corporation. The Board of Directors shall appoint a President of the Corporation to serve at the pleasure of the Board of Directors. The President of the Corporation shall have such powers and perform such duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of President of the Corporation.
SECTION 4.3 Chief Financial Officer of the Corporation. The Board of Directors shall appoint a Chief Financial Officer of the Corporation to serve at the pleasure of the Board of Directors. The Chief Financial Officer of the Corporation shall have such powers and perform such duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of Chief Financial Officer of the Corporation.
SECTION 4.4 Vice Presidents of the Corporation. The Board of Directors may appoint one or more Vice Presidents of the Corporation to serve at the pleasure of the Board of Directors. A Vice President of the Corporation shall have such powers and perform such duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of a Vice President of the Corporation.
SECTION 4.5 Secretary of the Corporation. The Board of Directors shall appoint a Secretary of the Corporation to serve at the pleasure of the Board of Directors. The Secretary of the Corporation shall (i) keep minutes of all meetings of the stockholders and of the Board of Directors, (ii) authenticate records of the Corporation and (iii) in general, have such powers and perform such other duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of Secretary of the Corporation.
SECTION 4.6 Other Officers Elected by Board of Directors. At any meeting of the Board of Directors, the Board of Directors may elect a Chief Operating Officer, Treasurer, Assistant Treasurers, Assistant Secretaries, or such other officers of the Corporation as the Board of Directors may deem necessary, to serve at the pleasure of the Board of Directors. Other officers elected by the Board of Directors shall have such powers to perform such duties as may be assigned to such officers by or pursuant to authorization of the Board of Directors or by the Chief Executive Officer. Any number of offices may be held by the same person.
SECTION 4.7 Removal and Resignation; Vacancies. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any officer may be removed at any time, with or without cause, by the Board of Directors. Any officer may resign at any time by delivering a notice of
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resignation in writing or by electronic transmission, signed by such officer, to the Board of Directors, the Chief Executive Officer or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal, or otherwise shall be filled by or pursuant to authorization of the Board of Directors.
SECTION 4.8 Authority and Duty of Officers. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in these By-Laws, except that in any event, each officer shall exercise such powers and perform such duties as may be required by law.
SECTION 5.1 Stock Certificates.
(a) Each holder of stock represented by certificates shall be entitled to a certificate representing the number of shares of the capital stock of the Corporation owned by such person in such form as shall be prescribed from time to time by the Board of Directors. Each certificate shall be signed by the Chairman or Vice-Chairman or the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures of the officers upon a certificate may be facsimiles.
(b) If an officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on, a certificate shall have ceased to be such before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the time of its issue.
SECTION 5.2 Transfer of Shares. Title to a certificate of stock and to the shares represented thereby shall be transferred only on the books of the Corporation by delivery to the Corporation or its transfer agent of the certificate properly endorsed, or by delivery of the certificate accompanied by a written assignment of the same, or a properly executed written power of attorney to sell, assign or transfer the same or the shares represented thereby. Upon surrender of a certificate for the shares being transferred, a new certificate or certificates shall be issued according to the interests of the parties.
SECTION 5.3 Record Holders. Except as otherwise required by law, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-Laws.
SECTION 5.4 Transfer Agent and Registrar. The Board of Directors may appoint a transfer agent and a registrar of the certificates of stock of the Corporation. Any transfer agent so appointed shall maintain, among other records, a stockholders' ledger, setting forth the names and addresses of the holders of all issued shares of stock of the Corporation, the number of shares held by each, the certificate numbers, if any, representing such shares, and the date of issue of the certificates representing such shares, if any. Any registrar so appointed shall maintain, among other records, a share register, setting forth the total number of shares of each class of shares which the Corporation is authorized to issue and the total number of shares actually issued. The stockholders' ledger and the share register are hereby identified as the stock transfer books of the Corporation. The name and address of each stockholder of record, as they appear upon the stockholders' ledger, shall be the only evidence of who are the stockholders entitled to receive notice of the meetings of stockholders, to vote at such meetings, to examine a complete list of the stockholders entitled to vote at meetings.
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SECTION 5.5 Loss of Certificates. In case of the loss, theft, mutilation or destruction of a stock certificate, a duplicate certificate will be issued by the Corporation upon notification thereof and receipt of a lost certificate affidavit and such proper indemnity as shall be prescribed by the Board of Directors; provided, that in the case of a mutilated stock certificate, such mutilated stock certificate is returned to the Corporation.
SECTION 6.1 Declaration of Dividends. Except as otherwise required by law or by the Certificate of Incorporation, the Board of Directors may, in its discretion, declare what, if any, dividends shall be paid from the surplus or from the net profits of the Corporation for the current or preceding fiscal year, or as otherwise permitted by law. Dividends may be paid in cash, in property, in shares of the Corporation's stock, or in any combination thereof. Dividends shall be payable upon such dates as the Board of Directors may designate.
SECTION 6.2 Reserves. Before the payment of any cash dividend and before making any distribution of profits, the Board of Directors, from time to time and in its absolute discretion, shall have power to set aside out of the surplus or net profits of the Corporation such sum or sums as the Board of Directors deems proper and sufficient as a reserve fund to meet contingencies or for such other purpose as the Board of Directors shall deem to be in the best interests of the Corporation, and the Board of Directors may modify or abolish any such reserve.
ARTICLE VII
POWERS OF OFFICERS TO CONTRACT
WITH THE CORPORATION
No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director's or officer's votes are counted for such purpose; provided, that (i) the material facts of such relationship or interest as to the contract or transaction are disclosed or are known to the Board of Directors or committee thereof which in good faith authorizes such contract or transaction by the affirmative vote of a majority of the disinterested directors, even though less than a quorum; or (ii) the material facts as to such person's relationship or interest as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Any director of the Corporation who is interested in any contract or transaction as aforesaid may nevertheless be counted in determining the existence of a quorum at any meeting of the Board of Directors or committee thereof which shall authorize or ratify any such contract or transaction.
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SECTION 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a " proceeding "), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an " indemnitee "), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 8.3 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
SECTION 8.2 Right to Advancement of Expenses. In addition to the right to indemnification conferred in Section 8.1, an indemnitee shall also have the right to be paid by the Corporation the expenses (including attorney's fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an " advancement of expenses "); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an " undertaking "), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a " final adjudication ") that such indemnitee is not entitled to be indemnified for such expenses under this Section 8.2 or otherwise.
SECTION 8.3 Right of Indemnitee to Bring Suit. If a claim under Section 8.1 or 8.2 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General
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Corporation Law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.
SECTION 8.4 Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or directors or otherwise.
SECTION 8.5 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
SECTION 8.6 Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VIII with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
SECTION 8.7 Nature of Rights.
(a) The rights conferred upon indemnitees in this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitee's heirs, executors and administrators. Any amendment, alteration or repeal of this Article VIII that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
(b) Notwithstanding anything in this Articles VIII or these By-Laws to the contrary, the indemnification and advancement rights provided under this Article VIII shall not apply to any former officer or director serving before , 2007 or arising out of any act or transaction that occurred prior to such date.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Certificate of Incorporation. All references in these By-Laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the Certificate of Incorporation as in effect from time to time, the provisions of such Certificate of Incorporation shall be controlling.
SECTION 9.2 Fiscal Year. Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall end on the 31st of March of each year.
SECTION 9.3 Checks. All checks or demands for money and notes of the Corporation shall be signed by such executive officer or executive officers or such other person or persons as the Board of Directors may from time to time designate.
SECTION 9.4 Corporate Seal. The Board of Directors shall have the power to adopt and alter the seal of the Corporation.
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SECTION 9.5 Voting of Securities. Unless the Board of Directors otherwise provides, the Chief Executive Officer, President or the Chief Financial Officer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney-in-fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization whose securities are held by the Corporation.
SECTION 9.6 Evidence of Authority. A certificate by the Secretary or any Assistant Secretary as to any action taken by the stockholders, directors or any officer or representative of the Corporation shall, as to all persons who rely thereon in good faith, be conclusive evidence of such action.
SECTION 9.7 Subject to Law and Certificate of Incorporation. All powers, duties and responsibilities provided in these By-Laws, whether or not explicitly so qualified, are qualified by the provisions of the Certificate of Incorporation and any applicable law.
Subject to the rights of the holders of any series of the Corporation's Preferred Stock, a majority of the Whole Board shall be authorized to make, amend, alter, change, add to or repeal these By-Laws in any manner not inconsistent with the laws of the State of Delaware, and the stockholders shall also have the power to amend, alter, change, add to or repeal these By-Laws; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of a majority in voting power of all of the outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to alter, amend or repeal any provision of these By-Laws.
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EXHIBIT E
Section 190 of the Canada Business Corporations Act
Right to dissent |
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190. (1) Subject to sections 191 and 241, a holder of shares of any class of a corporation may dissent if the corporation is subject to an order under paragraph 192(4) (d) that affects the holder or if the corporation resolves to |
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(a) amend its articles under section 173 or 174 to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares of that class; |
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(b) amend its articles under section 173 to add, change or remove any restriction on the business or businesses that the corporation may carry on; |
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(c) amalgamate otherwise than under section 184; |
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(d) be continued under section 188; |
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(e) sell, lease or exchange all or substantially all its property under subsection 189(3); or |
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(f) carry out a going-private transaction or a squeeze-out transaction. |
Further right |
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(2) A holder of shares of any class or series of shares entitled to vote under section 176 may dissent if the corporation resolves to amend its articles in a manner described in that section. |
If one class of shares |
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(2.1) The right to dissent described in subsection (2) applies even if there is only one class of shares. |
Payment for shares |
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(3) In addition to any other right the shareholder may have, but subject to subsection (26), a shareholder who complies with this section is entitled, when the action approved by the resolution from which the shareholder dissents or an order made under subsection 192(4) becomes effective, to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted or the order was made. |
No partial dissent |
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(4) A dissenting shareholder may only claim under this section with respect to all the shares of a class held on behalf of any one beneficial owner and registered in the name of the dissenting shareholder. |
Objection |
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(5) A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting and of their right to dissent. |
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Notice of resolution |
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(6) The corporation shall, within ten days after the shareholders adopt the resolution, send to each shareholder who has filed the objection referred to in subsection (5) notice that the resolution has been adopted, but such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn their objection. |
Demand for payment |
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(7) A dissenting shareholder shall, within twenty days after receiving a notice under subsection (6) or, if the shareholder does not receive such notice, within twenty days after learning that the resolution has been adopted, send to the corporation a written notice containing |
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(a) the shareholder's name and address; |
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(b) the number and class of shares in respect of which the shareholder dissents; and |
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(c) a demand for payment of the fair value of such shares. |
Share certificate |
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(8) A dissenting shareholder shall, within thirty days after sending a notice under subsection (7), send the certificates representing the shares in respect of which the shareholder dissents to the corporation or its transfer agent. |
Forfeiture |
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(9) A dissenting shareholder who fails to comply with subsection (8) has no right to make a claim under this section. |
Endorsing certificate |
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(10) A corporation or its transfer agent shall endorse on any share certificate received under subsection (8) a notice that the holder is a dissenting shareholder under this section and shall forthwith return the share certificates to the dissenting shareholder. |
Suspension of rights |
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(11) On sending a notice under subsection (7), a dissenting shareholder ceases to have any rights as a shareholder other than to be paid the fair value of their shares as determined under this section except where |
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(a) the shareholder withdraws that notice before the corporation makes an offer under subsection (12), |
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(b) the corporation fails to make an offer in accordance with subsection (12) and the shareholder withdraws the notice, or |
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(c) the directors revoke a resolution to amend the articles under subsection 173(2) or 174(5), terminate an amalgamation agreement under subsection 183(6) or an application for continuance under subsection 188(6), or abandon a sale, lease or exchange under subsection 189(9), in which case the shareholder's rights are reinstated as of the date the notice was sent. |
Offer to pay |
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(12) A corporation shall, not later than seven days after the later of the day on which the action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (7), send to each dissenting shareholder who has sent such notice |
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(a) a written offer to pay for their shares in an amount considered by the directors of the corporation to be the fair value, accompanied by a statement showing how the fair value was determined; or |
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(b) if subsection (26) applies, a notification that it is unable lawfully to pay dissenting shareholders for their shares. |
Same terms |
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(13) Every offer made under subsection (12) for shares of the same class or series shall be on the same terms. |
Payment |
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(14) Subject to subsection (26), a corporation shall pay for the shares of a dissenting shareholder within ten days after an offer made under subsection (12) has been accepted, but any such offer lapses if the corporation does not receive an acceptance thereof within thirty days after the offer has been made. |
Corporation may apply to court |
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(15) Where a corporation fails to make an offer under subsection (12), or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by the resolution is effective or within such further period as a court may allow, apply to a court to fix a fair value for the shares of any dissenting shareholder. |
Shareholder application to court |
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(16) If a corporation fails to apply to a court under subsection (15), a dissenting shareholder may apply to a court for the same purpose within a further period of twenty days or within such further period as a court may allow. |
Venue |
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(17) An application under subsection (15) or (16) shall be made to a court having jurisdiction in the place where the corporation has its registered office or in the province where the dissenting shareholder resides if the corporation carries on business in that province. |
No security for costs |
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(18) A dissenting shareholder is not required to give security for costs in an application made under subsection (15) or (16). |
Parties |
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(19) On an application to a court under subsection (15) or (16), |
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(a) all dissenting shareholders whose shares have not been purchased by the corporation shall be joined as parties and are bound by the decision of the court; and |
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(b) the corporation shall notify each affected dissenting shareholder of the date, place and consequences of the application and of their right to appear and be heard in person or by counsel. |
Powers of court |
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(20) On an application to a court under subsection (15) or (16), the court may determine whether any other person is a dissenting shareholder who should be joined as a party, and the court shall then fix a fair value for the shares of all dissenting shareholders. |
Appraisers |
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(21) A court may in its discretion appoint one or more appraisers to assist the court to fix a fair value for the shares of the dissenting shareholders. |
Final order |
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(22) The final order of a court shall be rendered against the corporation in favour of each dissenting shareholder and for the amount of the shares as fixed by the court. |
Interest |
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(23) A court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date the action approved by the resolution is effective until the date of payment. |
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Notice that subsection (26) applies |
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(24) If subsection (26) applies, the corporation shall, within ten days after the pronouncement of an order under subsection (22), notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares. |
Effect where subsection (26) applies |
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(25) If subsection (26) applies, a dissenting shareholder, by written notice delivered to the corporation within thirty days after receiving a notice under subsection (24), may |
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(a) withdraw their notice of dissent, in which case the corporation is deemed to consent to the withdrawal and the shareholder is reinstated to their full rights as a shareholder; or |
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(b) retain a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority to its shareholders. |
Limitation |
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(26) A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that |
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(a) the corporation is or would after the payment be unable to pay its liabilities as they become due; or |
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(b) the realizable value of the corporation's assets would thereby be less than the aggregate of its liabilities. |
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R.S., 1985, c. C-44, s. 190; 1994, c. 24, s. 23; 2001, c. 14, ss. 94, 134(F), 135(E). |
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EXHIBIT G
Special Meeting of Shareholders
of Xplore Technologies Corp.
to be held on February , 2007
The undersigned holder of common shares and/or Series A preferred shares and/or Series B preferred shares (collectively, the "Shares") of Xplore Technologies Corp. (the "Corporation") hereby appoints Mark Holleran, the President and Chief Operating Officer of the Corporation, or failing him, Michael J. Rapisand, the Chief Financial Officer of the Corporation, or instead of either of the foregoing, , as the nominee of the undersigned to attend and act for and on behalf of the undersigned at the special meeting (the "Meeting") of shareholders of the Corporation to be held on February , 2007, and at any adjournment thereof, to the same extent and with the same power as if the undersigned were personally present at the Meeting or such adjournment or adjournments thereof and, without limiting the generality of the power hereby conferred, the nominees named above are specifically directed to vote the Shares registered in the name of the undersigned at the Meeting as specified below:
a special resolution authorizing the Corporation to make an application under Section 188 of the Canada Business Corporations Act and change its jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware, United States of America by way of a domestication under Section 388 of the Delaware General Corporation Law, and to adopt the certificate of incorporation authorized in the special resolution to be effective as of the date of our continuance, in the form attached to as Exhibit C to the Management Information Circular/Prospectus of the Corporation dated February , 2007; and
If any amendments or variations to the matters referred to or to any other matters identified in the notice of meeting are proposed at the Meeting or any adjournment or adjournments thereof or if any other matters which are not now known to management should properly come before the Meeting or any adjournment or adjournments thereof, this proxy confers discretionary authority on the person voting the proxy to vote on such amendments or variations or such other matters in accordance with the best judgement of such person.
THIS PROXY IS SOLICITED BY THE MANAGEMENT OF THE CORPORATION. SHAREHOLDERS HAVE THE RIGHT TO APPOINT A PERSON OTHER THAN THE NOMINEES DESIGNATED ABOVE TO ATTEND AND ACT ON THE SHAREHOLDER'S BEHALF AT THE MEETING OR ANY ADJOURNMENT OR ADJOURNMENTS THEREOF AND MAY EXERCISE SUCH RIGHT BY INSERTING THE NAME OF THEIR NOMINEE IN THE BLANK SPACE PROVIDED ABOVE FOR THAT PURPOSE.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS OF THE SHAREHOLDER AS SPECIFIED ABOVE. HOWEVER, IF SUCH SPECIFICATION IS NOT MADE IN RESPECT OF ANY MATTER, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE FOR ANY SUCH MATTER.
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The undersigned hereby revokes any proxies heretofore given.
DATED the day of , 2007. | ||||
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Signature of Shareholder |
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Name of Shareholder (please print) |
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NOTES: |
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1. |
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This form of proxy must be signed by the shareholder or his attorney authorized in writing or, if the shareholder is a corporation, under its seal or by an officer or attorney thereof duly authorized. |
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2. |
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Please fill in the date on this proxy form. If the date is not filled in, this form of proxy shall be deemed to be dated on the date it was mailed to you by management of the Corporation. |
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Before Domestication. Section 124 of the Canada Business Corporations Act provides that a corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or another individual who acts or acted at the corporation's request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the corporation or other entity. A corporation may advance moneys to a director, officer or other individual for the costs, charges and expenses of such a proceeding. A corporation may not indemnify an individual under the Canada Business Corporations Act unless the individual: (a) acted honestly and in good faith with a view to the best interests of the corporation, or, as the case may be, to the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at the corporation's request; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual's conduct was lawful. A corporation may with the approval of a court, indemnify an individual referred to above, or advance moneys as described above, in respect of an action by or on behalf of the corporation or other entity to procure a judgment in its favor, to which the individual is made a party because of the individual's association with the corporation or other entity as described above against all costs, charges and expenses reasonably incurred by the individual in connection with such action, if the individual fulfils the conditions set out in (a) and (b) above. An individual referred to above is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defense of any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual's association with the corporation or other entity as described above if the individual seeking indemnity (i) was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done; and (ii) fulfils the conditions set out in (a) and (b) above.
A corporation may purchase and maintain insurance for the benefit of an individual described above against any liability incurred by the individual (1) in the individual's capacity as a director or officer of the corporation; or (2) in the individual's capacity as a director or officer, or similar capacity, of another entity, if the individual acts or acted in that capacity at the corporation's request.
By-Law No. 1 of Xplore Technologies provides that subject to the Canada Business Corporations Act, Xplore Technologies shall indemnify a director or officer, a former director or officer, or a person who acts or acted at Xplore Technologies' request as a director or officer of a body corporate of which Xplore Technologies is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses and legal fees, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of Xplore Technologies or such body corporation, if (a) he acted honestly and in good faith with a view to the best interest of Xplore Technologies, and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. Xplore Technologies shall also indemnify such person in such other circumstances as the Canada Business Corporations Act permits or requires. Nothing in By-Law No. 1 of Xplore Technologies limits the right of any person entitled to indemnity to claim indemnity apart from the provisions of that by-law.
Insurance policies are maintained by Xplore Technologies under which its directors and officers are insured, within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions,
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suits or proceedings to which they are parties by reason of being or having been such directors or officers. In addition, Xplore Technologies will indemnify directors and officers in accordance with its specific indemnification agreements and to the maximum extent permitted under applicable law.
After Domestication. If the domestication is completed, the following provisions and laws will apply to Xplore Technologies and its directors and officers.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), the certificate of incorporation of a Delaware corporation may provide that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for (i) any breach of a director's duty of loyalty to the corporation or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payment of a dividend or approval of a stock repurchase or redemption in violation of statutory limitations, or (iv) any transaction from which a director derived an improper personal benefit. Under the DGCL, in the absence of a provision to that effect in the certificate of incorporation, directors can be held monetarily liable for damages resulting from decisions made on behalf of a corporation without the level of care, including reasonable inquiry, that an ordinarily prudent person in a like position would use. The proposed certificate of incorporation of Xplore Technologies after the domestication includes a provision limiting the liability of our directors as permitted by this provision of Delaware law.
Section 145 of the DGCL provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed proceeding (other than a proceeding by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in a similar position with another entity, against expenses (including attorneys fees), judgments, fines and settlements incurred by him in connection with the proceeding if he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Indemnification under Section 145 of the DGCL is limited in a proceeding by or in the right of the corporation to expenses (including attorneys' fees) incurred in connection with the proceeding, except that no indemnification shall be made if the indemnified person has been adjudged to be liable to the corporation, unless, and to the extent, the Delaware Court of Chancery or other court in which the proceeding was brought, despite the adjudication of liability, determines such person is entitled to indemnity.
Section 145 of the DGCL provides that the indemnity determination shall be made in the specific case by (i) a majority vote of the directors who are not parties to the proceeding, even though less than a quorum, (ii) a committee of such directors designated by majority vote of such directors, even though less than a quorum, (iii) an independent legal counsel to the corporation if there are no such directors or if such directors so direct, or (iv) the stockholders.
Section 145 of the DGCL provides that expenses incurred by an officer or director in connection with a proceeding may be paid by the corporation in advance of the final disposition upon receipt of an undertaking by the person on whose behalf the expenses are to be paid to repay the expenses in the event he is not entitled to indemnity. Section 145 of the DGCL also provides that such expenses incurred by former officers and directors or other employees or agents may be paid in advance upon such terms and conditions, if any, as the corporation deems appropriate.
Delaware corporations also are authorized under the DGCL to obtain insurance to protect officers and directors from certain liabilities, including liabilities against which the corporation cannot indemnify its directors and officers. We intend to seek to obtain insurance which may protect our officers and directors against such liabilities.
Our proposed by-laws provide for mandatory indemnification of our directors and officers to the extent permitted under Delaware law.
II-2
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed with this registration statement.
Exhibit
Number |
Description
|
|
---|---|---|
3.1 | Articles of Incorporation of Xplore Technologies Corp. | |
3.2 |
|
By-Laws of Xplore Technologies Corp. |
4.1* |
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Specimen Stock Certificate for Registrant's Common Stock |
4.2* |
|
Specimen Stock Certificate for Registrant's Series A Preferred Stock |
4.3* |
|
Specimen Stock Certificate for Registrant's Series B Preferred Stock |
5.1* |
|
Opinion of Brown Raysman Millstein Felder & Steiner LLP regarding the legality of the securities registered |
10.1 |
|
Turnkey Design and Manufacturing Agreement, by and between Xplore Technologies Corp. and Wistron Corporation |
10.2 |
|
Intercreditor, Trade Credit Restructuring and Security Agreement, dated December 17, 2004, by and among Xplore Technologies Corp., Phoenix Venture Fund LLC, The Philip S. Sassower 1996 Charitable Remainder Annuity Trust and Wistron Corporation |
10.3 |
|
December 2004 Debenture Purchase Agreement, dated December 17, 2004, by and among Xplore Technologies Corp., Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto |
10.4 |
|
Loan and Security Agreement, dated September 15, 2005, between Silicon Valley Bank and Xplore Technologies Corporation of America |
10.5 |
|
September 2005 Debenture Purchase Agreement, dated September 15, 2005, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto |
10.6 |
|
April 2006 Debenture Purchase Agreement, dated April 20, 2006, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto |
10.7 |
|
Exchange and Purchase Agreement, dated April 21, 2006, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto |
10.8 |
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Relocation Agreement, dated September 6, 2005, by and between Xplore Technologies Corporation of America and Brian Groh |
10.9 |
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Agreement, dated as of January 3, 2006, by and among Brian Groh, Xplore Technologies Corp. and Xplore Technologies Corporation of America |
10.10 |
|
Employment Agreement, dated as of June 30, 2006, by and between Xplore Technologies Corp. and Mark Holleran |
10.11 |
|
Lease Agreement, dated April 10, 2003, between Summit Tech L.P. and Xplore Technologies Corp. |
10.12* |
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Amended and Restated Share Option Plan, as amended December 6, 2006 |
12.1 |
|
Statement Re: Computation of Ratio of Fixed Charges to Earnings |
16.1* |
|
Letter Re: Change in Certifying Accountant |
II-3
21.1 |
|
Subsidiaries of Xplore Technologies Corp. |
23.1* |
|
Consent of Brown Raysman Millstein Felder & Steiner LLP (contained in exhibit 5.1) |
23.2 |
|
Consent of Mintz and Partners LLP |
(b) Financial Statement SchedulesNo supporting schedules have been included because they are not required.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(a) that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form; and
(b) every prospectus (i) that is filed pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-4
Pursuant to the requirements of the Securities Act of 1933, Xplore Technologies Corp. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas on November 14, 2006.
XPLORE TECHNOLOGIES CORP. | ||||||
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By: |
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/s/ MICHAEL J. RAPISAND |
||
Name: | Michael J. Rapisand | |||||
Title: | Chief Financial Officer |
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip S. Sassower and Michael J. Rapisand, and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement or any registration statement for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons and in the capacities and on the dates indicated.
/s/
PHILIP S. SASSOWER
Philip S. Sassower |
Chief Executive Officer (Principal Executive Officer) | November 14, 2006 | ||
/s/ MICHAEL J. RAPISAND Michael J. Rapisand |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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November 14, 2006 |
/s/ BRIAN E. USHER-JONES Brian E. Usher-Jones |
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Director |
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November 14, 2006 |
/s/ ANDREA GOREN Andrea Goren |
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Director |
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November 14, 2006 |
/s/ THOMAS F. LEONARDIS Thomas F. Leonardis |
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Director |
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November 14, 2006 |
II-5
Exhibit 3.1
Industry Canada |
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Industrie Canada |
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Certificate |
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Certificat |
of Amalgamation |
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de fusion |
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Canada Business |
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Loi canadienne sur |
Corporations Act |
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les sociétés par actions |
Xplore Technologies Corp. |
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373610-5 |
Name of corporation-Dénomination de la société |
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Corporation number-Numéro de la société |
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I hereby certify that the above-named corporation resulted from an amalgamation, under section 185 of the Canadian Business Corporation Act , of the corporations set out in the attached articles of amalgamation. |
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Je certifie que le société susmentionnée est issue dune fusion, en virtue de larticle 185 de la Loi canadienne sur les sociétés par actions , des sociétés dont les dénominations apparaissent dans les statuts de fusion ci-joints. |
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Director Directeur |
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March 25, 2000 / le 25 mars 2000 |
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Date of Amalgamation Date de fusion |
Industry Canada |
FORM 9 |
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Canada Business |
ARTICLES OF AMALGAMATION |
|
Corporations Act |
(SECTION 185) |
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1. Name of amalgamated corporation:
Xplore Technologies Corp.
2. The place in Canada where the registered office is to be situated:
Mississauga, Ontario
3. The classes and any maximum number of shares that the corporation is authorized to issue:
The Corporation shall be authorized to issue an unlimited number of common shares.
4. Restrictions, if any, on share transfers:
None
5. Number (or minimum and maximum number) of directors:
Minimum of one (1), Maximum of seven (7)
6. Restrictions, if any, on business the corporation may carry on:
None
7. Other provisions, if any:
The directors may appoint one or more additional directors of the Corporation in accordance with the Canada Business Corporations Act .
8. The amalgamation has been approved pursuant to the section or subsection of the Act which is indicated as follows:
o 183
x 184(1)
¨ 184(2)
9.
Name of
the amalgamating
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Corporation No. |
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Signature |
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Date |
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Title |
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Xplore Technologies Corp. |
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176653-8 |
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/s/ Brian Groh |
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March 25, 2000 |
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President |
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3736091 Canada Ltd. |
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3736091 |
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/s/ Brian Groh |
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March 25, 2000 |
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President |
FOR DEPARTMENTAL USE ONLY |
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Paid |
||
Corporation No . |
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||
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373610-5 |
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Mar 30 2000 |
Industry Canada |
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Industrie Canada |
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Certificate |
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Certificat |
of Amendment |
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de modification |
|
|
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Canada Business |
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Loi canadienne sur |
Corporations Act |
|
les societes par actions |
Xplore Technologies Corp. |
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373610-5 |
Name of corporation-Dénomination de la société |
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|
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Corporation number-Numéro de la société |
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I hereby certify that the articles of the above-named corporation were amended: |
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Je certifie que les statuts de la société susmentionnée ont été modifies: |
|
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a) under section 13 of the Canada Business Corporations Act in accordance with the attached notice; |
|
o |
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a) en vertu de larticle 13 de la Loi canadienne sur les soci été par action, conformément à lavis ci-joint; |
|
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b) under section 27 of the Canada Business Corporations Ac t as set out in the attached articles of amendment designating a series of shares; |
|
o |
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b) en vertu de larticle 27 de la Loi canadienne sur les sociétés par actions , tel quil est indiqué dans les clauses modificatrices ci-jointes désignant une série dactions; |
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c) under section 179 of the Canada Business Corporations Act as set out in the attached articles of amendment; |
|
x |
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c) en vertu de larticle 179 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses modificatrices ci-jointes; |
|
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d) under section 191 of the Canada Business Corporations Act as set out in the attached articles of reorganization; |
|
o |
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d) en vertu de larticle 191 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses de réorganisation ci-jointes; |
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September 21, 2000 / le 21 septembre 2000 |
Director - Directeur |
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Date of Amendment Date de modification |
Industry Canada |
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Industrie Canada |
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FORM 4 |
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FORMULAIRE 4 |
Canada Business |
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Loi canadienne sur |
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ARTICLES OF |
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CLAUSES |
Corporations Act |
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les sociétés par actions |
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AMENDMENT |
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MODIFICATRICES |
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(SECTION 27 OR 177) |
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(ARTICLES 27 OU 177) |
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||||
1. Name of corporation-Dénomination de la société |
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2. Corporation number-N de la société |
||||
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Xplore Technologies Corp. |
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373610-5 |
||||
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3. The articles of the above-named corporation are amended as follows: |
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Les statuts de la société mentoinnee ci-dessus sont modifiés de la facon suivante: |
1. to change every four issued and outstanding Common Shares into one Common Shares; and
2. to provide that where the consolidation would otherwise result in a holder of Common Shares being entitled to receive a fractional Common Share, no such fractional share will be issued, and the fractional Common Share will be disregarded and cancelled without any repayment of capital or other compensation.
Date |
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Signature |
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Title - Titre |
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September 13, 2000 |
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FOR DEPARTMENT USE ONLY ALUSAGE DU
MINISTÒRE SEULEMENT
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SEP. 21, 2000 |
Industry Canada |
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Industrie Canada |
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Certificate |
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Certificat |
of Amendment |
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de modification |
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Canada Business |
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Loi canadienne sur |
Corporations Act |
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les sociétés par actions |
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Xplore Technologies Corp. |
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373510-5 |
Name of corporation-Dénomination de la société |
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Corporation number-Numéro de la société |
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I hereby certify that the articles of the above-named corporation were amended: |
|
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Je certifie que les statuts de la société susmentionnée ont été modifies: |
|
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a) under section 13 of the Canada Business Corporations Act in accordance with the attached notice; |
|
o |
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a) en vertu de larticle 13 de la Loi canadienne sur les soci été par action, conform ément à lavis ci-joint; |
|
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b) under section 27 of the Canada Business Corporations Ac t as set out in the attached articles of amendment designating a series of shares; |
|
o |
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b) en vertu de larticle 27 de la Loi canadienne sur les sociétés par actions , tel quil est indiqué dans les clauses modificatrices ci-jointes désignant une série dactions; |
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c) under section 179 of the Canada Business Corporations Act as set out in the attached articles of amendment; |
|
x |
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c) en vertu de larticle 179 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses modificatrices ci-jointes; |
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d) under section 191 of the Canada Business Co r porations Act as set out in the attached articles of reorganization; |
|
o |
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d) en vertu de larticle 191 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses de réorganisation ci-jointes; |
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January 17, 2005 / le 17 janvier 2005 |
Director - Directeur |
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Date of Amendment Date de modification |
to provide that meetings of the shareholders of the Corporation may be held at such places in Canada or in the United States of America as the directors of the Corporation may from time to time determine.
Date: |
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Name-Nom: |
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Signature |
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Capacity of en qualité |
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2005-01-17 |
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Michael J. Rapisand |
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Authorized Officer |
Industry Canada |
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Industrie Canada |
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Certificate |
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Certificat |
of Amendment |
|
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de modification |
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Canada Business |
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Loi canadienne sur |
Corporations Act |
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les sociétés par actions |
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Xplore Technologies Corp. |
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373610-5 |
Name of corporation-Dénomination de la société |
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Corporation number-Numéro de la société |
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I hereby certify that the articles of the above-named corporation were amended: |
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Je certifie que les statuts de la société susmentionnée ont été modifies: |
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a) under section 13 of the Canada Business Corporations Act in accordance with the attached notice; |
|
o |
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a) en vertu de larticle 13 de la Loi canadienne sur les société par action, conformément à lavis ci-joint; |
|
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b) under section 27 of the Canada Business Corporations Act as set out in the attached articles of amendment designating a series of shares; |
|
x |
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b) en vertu de larticle 27 de la Loi canadienne sur les sociétés par actions , tel quil est indiqué dans les clauses modificatrices ci-jointes désignant une série dactions; |
|
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c) under section 179 of the Canada Business Corporations Act as set out in the attached articles of amendment; |
|
o |
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c) en vertu de larticle 179 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses modificatrices ci-jointes; |
|
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d) under section 191 of the Canada Business Corporations Act as set out in the attached articles of reorganization; |
|
o |
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d) en vertu de larticle 191 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses de réorganisation ci-jointes; |
|
|
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Richard G. Shaw |
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May 29, 2006 / le 29 mai 2006 |
Director - Directeur |
|
Date of Amendment Date de modification |
To create:
a) an unlimited number of Preferred Shares issuable in series having the rights, privileges, restrictions and conditions set forth in Part A of the attached Schedule 1; and
b) the first series of Preferred Shares consisting of an unlimited number of shares designated as Series A Preferred Shares and, in addition to the rights, privileges, restrictions and conditions attaching to the Preferred Shares as a class, having the designations, rights, privileges, restrictions and conditions set forth in Part B of the attached Schedule 1.
Signature |
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Name-Nom: |
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Capacity of en qualité |
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Tel. No. - No. de tél. |
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Michael J. Rapisand |
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CFO |
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(512) 336-7797 |
SCHEDULE 1
TO THE
ARTICLES OF AMENDMENT
OF XPLORE TECHNOLOGIES CORP.
A. PREFERRED SHARES
The rights, privileges, restrictions and conditions attaching to the Preferred Shares are as follows:
1. Issuance .
Preferred Shares may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such rights, privileges, restrictions and conditions with respect thereto, as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided.
2. Preferred Shares .
Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Shares in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation thereof, dividend rights, special voting rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the Canada Business Corporations Act. Without limiting the generality of the foregoing, and subject to the rights of any series of Preferred Shares then outstanding, the resolutions providing for issuance of any series of Preferred Shares may provide that such series shall be superior or rank equally or be junior to the Preferred Shares of any other series to the extent permitted by law.
B. SERIES A PREFERRED SHARES
The first series of Preferred Shares (i) consists of an unlimited number of shares , (ii) shall be designated as Series A Preferred Shares and (iii) in addition to the rights, privileges, restrictions and conditions attaching to the Preferred Shares as a class, will have the following designations, rights, privileges, restrictions and conditions:
1. Dividends .
(a) From and after the date of the issuance of any Series A Preferred Shares, dividends at the rate per annum of 5% of the Series A Original Issue Price (as hereinafter defined) per share shall accrue on such Series A Preferred Shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the Accruing Dividends ). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided , however , that except as provided herein, the Corporation shall be under no obligation to pay such Accruing
Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of shares in the capital of the Corporation unless the holders of the Series A Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding Series A Preferred Share in an amount at least equal to the greater of (i) the amount of the aggregate Accruing Dividends then accrued on such Series A Preferred Share and not previously paid and (ii) (A) in the case of a dividend on common shares of the Corporation ( Common Shares ) or any class or series that is convertible into Common Shares, that dividend per Series A Preferred Share as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Shares and (2) the number of Common Shares issuable upon conversion of a Series A Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Shares, at a rate per Series A Preferred Share determined by (1) dividing the amount of the dividend payable on each share of such class or series of shares by the original issuance price of such class or series of shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) and (2) multiplying such fraction by an amount equal to the Series A Original Issue Price (as defined below); provided , that if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of shares of the Corporation, the dividend payable to the holders of Series A Preferred Shares pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of shares that would result in the highest Series A Preferred Shares dividend. The Series A Original Issue Price shall mean US$0.34 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Shares.
(b) Any Accruing Dividends payable to a holder of a Series A Preferred Shares in accordance with the terms hereof may, at the election of such holder and subject to applicable law and the approval of the Toronto Stock Exchange (the TSX ), be paid in that number of Series A Preferred Shares as is determined by dividing (a) the aggregate amount of the Accruing Dividends by (b) the volume weighted average trading price of the Common Shares on the TSX over the 10 trading days ending on the third trading day immediately preceding the dividend payment date less the maximum discount permitted by the TSX at that time. In order to be effective, any such election to receive all or any portion of Accrued Dividends in Common Shares shall be made in writing and received by the Corporation to the extent practicable not less than 30 days prior to the dividend payment date.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .
(a) Payments to Holders of Series A Preferred Shares . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of Series A Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders (on a pari passu basis with the holders of any series of Preferred Shares ranking on liquidation on a parity with the Series A Preferred Shares), and before any payment shall be made to the holders of Common Shares or any other
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class or series of shares ranking on liquidation junior to the Series A Preferred Shares by reason of their ownership thereof, an amount per share equal to the greater of (i) one (1) times the Series A Original Issue Price, plus any Accruing Dividends accrued but unpaid thereon, and (ii) such amount per share as would have been payable had each such share been converted into Common Shares pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up (the amount payable pursuant to this sentence is hereinafter referred to as the Series A Liquidation Amount ). If upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the holders of Series A Preferred Shares and any series of Preferred Shares ranking on liquidation on a parity with the Series A Preferred Shares the full amount to which they shall be entitled under this Section 2(a) , the holders of Series A Preferred Shares and any series of Preferred Shares ranking on liquidation on a parity with the Series A Preferred Shares shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
(b) Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment of all preferential amounts required to be paid to the holders of Series A Preferred Shares pursuant hereto the holders of Series A Preferred Shares will not be entitled to share in any of the remaining assets of the Corporation available for distribution.
(c) Deemed Liquidation Events .
(i) Each of the following events shall be deemed to be a liquidation of the Corporation for purposes of this Section 2 (a Deemed Liquidation Event ), unless the holders of a majority constituting at least 50% of the outstanding Series A Preferred Shares elect otherwise by written notice given to the Corporation at least five days prior to the effective date of any such event:
(A) a merger, amalgamation, statutory arrangement or consolidation in which
(I) the Corporation is a constituent party, or
(II) a subsidiary of the Corporation is a constituent party and the Corporation issues shares pursuant to such merger, amalgamation, statutory arrangement or consolidation,
except any such merger, amalgamation, statutory arrangement or consolidation involving the Corporation or a subsidiary in which the shares in the capital of the Corporation outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation continue to represent, or are converted into or exchanged for shares which represent, immediately following such merger, amalgamation, statutory arrangement or consolidation at least a majority constituting at least 50%, by voting power (determined on a fully diluted basis assuming the exercise, conversion or exchange of all exercisable, convertible or exchangeable
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securities, respectively), of the shares in the capital of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger, amalgamation, statutory arrangement or consolidation, the parent corporation of such surviving or resulting corporation ( provided that , for the purpose of this Subsection 2(c)(i) , all Common Shares issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation shall be deemed to be outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation and, if applicable, converted or exchanged in such merger, amalgamation, statutory arrangement or consolidation on the same terms as the actual outstanding Common Shares are converted or exchanged); or
(B) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
(ii) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2(c)(i)(A)(I) above unless the agreement or plan of merger, arrangement or consolidation for such transaction (the Merger Agreement ) provides that the consideration payable to the shareholders of the Corporation shall be allocated among the holders of shares in the capital of the Corporation in accordance with Subsections 2(a) and 2(b) above.
(iii) In the event of a Deemed Liquidation Event pursuant to Subsection 2(c)(i)(A)(II) or (B) above, if the Corporation does not effect a dissolution of the Corporation under the Canada Business Corporations Act within 90 days after such Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of Series A Preferred Shares no later than the 90th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such Series A Preferred Shares, and (B) if the holders of at least a majority constituting at least 50% of the then outstanding Series A Preferred Shares so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the Net Proceeds ), to the extent legally available therefore, on the 150th day after such Deemed Liquidation Event to redeem all outstanding Series A Preferred Shares at a price per share equal to the Series A Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all outstanding Series A Preferred Shares and any other
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series of Preferred Shares ranking on redemption on parity with the Series A Preferred Shares that is required to then be redeemed, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem a pro rata portion of each holders Series A Preferred Shares based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. Prior to the distribution or redemption provided for in this Subsection 2(c)(iii) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business, as approved in good faith by the Board of Directors of the Corporation, including the Series A Directors (as hereinafter defined).
(iv) The amount deemed paid or distributed to the holders of Series A Preferred Shares upon any such merger, amalgamation, statutory arrangement consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation in accordance with the following guidelines:
(A) For securities not subject to investment letters or other similar restrictions on free marketability,
(I) if traded on the TSX, the New York Stock Exchange, a national securities exchange or the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the 30-day period ending three trading days prior to the closing of such transaction;
(II) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three trading days prior to the closing of such transaction; or
(III) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.
(B) The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a shareholders status as an insider as defined in the Securities Act (Ontario) or as a holder of securities sufficient to constitute a distribution within the meaning of clause(c) of the definition of distribution in Section 1 of the Securities Act (Ontario)) shall take into account an appropriate discount (as determined in good faith by the Board of Directors of the Corporation)
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from the market value as determined pursuant to clause (A) above so as to reflect the approximate fair market value thereof.
3. Voting .
(a) General . On any matter presented to the shareholders of the Corporation for their action or consideration at any meeting of shareholders of the Corporation (or by written consent of shareholders in lieu of meeting), each holder of outstanding Series A Preferred Shares shall be entitled to cast the number of votes equal to the number of whole Common Shares into which the Series A Preferred Shares held by such holder are convertible as of the record date for determining shareholders entitled to vote on such matter. Except as provided by law or by the provisions of Subsection 3(b) or 3(c) below, holders of Series A Preferred Shares shall vote together with the holders of Common Shares, and with the holders of any other series of Preferred Shares entitled to vote at such meeting, as a single class.
(b) Election of Directors . The holders of record of a majority constituting at least 50% of the Series A Preferred Shares, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation (the Series A Directors ). Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the Series A Preferred Shares given either at a special meeting of such shareholders duly called for that purpose or pursuant to a written consent of holders constituting at least 50% of the Series A Preferred Shares then outstanding. At any meeting held for the purpose of electing a Series A Director, the presence in person or by proxy of the holders of a majority constituting at least 50% of the then outstanding Series A Preferred Shares shall constitute a quorum for the purpose of electing such director. A vacancy in any directorship filled by the holders of Series A Preferred Shares shall be filled only by written consent or affirmative vote of the holders of at least a majority constituting at least 50% of the then outstanding Series A Preferred Shares or appointed by any remaining director elected by the holders of Series A Preferred Shares pursuant to this Subsection 3(b) . The rights of the holders of the Series A Preferred Shares to elect the Series A Directors shall permanently terminate on the first date following the Series A Original Issue Date (as defined below) on which there are issued and outstanding less than ten percent (10%) of the Series A Preferred Shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) that were outstanding on the Series A Original Issue Date.
(c) Protective Provisions . At any time when at least ten percent (10%) of the Series A Preferred Shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) that were outstanding on the Series A Original Issue Date are issued and outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Articles of Incorporation) the written consent or affirmative vote of the holders of at least a majority constituting at least 50% of the then outstanding Series A Preferred Shares, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class:
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(i) liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;
(ii) amend, alter or repeal any provision of the Articles of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Shares;
(iii) create, or authorize the creation of, or issue any additional class or series of shares unless the same ranks junior to the Series A Preferred Shares with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation and the payment of dividends, or increase the authorized number of Series A Preferred Shares;
(iv) purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares in the capital of the Corporation other than dividends or distributions on the Series A Preferred Shares as expressly authorized herein;
(v) create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security unless such debt security has received the prior approval of the Board of Directors, including the approval of the Series A Directors;
(vi) increase or decrease the authorized number of directors constituting the Board of Directors; or
(vii) terminate the employment of the Corporations then current Chief Executive Officer, President or Chief Financial Officer or hire or appoint anyone to any such offices or their respective equivalents.
4. Optional Conversion . The holders of the Series A Preferred Shares shall have conversion rights as follows (the Conversion Rights ):
(a) Right to Convert . Each Series A Preferred Share shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable Common Shares equal to the sum of (i) the number determined by dividing the applicable Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion and (ii) subject to applicable law and the approval of the TSX, the number determined by dividing the Accruing Dividends by the volume weighted average trading price of the Common Shares on the TSX over the 10 trading days ending on the third trading day immediately preceding the conversion date less the maximum discount permitted by the TSX at that time. The Series A Conversion Price shall initially be equal to the Series A Original Issue Price. Such initial Series A Conversion Price and the rate at which Series A Preferred Shares may be converted into Common Shares shall be subject to adjustment as provided below.
(b) Termination of Conversion Rights . In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion
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Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A Preferred Shares.
(c) Fractional Shares . No fractional Common Shares shall be issued upon conversion of the Series A Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a Common Share as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of Series A Preferred Shares the holder is at the time converting into Common Shares and the aggregate number of Common Shares issuable upon such conversion.
(d) Mechanics of Conversion .
(i) In order for a holder of Series A Preferred Shares to voluntarily convert the Series A Preferred Shares into Common Shares, such holder shall surrender the certificate or certificates for such Series A Preferred Shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Shares (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the Series A Preferred Shares represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holders name or the names of the nominees in which such holder wishes the certificate or certificates for Common Shares to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of conversion (the Conversion Time ), and the Common Shares issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver to such holder of Series A Preferred Shares, or to his, her or its nominees, a certificate or certificates for the full number of Common Shares issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the Series A Preferred Shares represented by the surrendered certificate that were not converted into Common Shares, and cash as provided in Subsection 4(c) in lieu of any fraction of a Common Share otherwise issuable upon such conversion.
(ii) The Corporation shall at all times when the Series A Preferred Shares shall be outstanding, reserve and keep available out of its authorized but unissued shares, for the purpose of effecting the conversion of the Series A Preferred Shares, such number of its duly authorized Common Shares as shall from time to time be sufficient to effect the conversion
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of all outstanding Series A Preferred Shares; and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of all then outstanding Series A Preferred Shares, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued Common Shares to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Articles of Incorporation.
(iii) All Series A Preferred Shares which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive Common Shares in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any Series A Preferred Shares so converted shall be retired and cancelled and shall not be reissued as shares of such series, and the Corporation (without the need for shareholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of Series A Preferred Shares accordingly.
(iv) Upon any such conversion, no adjustment to the Series A Conversion Price shall be made for any declared but unpaid dividends on the Series A Preferred Shares surrendered for conversion or on the Common Shares delivered upon conversion.
(v) The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of Common Shares upon conversion of the Series A Preferred Shares pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Common Shares in a name other than that in which the Series A Preferred Shares so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
(e) Adjustments to Series A Conversion Price for Diluting Issues .
(i) Special Definitions . For purposes of this Section 4 , the following definitions shall apply:
(A) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Shares or Convertible Securities.
(B) Series A Original Issue Date shall mean the date on which the first Series A Preferred Shares were issued.
(C) Convertible Securities shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Shares, but excluding Options.
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(D) Additional Common Shares shall mean all Common Shares issued (or, pursuant to Subsection 4(e)(iii) below, deemed to be issued) by the Corporation after the Series A Original Issue Date, other than the following ( Exempted Securities ):
(I) Common Shares, Options or Convertible Securities issued or deemed issued as a dividend or distribution on the Series A Preferred Shares;
(II) Common Shares, Options or Convertible Securities issued or issuable by reason of a dividend, stock split, split-up or other distribution on Common Shares that is covered by Subsection 4(f) , 4(g) , 4(h) and 4(i) below;
(III) Common Shares, Options or Convertible Securities issued to employees or directors of, or consultants to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement either in effect as of the Original Series A Issue Date or approved by the Board of Directors of the Corporation, including the Series A Directors; or
(IV) Common Shares or Convertible Securities actually issued upon the exercise of Options, or Common Shares actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security.
(ii) No Adjustment of Conversion Price . No adjustment in the Series A Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Common Shares if the Corporation receives written notice from the holders of at least a majority constituting at least 50% of the then outstanding Series A Preferred Shares agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Common Shares.
(iii) Deemed Issue of Additional Common Shares .
(A) If the Corporation at any time or from time to time after the Series A Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of Common Shares (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exerciseability, convertibility or exchangeability, but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case
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of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Common Shares issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(B) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of Common Shares issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series A Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series A Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no re-adjustment pursuant to this clause (B) shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, and (ii) the Series A Conversion Price that would have resulted from any issuances of Additional Common Shares (other than deemed issuances of Additional Common Shares as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(C) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) below (either because the consideration per share (determined pursuant to Subsection 4(e)(v) hereof) of the Additional Common Shares subject thereto was equal to or greater than the Series A Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series A Original Issue Date), are revised after the Series A Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of Common Shares issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Shares subject thereto (determined in the manner provided in Subsection 4(e)(iii)(A) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(D) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted
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(either upon its original issuance or upon a revision of its terms) in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, the Series A Conversion Price shall be readjusted to such Series A Conversion Price as would have obtained had such Option or Convertible Security, or portion thereof, never been issued.
(E) If the number of Common Shares issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series A Conversion Price provided for in this Subsection 4(e)(iii) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (B) and (C) of this Subsection 4(e)(iii) ). If the number of Common Shares issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at the time such Option or Convertible Security is issued or amended, any adjustment to the Series A Conversion Price that would result under the terms of this Subsection 4(e)(iii) at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series A Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Common Shares . In the event the Corporation shall at any time after the Series A Original Issue Date issue Additional Common Shares (including Additional Common Shares deemed to be issued pursuant to Subsection 4(e)(iii) ), without consideration or for a consideration per share less than the applicable Series A Conversion Price in effect immediately prior to such issue, then the Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP 2 = (CP 1 * (A + B)) ¸ (A + C)
For purposes of the foregoing formula, the following definitions shall apply:
(A) CP 2 shall mean the Series A Conversion Price in effect immediately after such issue of Additional Common Shares;
(B) CP 1 shall mean the Series A Conversion Price in effect immediately prior to such issue of Additional Common Shares;
(C) A shall mean the number of Common Shares outstanding and deemed outstanding immediately prior to such issue of Additional Common Shares (treating for this purpose as outstanding all Common Shares issuable upon exercise of Options outstanding immediately prior to such issuance or upon conversion or exchange of Convertible;
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Securities (including the Series A Preferred Shares) outstanding (assuming exercise of any outstanding Option therefore) immediately prior to such issue);
(D) B shall mean the number of Common Shares that would have been issued if such Additional Common Shares had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and
(E) C shall mean the number of such Additional Common Shares issued in such transaction.
(v) Determination of Consideration . For purposes of this Subsection 4(e) , the consideration received by the Corporation for the issue of any Additional Shares of Common Shares shall be computed as follows:
(A) Cash and Property : Such consideration shall:
(I) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(III) in the event Additional Common Shares are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors of the Corporation.
(B) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Common Shares deemed to have been issued pursuant to Subsection 4(e)(iii) , relating to Options and Convertible Securities, shall be determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of
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such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(II) the maximum number of Common Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Common Shares that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4(e)(iv) above then, upon the final such issuance, the Series A Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without additional giving effect to any adjustments as a result of any subsequent issuances within such period).
(f) Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Series A Original Issue Date effect a subdivision of the outstanding Common Shares, the Series A Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of Common Shares issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of Common Shares outstanding. If the Corporation shall at any time or from time to time after the Series A Original Issue Date combine the outstanding Common Shares, the Series A Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of Common Shares issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of Common Shares outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
(g) Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Shares entitled to receive, a dividend or other distribution payable on the Common Shares in additional Common Shares, then and in each such event the Series A Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall
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have been fixed, as of the close of business on such record date, by multiplying the Series A Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of Common Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of Common Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Common Shares issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefore, the Series A Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (ii) that no such adjustment shall be made if the holders of Series A Preferred Shares simultaneously receive a dividend or other distribution of Common Shares in a number equal to the number of Common Shares as they would have received if all outstanding Series A Preferred Shares had been converted into Common Shares on the date of such event.
(h) Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Shares entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of Common Shares in respect of outstanding Common Shares) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series A Preferred Shares shall receive, simultaneously with the distribution to the holders of Common Shares, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding Series A Preferred Shares had been converted into Common Shares on the date of such event.
(i) Adjustment for Merger or Reorganization, etc . Subject to the provisions of Section 2(c) , if there shall occur any reorganization, recapitalization, reclassification, consolidation, amalgamation, statutory arrangement or merger involving the Corporation in which the Common Shares (but not the Series A Preferred Shares) are converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections (f) , (g) or (h) of this Section 4 ), then, following any such reorganization, recapitalization, reclassification, consolidation, amalgamation, statutory arrangement or merger, each Series A Preferred Share shall thereafter be convertible (in lieu of the Common Shares into which it was convertible prior to such event) into the kind and amount of securities, cash or other property which a holder of the number of Common Shares of the Corporation issuable upon conversion of one Series A Preferred Share immediately prior to such reorganization, recapitalization, reclassification, consolidation, amalgamation, statutory arrangement or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as
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determined in good faith by the Board of Directors of the Corporation, including the Series A Directors) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Series A Preferred Shares, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Series A Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series A Preferred Shares.
(j) Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price pursuant to this Section 4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) trading days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Shares a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series A Preferred Shares is convertible) and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Preferred Shares (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series A Conversion Price then in effect, and (ii) the number of Common Shares and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series A Preferred Shares.
(k) Notice of Record Date . In the event:
(i) the Corporation shall take a record of the holders of its Common Shares (or other shares or securities at the time issuable upon conversion of the Series A Preferred Shares) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other security; or
(ii) of any capital reorganization of the Corporation, any reclassification of the Common Shares of the Corporation, or any Deemed Liquidation Event; or
(iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series A Preferred Shares a notice specifying, as the case may be, (A) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (B) the effective date on which such reorganization, reclassification, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Shares (or such other shares or securities at the time issuable upon the conversion of the Series A Preferred Shares) shall be entitled to exchange their Common Shares (or such other shares or securities) for securities or other property deliverable upon such reorganization, reclassification, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Shares and the
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Common Shares. Such notice shall be sent at least five (5) days prior to the record date or effective date for the event specified in such notice.
5. Mandatory Conversion .
(a) Trigger Events . Upon the earlier of: (i) the closing of the sale of Common Shares to the public at a price of not less than US$0.85 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), in a firm-commitment underwritten public offering pursuant to a prospectus or an effective registration statement resulting in at least US$20,000,000 of proceeds, net of the underwriting discount and commissions, to the Corporation, and (ii) a date specified by vote or written consent, of the holders of a majority constituting at least 50% of the Series A Preferred Shares outstanding (the earlier of (i) and (ii) above being the Mandatory Conversion Date ), each Series A Preferred Share shall automatically be converted into such number of fully paid and nonassessable Common Shares equal to the sum of (A) the number determined by dividing the Series A Original Issue Price by the Series A Conversion Price then in effect on the Mandatory Conversion Date, and (B) subject to applicable law and the approval of the TSX, the number determined by dividing the Accruing Dividends by the volume weighted average trading price of the Common Shares on the TSX over the 10 trading days ending on the third trading day immediately preceding the conversion date less the maximum discount permitted by the TSX at that time, and such shares may not be reissued by the Corporation.
(b) Procedural Requirements . All holders of record of Series A Preferred Shares shall be given written notice of the Mandatory Conversion Date and the place designated for mandatory conversion of all such Series A Preferred Shares pursuant to this Section 5 . Upon receipt of such notice, each holder of Series A Preferred Shares shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of Common Shares to which such holder is entitled pursuant to this Section 5 . On the Mandatory Conversion Date, all outstanding Series A Preferred Shares shall be deemed to have been converted into Common Shares, which shall be deemed to be outstanding of record, and all rights with respect to the Series A Preferred Shares so converted, including, without limitation, the rights, if any, to receive notices and vote (other than as a holder of Common Shares), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefore, to receive certificates for the number of Common Shares into which such Series A Preferred Shares has been converted, and, if applicable, payment of any declared but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Mandatory Conversion Date and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series A Preferred Shares, the Corporation shall issue and deliver to such holder, or on his, her or its nominees, a certificate or
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certificates for the number of full Common Shares issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 4(c) in respect of any fraction of a share of Common Shares otherwise issuable upon such conversion.
(c) Effect of Mandatory Conversion . All Series A Preferred Shares shall, from and after the Mandatory Conversion Date, no longer be deemed to be outstanding and, notwithstanding the failure of the holder or holders thereof to surrender the certificates for such shares on or prior to such time, all rights with respect to such shares shall immediately cease and terminate on the Mandatory Conversion Date, except only the right of the holders thereof to receive Common Shares in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Such converted Series A Preferred Shares shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for shareholder action) as may be necessary to reduce the authorized number of Series A Preferred Shares accordingly.
6. Redeemed or Otherwise Acquired Shares . Any Series A Preferred Shares which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series A Preferred Shares following redemption.
7. Waiver . Any of the rights, powers, preferences and other terms of the Series A Preferred Shares set forth herein may be waived on behalf of all holders of Series A Preferred Shares by the affirmative written consent or vote of the holders of a majority constituting at least 50% of the Series A Preferred Shares then outstanding.
8. Notices . Any notice required or permitted by the provisions hereto to be given to a holder of Series A Preferred Shares shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation and shall be deemed sent upon such mailing.
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Industry Canada |
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les soci é tés par actions |
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Xplore Technologies Corp. |
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373610-5 |
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I hereby certify that the articles of the above-named corporation were amended: |
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Je certifie que les statuts de la société susmentionnée ont été modifies: |
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a) under section 13 of the Canada Business Corporations Act in accordance with the attached notice; |
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a) en vertu de larticle 13 de la Loi canadienne sur les société par action, conformément à lavis ci-joint; |
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b) under section 27 of the Canada Business Corporations Act as set out in the attached articles of amendment designating a series of shares; |
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b) en vertu de larticle 27 de la Loi canadienne sur les sociétés par actions, tel quil est indiqué dans les clauses modificatrices ci-jointes désignant une série dactions; |
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c) under section 179 of the Canada Business Corporations Act as set out in the attached articles of amendment; |
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c) en vertu de larticle 179 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses modificatrices ci-jointes; |
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d) under section 191 of the Canada Business Corporations Act as set out in the attached articles of reorganization; |
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d) en vertu de larticle 191 de la Loi canadienne sur les sociétés par actions , tel quil est indiqu é dans les clauses de réorganisation ci-jointes; |
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Richard G. Shaw |
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August 4, 2006 / le 4 août 2006 |
Director - Directeur |
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Date of Amendment Date de modification |
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Industrie Canada |
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FORM 4 |
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FORMULAIRE 4 |
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ARTICLES OF |
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CLAUSES |
Canada Business |
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AMENDMENT |
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MODIFICATRICES |
Corporations Act |
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les sociétés par actions |
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(SECTIONS 27 OR 177) |
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(ARTICLES 27 OU 177) |
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[1] Name of Corporation-Dénomination de la société |
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[2] Corporation number-Numéro de la société |
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Xplore Technologies Corp. |
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373610-5 |
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[3] The articles of the above-named corporation are amended as follows: |
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Le status de la société ci-dessus sont modifié de la facon suivante: |
To create the second series of Preferred Shares consisting of an unlimited number of shares designated as Series B Preferred Shares and, in addition to the rights, privileges and conditions attaching to the Preferred Shares as a class, having the designations, rights, privileges, restrictions and conditions set forth in the attached Schedule 1.
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Michael J. Rapisand |
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(512) 336-7797 |
SCHEDULE 1
TO THE
ARTICLES OF AMENDMENT
OF XPLORE TECHNOLOGIES CORP.
C. SERIES B PREFERRED SHARES
The second series of Preferred Shares (i) consists of an unlimited number of shares , (ii) shall be designated as Series B Preferred Shares and (iii) in addition to the rights, privileges, restrictions and conditions attaching to the Preferred Shares as a class, will have the following designations, rights, privileges, restrictions and conditions:
1. Dividends .
(a) From and after the date of the issuance of any Series B Preferred Shares, dividends at the rate per annum of 5% of the Series B Original Issue Price (as hereinafter defined) per share shall accrue on such Series B Preferred Shares (the Series B Dividends ). Series B Dividends shall accrue, whether or not declared, and shall be cumulative. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of shares in the capital of the Corporation, other than the Corporations Series A Preferred Shares and any other series of Preferred Shares entitled to receive dividends in priority to or concurrently with the holders of the Series B Preferred Shares, unless the holders of the Series B Preferred Shares then outstanding shall first receive, or simultaneously receive, the Series B Dividends. The Series B Original Issue Price shall mean US$0.34 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Shares.
(b) The Series B Dividends shall be paid quarterly on the first day Business Day (as defined below) of March, June, September, and December of each year (each a Dividend Payment Date ), commencing on the first Business Day next succeeding the Initial Dividend Period (as defined below). Subject to the Canadian Business Corporations Act and the approval of the Toronto Stock Exchange (the TSX ) or such other Canadian or United States securities exchange or quotation system which on the date of determination constitutes the principal securities market for the Common Shares (the Principal Securities Market ), the Series B Dividends shall be paid in that number of Common Shares as is determined by dividing (i) the aggregate amount of the Series B Dividends then payable by (ii) the U.S. dollar equivalent (as determined based on the noon rate of exchange posted by the Bank of Canada on the third trading day immediately preceding the Dividend Payment Date) of the volume weighted average trading price of the Common Shares on the Principal Securities Market over the 10 trading days ending on the third trading day immediately preceding the Dividend Payment Date less the maximum discount permitted by the TSX at that time. Notwithstanding anything contained herein to the contrary, in the event of a Liquidation (as defined in Section 2(a) below), all accrued but unpaid Series B Dividends shall be paid in cash. If any Series B Dividend is not paid on a Dividend Payment Date, then the amount of such unpaid dividend shall continue to accrue from the applicable Dividend Payment Date until paid.
(c) For greater certainty, the amount of Series B Dividends payable for each full Dividend Period (as defined below) for the Series B Preferred Shares shall be 1.25% of the Series B Original Issue Price. For greater certainty, the amount of Series B Dividends payable for (i) the Initial Dividend Period shall be equal to 1.25% of the Series B Original Issue Price multiplied by the quotient obtained by dividing the number of days in the period for which the Series B Preferred Shares were outstanding by 90, and (ii) any other period shorter than a full Dividend Period shall be equal to 1.25% of the Series B Original Issue Price multiplied by the quotient obtained by dividing the number of days elapsed by 90.
(d) Fractional Common Shares will not be issued upon payment of any Series B Dividends and any amount of fractional Common Shares otherwise issuable upon payment of any Series B Dividends shall, in the sole discretion of the Board of Directors, either be paid in cash or continue to accrue until the next Dividend Payment Date.
(e) Series B Dividends to be paid on a Dividend Payment Date shall be paid to the holders of record of the Series B Preferred Shares as they appear on the share register of the Corporation at the close of business fifteen (15) days preceding the applicable Dividend Payment Date. Holders of Series B Preferred Shares shall be entitled to receive dividends in preference to and in priority over dividends upon the Common Shares and any other series or class of the Corporations share capital that ranks junior as to dividends to the Series B Preferred Shares, and shall be on parity as to dividends with any series or class of the Corporations share capital that does not rank senior or junior as to dividends with the Series B Preferred Shares. The Series B Preferred Shares shall rank on parity with the Series A Preferred Shares with respect to dividends. The holders of Series B Preferred Shares shall not be entitled to dividends in excess of full cumulative dividends as herein provided.
(f) The term Business Day shall mean any day other than a Saturday, Sunday or day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close. The term Dividend Period shall mean quarterly dividend periods commencing on the first day of March, June, September and December of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the Initial Dividend Period). The term Initial Dividend Period shall mean the period commencing on the Series B Original Issue Date and ending on (and including) August 31, 2006.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .
(a) Payments to Holders of Series B Preferred Shares . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a Liquidation ), the holders of Series B Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders (on a pari passu basis with the holders of the Series A Preferred Shares and any other series of Preferred Shares ranking on liquidation on a parity with the Series B Preferred Shares), and before any payment shall be made to the holders of Common Shares or any other class or series of shares ranking on liquidation junior to the Series B Preferred Shares by reason of their ownership thereof, an amount per share equal to the greater of (i) one (1) times the Series B Original Issue
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Price, plus any Series B Dividends accrued but unpaid thereon, which dividends shall be paid in cash (and not in Common Shares), and (ii) such amount per share as would have been payable had each such share been converted into Common Shares pursuant to Section 4 immediately prior to such Liquidation (the amount payable pursuant to this sentence is hereinafter referred to as the Series B Liquidation Amount ). If upon any such Liquidation, the assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the holders of the Series A Preferred Shares and Series B Preferred Shares and any other series of Preferred Shares ranking on liquidation on a parity with the Series B Preferred Shares the full amount to which they shall be entitled under this Section 2(a) , the holders of the Series A Preferred Shares and Series B Preferred Shares and any other series of Preferred Shares ranking on liquidation on a parity with the Series B Preferred Shares shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The Series B Preferred Shares shall rank on parity with the Series A Preferred Shares with respect to a Liquidation or a Deemed Liquidation Event (as defined below).
(b) Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment of all preferential amounts required to be paid to the holders of Series B Preferred Shares pursuant hereto and holders of the Series A Preferred Shares and any other series of Preferred Shares ranking on liquidation on parity with or priority to the Series B Preferred Shares, the holders of Series B Preferred Shares will not be entitled to share in any of the remaining assets of the Corporation available for distribution.
(c) Deemed Liquidation Events .
(i) Each of the following events shall be deemed to be a liquidation of the Corporation for purposes of this Section 2 (a Deemed Liquidation Event ), unless the holders of a majority constituting at least 50% of the then outstanding Series B Preferred Shares elect otherwise by written notice given to the Corporation at least five days prior to the effective date of any such event:
(A) a merger, amalgamation, statutory arrangement or consolidation in which
(I) the Corporation is a constituent party, or
(II) a subsidiary of the Corporation is a constituent party and the Corporation issues shares pursuant to such merger, amalgamation, statutory arrangement or consolidation,
except any such merger, amalgamation, statutory arrangement or consolidation involving the Corporation or a subsidiary in which the shares in the capital of the Corporation outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation continue to represent, or are converted into or exchanged for shares which represent,
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immediately following such merger, amalgamation, statutory arrangement or consolidation at least a majority constituting at least 50%, by voting power (determined on a fully diluted basis assuming the exercise, conversion or exchange of all exercisable, convertible or exchangeable securities, respectively), of the shares in the capital of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger, amalgamation, statutory arrangement or consolidation, the parent corporation of such surviving or resulting corporation ( provided that , for the purpose of this Subsection 2(c)(i) , all Common Shares issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation shall be deemed to be outstanding immediately prior to such merger, amalgamation, statutory arrangement or consolidation and, if applicable, converted or exchanged in such merger, amalgamation, statutory arrangement or consolidation on the same terms as the actual outstanding Common Shares are converted or exchanged); or
(B) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
(ii) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2(c)(i)(A)(I) above unless the agreement or plan of merger, arrangement or consolidation for such transaction (the Merger Agreement ) provides that the consideration payable to the shareholders of the Corporation shall be allocated among the holders of shares in the capital of the Corporation in accordance with Subsections 2(a) and 2(b) above.
(iii) In the event of a Deemed Liquidation Event pursuant to Subsection 2(c)(i)(A)(II) or (B) above, if the Corporation does not effect a dissolution of the Corporation under the Canada Business Corporations Act within 90 days after such Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of Series B Preferred Shares no later than the 90th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such Series B Preferred Shares, and (B) if the holders of at least a majority constituting at least 50% of the then outstanding Series B Preferred Shares so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the Net Proceeds ), to the extent legally available therefore, on the 150th day after such Deemed Liquidation Event to redeem all outstanding Series B Preferred Shares at a price per share equal to the Series B Liquidation Amount. Notwithstanding the foregoing, in the
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event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all outstanding Series B Preferred Shares and any other series of Preferred Shares (including the Series A Preferred Shares) ranking on redemption on parity with the Series B Preferred Shares that is required to then be redeemed, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem the pro rata portion of each holders Series B Preferred Shares and any other series of Preferred Shares (including the Series A Preferred Shares) ranking on redemption on parity with the Series B Preferred Shares on a pari passu basis based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. Prior to the distribution or redemption provided for in this Subsection 2(c)(iii) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business, as approved in good faith by the Board of Directors of the Corporation.
(iv) The amount deemed paid or distributed to the holders of Series B Preferred Shares upon any such merger, amalgamation, statutory arrangement consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation in accordance with the following guidelines:
(A) For securities not subject to investment letters or other similar restrictions on free marketability,
(I) if traded on the TSX, the New York Stock Exchange, a national securities exchange or the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the 30-day period ending three trading days prior to the closing of such transaction;
(II) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three trading days prior to the closing of such transaction; or
(III) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.
(B) The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a shareholders status as an insider as defined in the Securities Act (Ontario) or as a
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holder of securities sufficient to constitute a distribution within the meaning of clause(c) of the definition of distribution in Section 1 of the Securities Act (Ontario)) shall take into account an appropriate discount (as determined in good faith by the Board of Directors of the Corporation) from the market value as determined pursuant to clause (A) above so as to reflect the approximate fair market value thereof.
3. Voting .
(a) General . On any matter presented to the shareholders of the Corporation for their action or consideration at any meeting of shareholders of the Corporation (or by written consent of shareholders in lieu of meeting), each holder of outstanding Series B Preferred Shares shall be entitled to cast the number of votes equal to the number of whole Common Shares into which the Series B Preferred Shares held by such holder are convertible as of the record date for determining shareholders entitled to vote on such matter. Except as provided by law or by the provisions of Subsection 3(b) below, holders of Series B Preferred Shares shall vote together with the holders of Common Shares, and with the holders of any other series of Preferred Shares entitled to vote at such meeting, as a single class.
(b) Protective Provisions . At any time when at least ten percent (10%) of the Series B Preferred Shares (subject to appropriate adjustment in the event of any stock dividend paid to all holders of Common Shares, stock split, combination, subdivision or other similar recapitalization affecting such shares) that were outstanding on the Series B Original Issue Date are issued and outstanding, the Corporation shall not, either directly or indirectly, by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Articles of Incorporation) the written consent or affirmative vote of the holders of at least a majority constituting at least 50% of the then outstanding Series B Preferred Shares, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class:
(i) amend, alter or repeal any provision of the Articles of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series B Preferred Shares;
(ii) create, or authorize the creation of, or issue any additional class or series of shares unless the same ranks junior to the Series B Preferred Shares with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation and the payment of dividends, or increase the authorized number of Series B Preferred Shares; or
(iii) purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares in the capital of the Corporation other than dividends or distributions on the Series A Preferred Shares and the Series B Preferred Shares as expressly authorized herein.
4. Optional Conversion . The holders of the Series B Preferred Shares shall have conversion rights as follows (the Conversion Rights ):
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(a) Right to Convert . Each Series B Preferred Share shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable Common Shares calculated by dividing the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion. Subject to the Canadian Business Corporations Act and the approval of the TSX, the Series B Preferred Shares that are converted into Common Shares pursuant to this Section 4 shall be entitled to receive any accrued but unpaid Series B Dividends thereon through the Conversion Time, calculated in accordance with Section 1 and payable to the holders of such Series B Preferred Shares in accordance with Section 4(d) concurrently with the issuance and delivery of certificates representing Common Shares issuable upon such conversion. The Series B Conversion Price shall initially be equal to the Series B Original Issue Price. Such initial Series B Conversion Price and the rate at which Series B Preferred Shares may be converted into Common Shares shall be subject to adjustment as provided below.
(b) Termination of Conversion Rights . In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any amounts distributable on such event to the holders of Series B Preferred Shares.
(c) Fractional Shares . No fractional Common Shares shall be issued upon conversion of the Series B Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a Common Share as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of Series B Preferred Shares the holder is at the time converting into Common Shares and the aggregate number of Common Shares issuable upon such conversion.
(d) Mechanics of Conversion .
(i) In order for a holder of Series B Preferred Shares to voluntarily convert the Series B Preferred Shares into Common Shares, such holder shall surrender the certificate or certificates for such Series B Preferred Shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series B Preferred Shares (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the Series B Preferred Shares represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holders name or the names of the nominees in which such holder wishes the certificate or certificates for Common Shares to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or
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lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of conversion (the Conversion Time ), and the Common Shares issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver to such holder of Series B Preferred Shares, or to his, her or its nominees, a certificate or certificates for the full number of Common Shares issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the Series B Preferred Shares represented by the surrendered certificate that were not converted into Common Shares, and cash as provided in Subsection 4(c) in lieu of any fraction of a Common Share otherwise issuable upon such conversion.
(ii) The Corporation shall at all times when the Series B Preferred Shares shall be outstanding, reserve and keep available out of its authorized but unissued shares, for the purpose of effecting the conversion of the Series B Preferred Shares, such number of its duly authorized Common Shares as shall from time to time be sufficient to effect the conversion of all outstanding Series B Preferred Shares; and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of all then outstanding Series B Preferred Shares, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued Common Shares to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Articles of Incorporation.
(iii) All Series B Preferred Shares which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive Common Shares in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any Series B Preferred Shares so converted shall be retired and cancelled and shall not be reissued as shares of such series, and the Corporation (without the need for shareholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of Series B Preferred Shares accordingly.
(iv) Upon any such conversion, no adjustment to the Series B Conversion Price shall be made for any declared but unpaid dividends on the Series B Preferred Shares surrendered for conversion or on the Common Shares delivered upon conversion.
(v) The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of Common Shares upon conversion of the Series B Preferred Shares pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Common Shares in a name other than that in which the Series B Preferred Shares so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
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(e) Adjustments to Series B Conversion Price for Diluting Issues .
(i) Special Definitions . For purposes of this Section 4 , the following definitions shall apply:
(A) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Shares or Convertible Securities.
(B) Series B Original Issue Date shall mean the date on which the first Series B Preferred Shares were issued.
(C) Convertible Securities shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Shares, but excluding Options.
(D) Additional Common Shares shall mean all Common Shares issued (or, pursuant to Subsection 4(e)(iii) below, deemed to be issued) by the Corporation after the Series B Original Issue Date, other than the following ( Exempted Securities ):
(I) Common Shares, Options or Convertible Securities issued or deemed issued as a dividend or distribution on the Series A or Series B Preferred Shares;
(II) Common Shares, Options or Convertible Securities issued or issuable by reason of a dividend, stock split, split-up or other distribution on Common Shares that is covered by Subsection 4(f) , 4(g) , 4(h) and 4(i) below;
(III) Common Shares, Options or Convertible Securities issued to employees or directors of, or consultants to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement either in effect as of the Original Series B Issue Date or approved by the Board of Directors of the Corporation, including those directors appointed by the holders of Series A Preferred Shares; or
(IV) Common Shares or Convertible Securities actually issued upon the exercise of Options, or Common Shares actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security.
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(ii) No Adjustment of Conversion Price . No adjustment in the Series B Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Common Shares if the Corporation receives written notice from the holders of at least a majority constituting at least 50% of the then outstanding Series B Preferred Shares agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Common Shares.
(iii) Deemed Issue of Additional Common Shares .
(A) If the Corporation at any time or from time to time after the Series B Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of Common Shares (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exerciseability, convertibility or exchangeability, but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Common Shares issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(B) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of Common Shares issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series B Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series B Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no re-adjustment pursuant to this clause (B) shall have the effect of increasing the Series B Conversion Price to an amount which exceeds the lower of (i) the Series B Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, and (ii) the Series B Conversion Price that would have resulted from any issuances of Additional Common Shares (other than deemed issuances of Additional Common Shares as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(C) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) below (either because the consideration per share (determined
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pursuant to Subsection 4(e)(v) hereof) of the Additional Common Shares subject thereto was equal to or greater than the Series B Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series B Original Issue Date), are revised after the Series B Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of Common Shares issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Shares subject thereto (determined in the manner provided in Subsection 4(e)(iii)(A) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(D) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) below, the Series B Conversion Price shall be readjusted to such Series B Conversion Price as would have obtained had such Option or Convertible Security, or portion thereof, never been issued.
(E) If the number of Common Shares issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series B Conversion Price provided for in this Subsection 4(e)(iii) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (B) and (C) of this Subsection 4(e)(iii) ). If the number of Common Shares issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at the time such Option or Convertible Security is issued or amended, any adjustment to the Series B Conversion Price that would result under the terms of this Subsection 4(e)(iii) at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series B Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Common Shares . In the event the Corporation shall at any time after the Series B Original Issue Date issue Additional Common Shares (including Additional Common Shares deemed to be issued pursuant to Subsection 4(e)(iii) ), without consideration or for a consideration per share less than the applicable Series B Conversion Price in effect immediately prior to such issue, then the Series B Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP 2 = (CP 1 * (A + B)) ¸ (A + C)
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For purposes of the foregoing formula, the following definitions shall apply:
(A) CP 2 shall mean the Series B Conversion Price in effect immediately after such issue of Additional Common Shares;
(B) CP 1 shall mean the Series B Conversion Price in effect immediately prior to such issue of Additional Common Shares;
(C) A shall mean the number of Common Shares outstanding and deemed outstanding immediately prior to such issue of Additional Common Shares (treating for this purpose as outstanding all Common Shares issuable upon exercise of Options outstanding immediately prior to such issuance or upon conversion or exchange of Convertible Securities (including the Series B Preferred Shares) outstanding (assuming exercise of any outstanding Option therefore) immediately prior to such issue);
(D) B shall mean the number of Common Shares that would have been issued if such Additional Common Shares had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and
(E) C shall mean the number of such Additional Common Shares issued in such transaction;
provided , howeve r, that in no event shall the Series B Conversion Price be adjusted to an amount less than US$0.255.
(v) Determination of Consideration . For purposes of this Subsection 4(e) , the consideration received by the Corporation for the issue of any Additional Shares of Common Shares shall be computed as follows:
(A) Cash and Property : Such consideration shall:
(I) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(III) in the event Additional Common Shares are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration
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so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors of the Corporation.
(B) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Common Shares deemed to have been issued pursuant to Subsection 4(e)(iii) , relating to Options and Convertible Securities, shall be determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(II) the maximum number of Common Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Common Shares that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series B Conversion Price pursuant to the terms of Subsection 4(e)(iv) above then, upon the final such issuance, the Series B Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without additional giving effect to any adjustments as a result of any subsequent issuances within such period).
(f) Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Series B Original Issue Date effect a subdivision of the outstanding Common Shares, the Series B Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of Common Shares issuable on
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conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of Common Shares outstanding. If the Corporation shall at any time or from time to time after the Series B Original Issue Date combine the outstanding Common Shares, the Series B Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of Common Shares issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of Common Shares outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
(g) Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Shares entitled to receive, a dividend or other distribution payable on the Common Shares in additional Common Shares, then and in each such event the Series B Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series B Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of Common Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of Common Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Common Shares issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series B Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series B Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (ii) that no such adjustment shall be made if the holders of Series B Preferred Shares simultaneously receive a dividend or other distribution of Common Shares in a number equal to the number of Common Shares as they would have received if all outstanding Series B Preferred Shares had been converted into Common Shares on the date of such event.
(h) Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Shares entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of Common Shares in respect of outstanding Common Shares) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series B Preferred Shares shall receive, simultaneously with the distribution to the holders of Common Shares, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have
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received if all outstanding Series B Preferred Shares had been converted into Common Shares on the date of such event.
(i) Adjustment for Merger or Reorganization, etc . Subject to the provisions of Section 2(c) , if there shall occur any reorganization, recapitalization, reclassification, consolidation, amalgamation, statutory arrangement or merger involving the Corporation in which the Common Shares (but not the Series B Preferred Shares) are converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections (f) , (g) or (h) of this Section 4 ), then, following any such reorganization, recapitalization, reclassification, consolidation, amalgamation, statutory arrangement or merger, each Series B Preferred Share shall thereafter be convertible (in lieu of the Common Shares into which it was convertible prior to such event) into the kind and amount of securities, cash or other property which a holder of the number of Common Shares of the Corporation issuable upon conversion of one Series B Preferred Share immediately prior to such reorganization, recapitalization, reclassification, consolidation, amalgamation, statutory arrangement or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Series B Preferred Shares, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Series B Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series B Preferred Shares.
(j) Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Series B Conversion Price pursuant to this Section 4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) trading days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred Shares a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series B Preferred Shares is convertible) and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series B Preferred Shares (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series B Conversion Price then in effect, and (ii) the number of Common Shares and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series B Preferred Shares.
(k) Notice of Record Date . In the event:
(i) the Corporation shall take a record of the holders of its Common Shares (or other shares or securities at the time issuable upon conversion of the Series B Preferred Shares) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other security; or
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(ii) of any capital reorganization of the Corporation, any reclassification of the Common Shares of the Corporation, or any Deemed Liquidation Event; or
(iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series B Preferred Shares a notice specifying, as the case may be, (A) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (B) the effective date on which such reorganization, reclassification, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Shares (or such other shares or securities at the time issuable upon the conversion of the Series B Preferred Shares) shall be entitled to exchange their Common Shares (or such other shares or securities) for securities or other property deliverable upon such reorganization, reclassification, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series B Preferred Shares and the Common Shares. Such notice shall be sent at least five (5) days prior to the record date or effective date for the event specified in such notice.
5. Mandatory Conversion .
(a) Trigger Events . Upon the earlier of: (i) the closing of the sale of Common Shares to the public at a price of not less than US$0.85 per share (subject to appropriate adjustment for stock splits, combinations and other similar recapitalizations affecting such shares), in a firm-commitment underwritten public offering pursuant to a prospectus or an effective registration statement resulting in at least US$20,000,000 of proceeds, net of the underwriting discount and commissions, to the Corporation, (ii) the conversion of 100% of the Corporations outstanding Series A Preferred Shares, and (iii) a date specified by vote or written consent, of the holders of a majority constituting at least 50% of the Series B Preferred Shares then outstanding (the earlier of (i), (ii) and (iii) above being the Mandatory Conversion Date ), each Series B Preferred Share then outstanding shall automatically be converted into such number of fully paid and nonassessable Common Shares calculated by dividing the Series B Original Issue Price by the Series B Conversion Price then in effect on the Mandatory Conversion Date, and such shares may not be reissued by the Corporation. Subject to the Canadian Business Corporations Act and the approval of the TSX, the Series B Preferred Shares that are converted into Common Shares pursuant to this Section 5 shall be entitled to receive any accrued but unpaid Series B Dividends through the Mandatory Conversion Date, calculated in accordance with Section 1 ; and payable to the holders of such Series B Preferred Shares in accordance with Section 5(b) concurrently with the issuance and delivery of certificates representing Common Shares issuable upon such conversion.
(b) Procedural Requirements . All holders of record of Series B Preferred Shares shall be given written notice of the Mandatory Conversion Date and the place designated for mandatory conversion of all such Series B Preferred Shares pursuant to this Section 5 . Upon receipt of such notice, each holder of Series B Preferred Shares shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to
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the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of Common Shares to which such holder is entitled pursuant to this Section 5 . On the Mandatory Conversion Date, all outstanding Series B Preferred Shares shall be deemed to have been converted into Common Shares, which shall be deemed to be outstanding of record, and all rights with respect to the Series B Preferred Shares so converted, including, without limitation, the rights, if any, to receive notices and vote (other than as a holder of Common Shares), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefore, to receive certificates for the number of Common Shares into which such Series B Preferred Shares has been converted, and, if applicable, payment of any accrued but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Mandatory Conversion Date and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series B Preferred Shares, the Corporation shall issue and deliver to such holder, or on his, her or its nominees, a certificate or certificates for the number of full Common Shares issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 4(c) in respect of any fraction of a share of Common Shares otherwise issuable upon such conversion.
(c) Effect of Mandatory Conversion . All Series B Preferred Shares shall, from and after the Mandatory Conversion Date, no longer be deemed to be outstanding and, notwithstanding the failure of the holder or holders thereof to surrender the certificates for such shares on or prior to such time, all rights with respect to such shares shall immediately cease and terminate on the Mandatory Conversion Date, except only the right of the holders thereof to receive Common Shares in exchange therefor and to receive payment of any dividends accrued but unpaid thereon. Such converted Series B Preferred Shares shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for shareholder action) as may be necessary to reduce the authorized number of Series B Preferred Shares accordingly.
6. Redeemed or Otherwise Acquired Shares . Any Series B Preferred Shares which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series B Preferred Shares following redemption.
7. Waiver . Any of the rights, powers, preferences and other terms of the Series B Preferred Shares set forth herein may be waived on behalf of all holders of Series B Preferred Shares by the affirmative written consent or vote of the holders of a majority constituting at least 50% of the Series B Preferred Shares then outstanding.
8. Notices . Any notice required or permitted by the provisions hereto to be given to a holder of Series B Preferred Shares shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation and shall be deemed sent upon such mailing.
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9. Withholding Rights . Notwithstanding anything herein inconsistent with this Section 9, the Corporation is entitled to deduct and withhold from any dividend or other amount payable to any holder of Series B Preferred Shares such amounts as the Corporation is required to deduct and withhold with respect to such payment under any provision of provincial, federal, territorial, state, local or foreign tax law. Any amounts so deducted and withheld will be treated for all purposes hereof as having been paid to the holder of the Series B Preferred Shares in respect of which such deduction and withholding was made.
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Exhibit 3.2
GENERAL BY-LAW
BY-LAW NO.1
A by-law relating generally to the transaction of the business and affairs of Xplore Technologies Corp.
CONTENTS
Section |
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Page |
One |
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- Interpretation |
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2 |
Two |
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- Business of the Corporation |
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3 |
Three |
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- Borrowing and Securities |
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5 |
Four |
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- Directors |
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5 |
Five |
|
- Committees |
|
9 |
Six |
|
- Officers |
|
9 |
Seven |
|
- Protection of Directors, Officers and Others |
|
11 |
Eight |
|
- Shares |
|
12 |
Nine |
|
- Dividends and Rights |
|
13 |
Ten |
|
- Meetings of Shareholders |
|
14 |
Eleven |
|
- Notices |
|
18 |
Twelve |
|
- Effective Date |
|
20 |
BE IT ENACTED AND ITS IS HEREBY ENACTED as a by-law of
Xplore Technologies Corp.
(hereinafter called the Corporation) as follows:
SECTION ONE
INTERPRETATION
1.01 Definitions : In this by-law and all other by-laws of the Corporation, unless the context otherwise specifies or requires:
(a) Act means the Canada Business Corporations Act, and any statute that may be substituted therefore, as from time to time amended;
(b) Appoint includes elect and vice versa;
(c) Articles means the Articles of Incorporation as from time to time amended or restated;
(d) Board means the board of directors of the Corporation;
(e) By-laws means this by-law and all other by-laws of the Corporation form time to time in force and effect;
(f) Cheque includes a draft;
(g) Corporation means the corporation incorporated by the said Certificate of Incorporation under the Act;
(h) Meeting of Shareholders includes an annual meeting of shareholders and a special meeting of shareholders; special meeting of shareholders includes a meeting of any class or classes of shareholders and a special meeting of all shareholders entitled to vote at an annual meeting of shareholders;
(i) Non-business day means Saturday, Sunday and any other day that is a holiday as defined in the Interpretation Act (Canada) as from time to time amended;
(j) Recorded address means in the case of a shareholder his address as recorded in the securities register; and in the case of joint shareholders the address appearing in the securities register in respect of such joint holding or the first address so appearing if there are more than one; and in the case of a director, officer, auditor or member of a committee of the board, his latest address as recorded in the records of the Corporation;
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(k) Resident Canadian means an individual who is
(i) A Canadian citizen ordinarily resident in Canada;
(ii) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or
(iii) a permanent resident within the meaning of the Immigration Ct, 1974 and ordinarily resident in Canada, except as permanent resident who has been ordinarily resident in Canada for more than one year after the time at which he first became eligible to apply for Canadian citizenship;
(l) Signing Officer means, in relation to any instrument, an person authorized to sing the same on behalf of the Corporation by or pursuant to Section 2.04; and
(m) Unanimous Shareholder Agreement means a written agreement among all shareholders of the Corporation or among all such shareholders and a person who is not a shareholder or a written declaration of the beneficial owner of all of the issued shares of the Corporation, that restricts in whole or in part the powers of the directors to manage the business and affairs of the Corporation, as from time to time amended;
Save as aforesaid, words and expressions defined in the Act have the same meanings when used herein. Words importing the singular number include the plural and vice verse; words importing gender include the masculine, feminine and neuter genders; and words importing a person include as individual, partnership, association, body corporate, trustee, executor, administrator, and legal representative.
SECTION TWO
BUSINESS OF THE CORPORATION
2.01 Registered Office: The registered office of the Corporation shall be at the place within Canada from time to time specified in the articles and at such location therein as the board may from time to time determine.
2.02 Corporate Seal: Until changed by the board, the corporate seal of the Corporation shall be in the form impressed hereon.
2.03 Financial Year: Until changed by the board, the financial year of the Corporation shall end on the last day of March 31, in each year.
2.04 Execution of Instrument: Deeds, transfers, assignments, contracts, obligations, certificates and other instruments may be signed on behalf of the Corporation by two persons, one of whom holds the office of Chairman of the Board, Managing Director,
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President, Vice-President or Director and the other of who holds one of the said officers or the office of Secretary, Treasurer, Assistant Secretary or Assistant Treasurer or any other office created by by-laws or by the board. In addition, the board of the said two persons may from time to time direct the manner in which and the person or persons by whom any particular instrument or class of instruments may or shall be signed. Any signing officer may affix the corporate seal to any instrument requiring the same.
2.05 Banking Arrangements: The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefore, shall be transacted with such banks, trust companies or other bodies corporate or organizations as may from time to time be designated by or under the authority of the board. Such banking business or any part thereof shall be transacted under such agreements, instructions and delegations of powers as the board may from time to time prescribe.
2.06 Voting Rights in Other Bodies Corporate: The signing officers of the Corporation may execute and deliver proxies and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments shall be in favour of such persons as may be determined by the officers executing or arranging for the same. In addition, the board may from time to time direct the manner in which and the persons by whom any particular voting rights or class of voting rights may or shall be exercised.
2.07 Divisions: The board may cause the business and operations of the Corporation or any part thereof to be divided into one or more divisions upon such basis, including without limitation, types of business or operations, geographical territories, product lines or goods or services as the board may consider appropriate in each case. From time to time the board or, if authorized by the board, the chief executive officer may authorize, upon such basis as may be considered appropriate in each case:
(a) Sub-division and Consolidation: The further division of the business and operations of any such division into sub-units and the consolidation of the business and operations of any such divisions and sub-units;
(b) Name: The designation of any such division or sub-unit by, and the carrying on of the business and operations of any such division or sub-unit under, a name other than the name of the Corporation; provided that the Corporation shall set out its name in legible characters in all contracts, invoices, negotiable instruments and orders for goods or services issued or made by or on behalf of the Corporation; and
(c) Officers: The appointment of officers for any such division or sub-unit, the determination of their powers and duties, and the removal of any such officer so appointed without prejudice to such officers rights under any employment contract or in law, provided that any such officers shall not, as such be officers of the Corporation.
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SECTION THREE
BORROWING AND SECURITIES
3.01 Borrowing power : Without limiting the borrowing powers of the Corporation as set forth in the Act, but subject to the articles and any unanimous shareholder agreement, the board may from time to time on behalf of the Corporation, without authorization of the shareholders:
(a) borrow money upon the credit of the corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness or guarantee of the Corporation, whether secured or unsecured;
(c) to the extent permitted by the Act, give a guarantee on behalf of the Corporation to secure performance of any present or future indebtedness, liability or obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal, moveable or immovable, property of the Corporation including book debts, rights, powers, franchises and undertakings, to secure any such bonds, debentures, notes or other evidences of indebtedness or guarantee or any other present or future indebtedness, liability or obligation of the corporation.
3.02 Delegation The board may from time to time delegate to a committee of the board, a director or an officer of the Corporation or any other person as may be designated by the board all or any of the powers conferred on the board by section 3.01 or by the Act to such extent and in such manner as the board may determine at the time of such delegation.
SECTION FOUR
DIRECTORS
4.01 Number of Directors : Until changed in accordance with the Act, the board shall consist of not fewer than the minimum number of directors provided in the articles.
4.02 Qualification : No person shall be qualified for election as a director
if he is less than 18 years of age;
if he is of unsound mind and has been so found by a court in Canada or elsewhere;
if he is not an individual; or
if he has the status of a bankrupt.
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A director need not be a shareholder. A majority of the directors shall be resident Canadians.
4.03 Election and Term . The election of directors shall take place at each annual meeting of shareholders and all the director then in office shall retire, but, if qualified, shall be eligible for re-election. The number of directors to be elected at any such meeting shall be the number of directors then in office unless the directors or the shareholders otherwise determine. Where the shareholders adopt an amendment to the articles to increase the number or minimum number of directors, the shareholders may, at the meeting at which they adopt the amendment, elect the additional number of directors authorized by the amendment. The election shall be by resolution. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected.
4.04 Removal of Directors . Subject to the Act, the shareholders may by resolution passed at a meeting specially called for such purpose remove any director from office and the vacancy created by such removal may be filled at the same meeting, failing which it may be filled by the board.
4.05 Vacation of Office . A director ceases to hold office when
he dies;
he is removed from office by the shareholders;
he ceases to be qualified for election as a director; or
his written resignation is sent or delivered to the Corporation; or, if a time is specified in such resignation, at the time so specified, whichever is later.
4.06 Subject to the Act, a quorum of the board may fill a vacancy in the board, except a vacancy resulting from an increase in the number of minimum number of directors or from a failure of the shareholders to elect the number or minimum number of directors.
4.07 Action by the Board . Subject to any unanimous shareholder agreement, the board shall manage the business and affairs of the Corporation. The powers of the board may be exercised at a meeting (subject to sections 4.08 and 4.09) at which a quorum is present or by resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the board. Where there is a vacancy in the board, the remaining directors may exercise all the powers of the board so long as a quorum remains in office. Where the Corporation has only one director, that director may constitute a meeting.
4.08 Canadian Majority at Meetings . The board shall not transact business at a meeting, other than filling a vacancy in the board, unless a majority of the directors present are resident Canadians, except where
(a) a resident Canadian director who is unable to be present approves in writing or by telephone or other communications facilities the business transacted at the meeting; and
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(b) a majority of resident Canadians would have been present had that director been present at the meeting.
4.09 Meeting by Telephone : If all the directors of the Corporation consent, a director may participate in a meeting of the board or of a committee of the board by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear such other, and a director participating in such a meeting by such means is deemed to be present at the meeting. Any such consent shall be effective whether given before or after the meeting to which it relates and may be given with respect to all meetings of the board and of committees of the board.
4.10 Place of Meetings : Meetings of the board may be held at any place in or outside Canada.
4.11 Calling of Meetings : Meetings of the board shall be held from time to time at such time and at such place as the board, the chairman of the board, the managing director, the president or any two directors may determine.
4.12 Notice of Meeting . Notice of the time and place of each meeting of the board shall be given in the manner provided in Section Eleven to each director not less than 48 hours before the time when the meeting is to be held. A notice of the meeting of directors need not specify the purpose of or the business to be transacted at the meeting except where the Act requires such purpose or business to be specified including, if required by the Act, any proposal to:
(a) submit to the shareholders any question or matter requiring approval of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve a take-over bid circular or directors circular;
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
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4.13 First Meeting of New Board : Provided a quorum of directors is present, such newly elected board may without notice hold its first meeting immediately following the meeting of shareholders at which such board is elected.
4.14 Adjourned Meeting : Notice of an adjourned meeting of the board is not required if the time and place of the adjourned meeting is announced at the original meeting.
4.15 Regular Meeting : The board may appoint a day or days in any month or months for regular meetings of the board at a place and hour to be named. A copy of any resolution of the board fixing the place and time of such regular meetings shall be sent to each director forthwith after being passed, but no other notice shall be required for any such regular meeting except where the Act requires the purpose thereof or the business to be transacted thereat to be specified.
4.16 Chairman : The chairman of any meeting of the board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting: chairman of the board, managing director or president. If no such officer is present, the directors present shall choose one of their number to be chairman.
4.17 Quorum : Subject to section 4.08, the quorum for the transaction of business at any meeting of the board shall consist of 1 director or such greater number of directors as the board may from time to time determine.
4.18 Votes to Govern : At all meetings of the board every question shall be decided by a majority of the votes cast on the question. In case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote.
4.19 Conflict of Interest : A director or officer who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or proposed material contract with the Corporation shall disclose the nature and extent of his interest at the time and in the manner provided by the Act. Any such contract or proposed contract shall be referred to the board or shareholders for approval even if such contract is one that in the ordinary course of the corporations business would not require approval by the board or shareholders. Such a director shall not vote on any resolution to approve the same except as provided by the Act.
4.20 Remuneration and Expenses : Subject to any unanimous shareholder agreement, the directors shall be paid such remuneration for their services as the shareholders may from time to time determine. The directors shall also be entitled to be reimbursed for traveling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity and receiving remuneration therefore.
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SECTION FIVE
COMMITTEES
5.01 Committees of the Board : The board may appoint one or more committees of the board, however designated, and delegate to any such committee any of the powers of the board, however designated, and delegate to any such committee any of the powers of the board except those which pertain to items which, under the Act, a committee of the board has no authority to exercise. A majority of the members of any such committee shall be resident Canadians.
5.02 Transaction of Business : Subject to the provisions of section 4.09, the powers of a committee of the board may be exercised by a meeting at which a quorum is present or by resolution in writing signed by all members of such committee who would have been entitled to vote on that resolution at a meeting of the committee. Meetings of such committee may be held at any place in or outside Canada.
5.03 Advisory Bodies : The board may from time to time appoint such advisory bodies as it may deem advisable.
5.04 Procedure : Unless otherwise determined by the board, each committee and advisory body shall have power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedures.
SECTION SIX
OFFICERS
6.01 Appointment : Subject to any unanimous shareholder agreement, the board may from time to time appoint a president, one or more vice-presidents (to which title may be added words indicating seniority or function), a secretary, a treasurer and such other officers as the board may determine, including one or more assistants to any of the officers so appointed. the board may specify the duties of an, in accordance with this by-law and subject to the Act, delegate to such officers powers to manage the business and affairs of the Corporation. Subject to sections 6.02 and 6.03, an officer may but need not be a director and one person may hold more than one office.
6.02 Chairman of the Board : The board may from time to time also appoint a chairman of the board who shall be a director. If appointed, the board may assign to him any of the powers and duties that are by any provisions of this by-law assigned to the managing director or to the president; and he shall have such other powers and duties as the board may specify.
6.03 Managing Director : The board may from time to time also appoint a managing director who shall be a resident Canadian and a director. If appointed, he shall be the chief executive officer and, subject to the authority of the board, shall have general supervision of the business and affairs of the Corporation; and he shall have such other powers and duties as the board may specify. During the absence or disability of the
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president, or if no president has been appointed, the managing director shall also have the powers and duties of that office.
6.04 President : The president shall be the chief operating officer and, subject to the authority of the board, shall have general supervision of the business of the Corporation and shall have such other powers and duties as the board may specify. During the absence or disability of the managing director, or if no managing director has been appointed, the president shall also have the powers and duties of that office.
6.05 Vice-President : A vice-president shall have such powers and duties as the board or the chief executive officer may specify.
6.06 Secretary : The secretary shall attend and be the secretary of all meetings of the board, shareholders and committees of the board and shall enter or cause to be entered in records kept for that purpose minutes of all proceedings thereat; he shall give or cause to be given, as and when instructed, all notices to shareholders, directors, officers, auditors and members of committees of the board; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and of all books, papers, records, documents and instruments belonging to the Corporation, except when some other office or agent has been appointed for that purpose; and he shall have such other powers and duties as the board or the chief executive officer may specify.
6.07 Treasurer : The treasurer shall keep proper accounting records in compliance with the Act and shall be responsible for the deposit of money, the safekeeping of securities and the disbursement of the funds of the Corporation; he shall render to the board whenever required an account of all his transactions as treasurer and of the financial position of the Corporation; and he shall have such other powers and duties as the board or the chief executive officer may specify.
6.08 Powers and Duties of Other Officers : The powers and duties of all other officers shall be such as the terms of their engagement call for or as the board or the chief executive officer may specify. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board or the chief executive officer otherwise directs.
6.09 Variation of Powers and Duties : The board may from time to time and subject to the provisions of the Act, vary, add to or limit the powers and duties of any officer.
6.10 Term of Office : The board, in its discretion, may remove any officer of the Corporation, without prejudice to such officers rights under any employment contract or in law. Otherwise each office appointed by the board shall hold office until his successor is appointed, or until his earlier resignation.
6.11 Conflict of Interest : An officer shall disclose his interest in any material contract or proposed material contract with the Corporation in accordance with section 4.19.
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6.12 Agents and Attorneys : The Corporation, by or under the authority of the board, shall have power from time to time to appoint agents or attorneys for the Corporation in or outside Canada with such powers (including the power to sub-delegate) of management, administration or otherwise as may be thought fit.
SECTION SEVEN
PROTECTION OF DIRECTORS, OFFICERS AND OTHER
7.01 Limitation of Liability : Every director and officer of the Corporation in exercising his powers and discharging his duties shall act honestly and in good faith with a view to the best interests of the Corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Subject to the foregoing, no director or officer shall be liable for the acts, receipts, neglects or defaults of any other director, officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Corporation shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortuous acts of any person with whom any of the moneys, securities or affects of the Corporation shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune which shall happen in the execution of the duties of his office or in relation thereto; provided that nothing herein shall relieve any director or officer from the duty to act in accordance with the Act and the regulations thereunder or from liability for any breach thereof.
7.02 Indemnity : Subject to the Act, the corporation shall indemnify a director or officer, a former director or officer, or a person who acts or acted at the Corporations request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses and legal fees, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the Corporation or such body corporation, if
(a) he acted honestly and in good faith with a view to the best interest of the Corporation, and
(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.
The Corporation shall also indemnify such person in such other circumstances as the Act permits or requires. Nothing in this by-law shall limit the right of any person entitled to indemnity to claim indemnity apart from the provisions of this by-law.
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7.03 Insurance : Subject to the Act, the Corporation may purchase and maintain insurance for the benefit of any person referred to in section 7.02 against any liability incurred by him in his capacity as a director or officer of the Corporation or of another body corporate where he acts or acted in that capacity at the Corporations request.
SECTION EIGHT
SHARES
8.01 Allotment of Shares : Subject to the Act, the articles and any unanimous shareholder agreement, the board may from time to time allot or grant options to purchase the whole or any part of the authorized and unissued shares of the Corporation at such times and to such persons and for such consideration as the board shall determine, provided that no share shall be issued until it is fully paid as provided by the Act.
8.02 Commissions : The board may from time to time authorize the Corporation to pay a reasonable commission to any person in consideration of his purchasing or agreeing to purchase shares of the Corporation, whether from the Corporation or from any other person, or procuring or agreeing to procure purchasers for any such shares.
8.03 Registration of Transfer : Subject to the Act, no transfer of a share shall be registered in a securities register except upon presentation of the certificate representing such share with an endorsement which complies with the Act made thereon or delivered therewith duly executed by an appropriate person as provided by the Act, together with such reasonable assurance that the endorsement is genuine and effective as the board may from time to time prescribe, upon payment of all applicable taxes and any reasonable fees prescribed by the board upon compliance with such restrictions on transfer as are authorized by the articles and upon satisfaction of any lien referred to in section 8.10.
8.04 Transfer Agents and Registrars : The board may from time to time appoint one or more agents to maintain, in respect of each class of shares o the Corporation issued by it, a central securities register and one or more branch securities registers. Such a person may be designated as transfer agent or registrar according to his functions and one person may be designated both registrar and transfer agent. The board may at any time terminate such appointment.
8.05 Non-recognition of Trusts : Subject to the Act, the Corporation may treat the registered holder of any share as the person exclusively entitled to vote, to receive notices, to receive any dividend or other payments in respect of the share, and otherwise to exercise all rights and powers of an owner of the share.
8.06 Share Certificates : Every holder of one or more shares of the Corporation shall be entitled, at his option, to a share certificate, or to a non-transferable written certificate of acknowledgement of his right to obtain a share certificate, stating the number and class or series of shares held by him as shown on the securities register. Such certificates shall be in such form as the board may from time to time approve. Any such certificate shall be signed in accordance with section 2.04 and need not be under the corporate seal; provided that, unless the board otherwise determines, certificates in respect of which a transfer
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agent and/or registrar has been appointed shall not be valid unless countersigned by or on behalf of such transfer agent and/or registrar. the signature of one of the signing officers or, in the case of a certificate which is not valid unless countersigned by or on behalf of a transfer agent and/or registrar, and in the case of certificate which does not require a manual signature under the Act, the signatures of both signing officers, may be printed or mechanically reproduced in facsimile thereon. Every such facsimile signature shall for all purposes be deemed to be the signature of the officer whose signature it reproduces and shall be binding upon the Corporation. A certificate executed as aforesaid shall be valid notwithstanding that one or both of the officers whose facsimile signature appears thereon no longer holds office at the date of issue of the certificate.
8.07 Replacement of Share Certificates : The board or any officer or agent designated by the board may in its or his discretion direct the issue of a new share or other such certificate in lieu of and upon cancellation of a certificate that has been mutilated or in substitution for a certificate claimed to have been lost, destroyed or wrongfully taken on payment of such reasonable fee and on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the board may from time to time prescribe, whether generally or in any particular case.
8.08 Joint Holders : If two or more person are registered as joint holders of any share, the Corporation shall not be bound to issue more than one certificate in respect thereof, and delivery of such certificate to one or such persons shall be sufficient delivery to all of them. Any one of such persons may give effectual receipts for the certificate issued in respect thereof or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such share.
8.09 Deceased Shareholders : In the event of the death of a holder, or one of the joint holders, of any share, the Corporation shall not be required to make any entry in the securities register in respect thereof or to make any dividend or other payments in respect thereof except under production of all such documents as may be required by law and upon compliance with the reasonable requirements of the Corporation and its transfer agents.
8.10 Lien for Indebtedness : If the articles provide that the Corporation shall have a lien on shares registered in the name of a shareholder indebted to the Corporation, such lien may be enforced, subject to the articles and to any unanimous shareholder agreement, by the sale of shares thereby affected or by any other action, suit, remedy or proceeding authorized or permitted by law or by equity and, pending such enforcement, the corporation may refuse to register a transfer of the whole or any part of such shares.
SECTION NINE
DIVIDENDS AND RIGHTS
9.01 Dividends : Subject to the Act, the board may from time to time declare dividends payable to the shareholders according to their respective rights and interest in the Corporation. Dividends may be paid in money or property or by issuing fully paid shares of the Corporation.
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9.02 Dividend Cheques : A dividend payable in money shall be paid by cheque to the order of such registered holder of shares of the class or series in respect of which it has been declared and mailed by prepaid ordinary mail to such registered holder at his recorded address, unless such holder otherwise direct. In the case of joint holders of the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all of such joint holders and mailed to them at their recorded address. the mailing of such cheque as aforesaid, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold.
9.03 Non-receipt of Cheques : In the event of non-receipt of any dividend cheque by the person to whom it is sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in any particular case.
9.04 Record Data for Dividends and Rights : The board may fix in advance a date, preceding by not more than 50 days the date for the payment of any dividend or the date for the issue of any warrant or other evidence of the right to subscribe for securities of the Corporation, as a record date for the determination of the persons entitled to receive payment of such dividend or to exercise the right to subscribe for such securities, and notice of any such record date in the manner provided by the Act. If no record date is so fixed, the record date for the determination of the persons entitled to receive payment of any dividend or to exercise the right to subscribe for securities of the corporation shall be at the close of business on the day on which the resolution relating to such dividend or right to subscribe is passed by the board.
9.05 Unclaimed Dividends : Any dividend unclaimed after a period of 6 years from the date on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation.
SECTION TEN
MEETING OF SHAREHOLDERS
10.01 Annual Meetings : The annual meeting of shareholders shall be held at such time in each year and, subject to section 10.03, at such place as the board, the chairman of the board, the managing director or the president may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing an auditor and for the transaction of such other business as may properly be brought before the meeting.
10.02 Special Meetings : The board, the chairman of the board, the managing director or the president shall have the power to call a special meeting of shareholders at any time.
10.03 Place of Meetings . Meetings of shareholders shall be held at the registered office of the Corporation or elsewhere in the municipality in which the registered office is
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situate or, if the board shall so determine, at some other place in Canada or, if all the shareholders entitled to vote at the meeting so agree, at some place outside Canada.
10.04 Notice of Meetings : Notice of the time and place of each meeting of shareholders shall be given in the manner provided in Section Eleven not less than 21 nor more than 50 days before the date of the meeting to each director, to the auditor, and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditors report, election of directors and reappointment of the incumbent auditor shall state the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and shall state the text of any special resolution to be submitted to the meeting.
10.05 List of Shareholders Entitled to Notice : For every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares held by each shareholder entitled to vote at the meeting. If a record date for the meeting is fixed pursuant to section 10.06, the shareholders listed shall be those registered at the close of business on such record date. If no record date is fixed, the shareholder listed shall be those registered at the close of business on the day immediately preceding the day on which notice of the meeting is given or, where no such notice is given, on the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where the central securities register is maintained and at the meeting for which the list was prepared. Where a separate list of shareholders has not been prepared, the names of persons appearing in the securities register at the requisite time as the holder of one or more shares carrying the right to vote at such meeting shall be deemed to be a list of shareholders.
10.06 Record Data for Notice : The board may fix in advance a date, preceding the date of any meeting of shareholders by not more than 30 days and not less than 21 days, as a record date for the determination of the shareholders entitled to notice of the meeting, and notice of any such record data shall be given not less than 7 days before such record date, by newspaper advertisement in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the shareholders entitled to receive notice of the meeting shall be at the close of business on the day immediately preceding the day on which the notice is given, or, if no notice is given, the date on which the meeting is held.
10.07 Meetings Without Notice : A meeting of shareholders may be held without notice at any time and place permitted by the Act
(a) if all the shareholders entitled to vote thereat are present in person or duly represented or if those not present or represented waive notice of or otherwise consent to such meeting being held, and
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(b) if the auditors and directors are present or waive notice of or otherwise consent to such meeting being held; so long as such shareholders, auditors or directors present are not attending for the express purpose of objecting to the transaction of any business on the rounds that the meeting is not lawfully called.
At such a meeting any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or duly represented, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to the meeting being held at such place.
10.08 Chairman, Secretary and Scrutineers : The chairman of any meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present at the meeting; managing director, president, chairman of the board, or a vice-president who is a shareholder. If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their number to be chairman. If the secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholder, may be appointed by a resolution or by the chairman with the consent of the meeting.
10.09 Persons Entitled to be Present : The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditor of the corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting.
10.10 Quorum : Subject to the Act, a quorum for the transaction of business at any meeting of shareholders shall be one person present in person, being a shareholder entitled to vote thereat or a duly appointed proxyholder or representative for a shareholder so entitled. If a quorum is present at the opening of any meeting of shareholders, the shareholder present or represented may proceed with the business of the meeting notwithstanding that a quorum is not present throughout the meeting. If a quorum is not present at the opening of the meeting of shareholders, the shareholders present or represented may adjourn the meeting to a fixed time and place but may not transact any other business.
10.11 Right to Vote : Every person name in the list referred to in section 10.05 shall be entitled to vote the shares shown thereon opposite his name at the meeting to which such list relates, except to the extent that
(a) where the Corporation has fixed a record date in respect of such meeting, such person has transferred any of his shares after such record date, or where the Corporation has not fixed a record date in
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respect of such meeting, such person has transferred any of his shares after the date on which such list is prepared, and
(b) the transferee, having produced properly endorsed certificates evidencing such shares or having otherwise established that he owns such shares, has demanded not later than 10 days before the meeting that his name be included in such list.
In any such excepted case the transferee shall be entitled to vote the transferred shares at such meeting.
10.12 Proxyholders and Representatives ; Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, to attend and act as his representative at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the shareholder or his attorney and shall conform with the requirements of the Act.
Alternatively, every such shareholder which is a body corporate or association may authorize by resolution of its director or governing body an individual to represent it at a meeting of shareholders and such individual may exercise on the shareholders behalf all the powers it could exercise if it were an individual shareholder. The authority of such an individual shall be established by depositing with the corporation a certified copy of such resolution, or in such other manner as may be satisfactory to the secretary of the Corporation or the chairman of the meeting. Any such proxyholder or representative need not be a shareholder.
10.13 Time for deposit of Proxies : The board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or if, no such time having been specified in such notice, it has been received by the secretary of the Corporation, or by the chairman of the meeting or any adjournment thereof prior to the time of voting.
10.14 Joint Shareholders : If two or more person hold shares jointly, any one of them present in person or duly represented at a meeting of shareholders may, in the absence of the other or others, vote the shares; but if two or more of those persons are present in person or represented and vote, they shall vote as one the shares jointly held by them.
10.15 Votes to Govern : At any meeting of shareholders every question shall, unless otherwise required by the articles or by-laws or by law, be determined by a majority of the votes cast on the question. In case of an equality of votes either upon a show of hands or upon a poll, the chairman of the meeting shall be entitled to a second or casting vote.
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10.16 Show of Hands . Subject to the Act, any question at a meeting of shareholders shall be decided by a show of hands, unless a ballot thereon is required or demanded as hereinafter provided, upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to this affect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of the shareholders upon the said question.
10.17 Ballots : On a question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, the chairman may require a ballot or any person who is present and entitled to vote on such question at the meeting may demand a ballot. A ballot so required or demanded shall be taken in such manner as the chairman shall direct. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles, and the result of the ballot so taken shall be the decision of the shareholders upon said question.
10.18 Adjournment : A chairman at a meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn the meeting from time to time and from place to place. If a meeting of shareholders is adjourned for less than 30 days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that is adjourned. Subject to the Act, if a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting shall be given as for an original meeting.
10.19 Resolution in Writing : A resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders unless a written statement with respect to the subject matter of the resolution is submitted by a director or the auditor in accordance with the Act.
10.20 Only One Shareholder : Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or duly represented constitutes a meeting.
SECTION ELEVEN
NOTICES
11.01 Method of Giving Notices : Any notice (which term includes any communication or document) to be given (which terms includes sent, delivered or served) pursuant to the Act, the regulations thereunder, the articles, the by-laws or otherwise to a shareholder,
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director, officer, auditor or member of a committee of the board shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary or air mail or if sent to him at his recorded address by any means of prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice to mailed shall be deemed to have been given when deposited in a post office or public letter box; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The secretary may change or cause to be changed the recorded address of any shareholder, director, officer, auditor or member of a committee of the board in accordance with any information believed by him to be reliable.
11.02 Notice of Joint Shareholders : If two or more persons are registered as joint holders of any share, any notice may be addressed to all of such joint holders but notice addressed to one of such persons shall be sufficient notice to all of them.
11.03 Computation of Time : In computing the date when notice must be given under any provision requiring a specified number of days notice of any meeting or other event, the date of giving the notice shall be excluded and the date of the meeting or other event shall be included.
11.04 Undelivered Notices : If any notice given to a shareholder pursuant to section 11.01 is returned on three consecutive occasions because he cannot be found, the Corporation shall not be required to give any further notices to such shareholder until he informs the Corporation in writing of his new address.
11.05 Omissions and Errors : The accidental omission to give any notice to any shareholder, director, officer, auditor or member of committee of the board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon.
11.06 Persons Entitled by Death or Operation of Law : Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholder from whom he derives his title to such share prior to his name and address being entered on the securities register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitled prescribed by the Act.
11.07 Waiver of Notice : Any shareholder, proxyholder, other person entitled to attend a meeting of shareholders, director, officer, auditor or member of a committee of the board may at any time waive any notice, or waive or abridge the time for any notice, required to be given to him under the Act, the regulations thereunder, the articles, the by-laws or
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otherwise and such waiver or abridgement, whether given before or after the meeting or other even of which notice is required to be given, shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholder or of the board or a committee of the board which may be given in any manner.
SECTION TWELVE
EFFECTIVE DATE
12.01 Effective Date : This by-law shall come into force when made by the board in accordance with the Act.
12.02 Repeal : All previous by-laws of the Corporation, are repealed as of the coming into force of this by-law. Such repeal shall not affect the pervious operation of any by-law so repealed or affect the validity of any act done or right, privilege, obligation or liability acquired or incurred under, or the validity of any contract or agreement made pursuant to, any such by-law prior to its repeal. All Officers and person acting under any by-law so repealed shall continue to act as if appointed under the provisions of this by-law and all resolutions of the shareholders or the board or a committee of the board with continuing affect passed under any repealed by-law shall continue good and valid except to the extent inconsistent with this by-law shall continue good and valid except to the extent inconsistent with this by-law and until amended or repealed.
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EXHIBIT 1
AMENDMENT TO BY-LAW
BE IT RESOLVED THAT:
1. Section 4.02 of the by-law of the Corporation regarding the qualification of directors, be and the same is hereby REPEALED AND REPLACED WITH the following paragraph:
4.02 Qualification. No person shall be qualified for election as a director if that person: (a) is less than eighteen years of age; (b) is of unsound mind and has been so found by a court in Canada or elsewhere; (c) is not an individual; or (d) has the status of bankrupt. A director need not be a shareholder. At least twenty-five percent of the directors must be resident Canadians. If there are less than four directors, at least one director must be a resident Canadian
2. Section 4.07 of the by-law of the Corporation regarding the duties of the board of directors, be and the same is hereby REPEALED AND REPLACED WITH the following paragraph:
4.07 Action by the Board. Subject to any unanimous shareholder agreement, the board shall manage, or supervise the management of, the business and affairs of the corporation. The powers of the board may be exercised at a meeting (subject to sections 4.08 and 4.09) at which a quorum is present or by resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the board. Where there is a vacancy in the board, the remaining directors may exercise all the powers of the board so long as a quorum remains in office. Where the Corporation has only one director, that director may constitute a meeting.
3. Section 4.08 of the by-law of the Corporation regarding the transaction of business at meetings of the board of directors, be and the same is hereby REPEALED AND REPLACED WITH the following paragraph:
4.08 Transaction of Business. The board shall not transact business at a meeting, other than filling a vacancy of the board, unless at least twenty-five percent of the directors present are resident Canadians or, if the corporation has less than four directors, at least one of the directors present is a resident Canadian. Notwithstanding the foregoing, the board may transact business at a meeting of director where the number of resident Canadian directors, required under that subsection, is not present if (a) a resident Canadian director who is unable to be present approves in writing, or by telephonic, electronic or other communication facility, the business transacted at the meeting; and (b) the required number of resident Canadian directors would have been present had that director been present at the meeting.
4. Section 4.09 of the by-law of the Corporation regarding the participation of directors in meetings of the board of directors, be and the same is hereby REPEALED AND REPLACED WITH the following paragraph:
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4.09 Participation. A director may, and if all the directors of the corporation consent, participate in a meeting of directors or of a committee of directors by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting. A director participating in such a meeting by such means is deemed to be present at that meeting.
5. The by-law of the Corporation is amended by adding the following Section 10.21:
Section 10.21 Proxies. To the extent permitted by the Act, the directors may from time to time pass resolutions regarding the lodging of instruments appointing a proxyholder at some place or places other than the place at which a meeting or adjourned or postponed meeting of shareholders is to be held and for particulars of such instruments to be sent in writing or otherwise communicated by such electronic means that is capable of producing a written copy or report before the meeting or adjourned meeting to the Corporation or any agent of the Corporation appointed for the purpose of receiving such particulars, recognizing any electronic method of indicating assent to such an instrument as proper execution or authorization by the maker thereof, and providing that instruments appointing a proxy so lodged may be voted upon as though the instruments themselves were produced at the meeting or adjourned meeting and votes given in accordance with such resolutions shall be valid and shall be counted.
The chairman of any meeting of shareholders may, subject to any resolutions made as aforesaid and applicable law, in his or her discretion accept written or electronic communication that is capable of producing a written copy or report, as to the authority of anyone claiming to vote on behalf of and to represent a shareholder notwithstanding that no instrument of proxy conferring such authority has been lodged with the Corporation, and any votes given in accordance with such written or electronic communication accepted by the chairman of the meeting shall be valid and shall be counted.
6. Section 11.01 of the by-law of the Corporation regarding the method of giving notices, be and the same is hereby REPEALED AND REPLACED WITH the following paragraph:
11.01 Method of Giving Notices. Any notice, communication or document to be given, sent, delivered or served pursuant to the Act, the regulations thereunder, the articles, these by-laws or otherwise, to a shareholder, director, officer or auditor shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to the persons recorded address or if mailed to the person at the persons recorded address by prepaid ordinary or air mail or if sent to the person at the persons recorded address by any means of prepaid transmitted or recorded communication, including facsimile, telex, telegram or other electronic means that is capable of producing a written copy. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice so mailed shall be deemed to have been given when deposited in a post office or public letter box, and a notice so sent by
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any means of transmitted or electronic communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch.
7. Such repeals shall not affect any right, privilege, duty or obligation accrued under the said by-law of the Corporation up to the date hereof.
8. Any officer of the Corporation is authorized and directed to do all such acts and things and to execute or cause to be executed (whether under the corporate seal of the Corporation or otherwise) all such instruments, agreements and other documents as in such officers opinion may be necessary or desirable to give effect to the foregoing.
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Exhibit 10.1
TURNKEY DESIGN AND MANUFACTURING AGREEMENT
THIS TURNKEY DESIGN AND MANUFACTURING AGREEMENT ( Agreement ), effective this 1 day of July 2003 (the Effective Dat e ), is made and entered into by and between XPLORE TECHNOLOGIES CORPORATION of AMERICA and its subsidiaries and affiliates ( XPLORE ), a Delaware corporation having its principal place of business at 14000 Summit Drive, Suite 900, Austin, Texas 78728 U.S.A. and WISTRON CORPORATION ( WISTRON ), and its subsidiaries and affiliates, a Taiwan corporation having its principal place of business at 21F, 88, Sec. 1, Hsin Tai Wu Rd., Hsichih, Taipei Hsien 221, Taiwan, R.O.C.
W I T N E S E T H :
WHEREAS , XPLORE is proceeding to develop ruggedized mobile PC computer tablet(s) for its next generation of Products (as defined herein); and
AND WHEREAS WISTRON desires to provide to XPLORE design, manufacturing and support services in respect of the Products and sell to XPLORE the Products;
NOW, THEREFORE , intending to be legally bound hereby, XPLORE and WISTRON agree as follows.
1. DEFINITIONS
Defined terms used in this Agreement shall have the meaning set forth below:
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2. PURPOSE OF THIS AGREEMENT
This Agreement sets forth the terms and conditions for the design, development, pre-production manufacturing engineering, prototype, first article manufacturing, and finished product volume manufacturing and services related to Products.
3. SERVICES AND PAYMENTS FOR SERVICES
As set forth in Exhibit D, XPLORE shall reimburse WISTRON as defined within the milestone schedule in the SOW, WISTRON guarantees that the Product meets specifications and the criteria set forth in the PRD.
A complete Data Package as specified in Exhibit H must he delivered in its specified format to XPLORE at production release.
In the event XPLORE fails to deliver the Specifications for the Product in accordance with the PRD in Exhibit C, or makes changes to the Specifications after the PRD is
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locked as defined by the milestone schedule in the SOW, WISTRON may negotiate with XPLORE a new delivery schedule and associated costs for delivery of the Design Services.
The Parties agree that Normal and Customary Actions apply.
Unless otherwise agreed upon by the parties, within thirty (30) days from the receipt by XPLORE or WISTRON of any Deliverable pursuant to Exhibit A or Exhibit C, XPLORE and WISTRON shall provide written notice to each other of any failure of any Deliverable which deviates from the Specifications. WISTRON and XPLORE shall review the deviations and WISTRON will use commercially reasonable efforts to correct any nonconformity with the Specifications and provide the other Party with a revised deliverable within thirty (30) days. If after a subsequent 30 days, the WISTRON deliverable does not conform to specifications, then the Parties will mutually discuss and agree on a discount plan for the associated milestone payment as specified in Exhibit D.
Notwithstanding the above provisions, if WISTRON does not achieve Acceptance of Design Deliverables as specified above, then a material breach would have occurred due to WISTRONS non-performance and the provisions of Section 12.4 apply.
Payment for Design Services and Manufacturing Services will be made as set forth in Exhibit D. The Parties agree that the NRE and tooling payment schedules represent not to exceed prices. Purchase orders for the agreed upon Design Services and Manufacturing Services shall be made by XPLORE to WISTRON in US Dollars. WISTRON will invoice XPLORE for the Design Services and Manufacturing Services milestones in Exhibit D. The payments will be made via wire transfer to WISTRON specified bank account within five (5) business days after XPLORE acceptance of the milestone and receipt of invoice(s).
XPLORE has the right to review all tooling costs, evaluate and approve all tooling vendors, and review and approve all tooling materials used as it relates to the Product. WISTRON agrees to provide open book pricing to XPLORE for all tooling elements as referenced in Exhibit D for the Products, including all cost savings. Likewise, tooling costs greater than items referenced in the tooling schedule in Exhibit D will require approval in writing from XPLORE before WISTRON produces said tool. All tooling associated with the production of Products either at WISTRON or its subcontractor(s) will be the property of XPLOREs.
4. TERMS OF PURCHASE OF PRODUCTION PRODUCTS BY XPLORE
All purchases of Products by XPLORE from WISTRON during the Term shall be subject to the terms and conditions of this Agreement unless agreed to in writing by both Parties.
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Throughout the Term, the Purchase Price for any Product and Accessories purchased hereunder shall be as set forth in Exhibit E attached hereto. For the first twelve (12) months following Product release to volume production, the Purchase Price will remain fixed for each product configuration but will be further reduced by volume pricing incentives as specified in Exhibit E to establish the actual Purchase Price for the next month of production. Production volumes are based on the total number of Product units shipped not by specific product configurations. Beginning with the second year and subsequent years of volume production for the Product. The Purchase Price automatically includes applicable cost reduction defined in Section 7.9 plus the application of the volume incentives as specified in Exhibit E.
The parties agree to review the volume incentive schedule at mutually agreeable intervals, but at a minimum once per year, for the application to the Purchase Price. It is further understood between the Parties that the formulation of volume incentive discounts is an equitable combination of actual cost reduction plus economic benefits of volume production quantities for the establishment of an updated volume incentive schedule.
WISTRON shall make available to XPLORE a cost table listing which includes its major components and assemblies for each Product so that XPLORE can assist in cost reduction efforts defined in Section 7.9 for the Products. In addition, WISTRON will share and help implement its detailed action plans for product cost reduction efforts.
Full payment of the Purchase Price for each Product or Accessories (including any freight, taxes or other applicable costs initially paid by WISTRON but to be borne by XPLORE) shall be made by XPLORE to WISTRON in United States dollars, net thirty (30) calendar days from XPLOREs receipt of an invoice from WISTRON which follows shipment. WISTRON will not invoice XPLORE unless shipment occurs pursuant to Section 4.8. XPLORE agrees to pay one percent (1.0%) monthly interest on all late payments as per Exhibit D. XPLORE will issue an irrevocable standby letter of credit or Assignment of Receivable (AoR) in an amount equivalent to its product requirement for the initial 60 days of production. In the event that XPLORE fails to pay within the agreed 30 days other than amounts in dispute or subject to credits, WISTRON shall have the right to draw on the letter of credit or AoR to effect payment of its account. As XPLOREs production requirement increases, additional letters of credit shall be issued to maintain an amount equivalent to the production requirement for the next 60 days. After six (6) months following production release, WISTRON and XPLORE will review payment terms with the objective of removing the requirement for letter of credit. The irrevocable standby letter of credit will terminate after six (6) months following production release provided that XPLORE is current on its payments.
XPLORE will put in place a Letter of Credit in the amount of $200,000 to cover unique inventory for six (6) months to he set up thirty days prior to mass production and to last for six (6) months into production. WISTRON shall have the right to draw on the letter of
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credit to effect payment in the event said unique material is deemed obsolete. After six (6) months following production release, WISTRON and XPLORE will review payment terms with the objective of removing the requirement for letter of credit.
XPLOREs Purchase Price does not include any foreign, federal, state or local sales, use or other similar taxes, however designated, levied against the sale, licensing, delivery or use of the Products. XPLORE shall pay, or reimburse WISTRON for, all such taxes imposed on XPLORE or WISTRON; provided, however, that XPLORE shall not be liable for any taxes based on WISTRONs net income or capital. When WISTRON has the legal obligation to collect such taxes, the appropriate amount shall he added to XPLOREs invoice and paid by XPLORE unless XPLORE provides WISTRON with a valid tax exemption certificate authorized by the appropriate taxing authority. XPLORE shall promptly notify WISTRON of any amendment or revocation of such certificate.
All orders for Products submitted by XPLORE shall be initiated by a Purchase Order sent to WISTRON and requesting a delivery date. These purchase orders shall include, at a minimum, a) the WISTRON part number; b) a description of the product; c) the product quantity; d) the Product price; e) the requested delivery date of the Product ( Scheduled Delivery Date ); f) logistics shipping preference; g) a reference to the Agreement and h) any other instructions or requirements reasonably requested by XPLORE. If a purchase order submitted by XPLORE (i) conforms to the requirements of this Agreement, (ii) contains a Product order for the price or prices specified in Exhibit E, (iii) does not purport to make a change to any of the terms of this Agreement, and (iv) has a commercially reasonable delivery date for the quantities specified, then WISTRON shall acknowledge and accept the purchase order using reasonable best efforts within two (2) business days but in any case not to exceed five (5) business days of receipt. If XPLORE is not notified of WISTRONs acceptance or proper rejection within two (2) business days of receipt of the Purchase Order by WISTRON, the Purchase Order shall be deemed accepted by WISTRON. Nothing contained in any Purchase Order shall in any way modify this Agreement or add any additional terms or conditions thereto, except as otherwise agreed in writing by the Parties. Notwithstanding the foregoing, in the event Products are greater than thirty (30) days late from the accepted delivery dates on accepted Purchase Orders by WISTRON, then XPLORE will receive a 2% discount on the Product for every week that the Product is late up to 8 weeks for a maximum discount of 16% on the next Product delivery of an equivalent quantity of Products. After 8 weeks, XPLORE has the right to declare Non-Performance as specified in Section 12.4 and subsequently may cancel the Purchase Order and the associated liabilities with no penalty.
XPLORE shall, on a monthly basis, provide WISTRON with a six (6) month rolling projection of orders by XPLORE of the Products ( Forecast ). The initial Forecast shall be delivered to WISTRON within sixty (60) calendar days prior to initial production. Notwithstanding any other provision contained herein, the parties acknowledge and agree that
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the Forecast can in no way he construed as a commitment on XPLOREs part to purchase any Products. XPLORE shall also have the right to increase or decrease Forecast quantity by the quantities listed in the chart set forth in Section 4.10 of this Agreement.
To facilitate WISTRONs production scheduling, XPLORE shall submit Purchase Orders to WISTRON consistent with a Lead Time of forty five (45) calendar days for volumes within the Forecast. In the event that the volume of Products ordered by XPLORE during any calendar quarter exceeds the volume projected by XPLORE in the Forecast, WISTRON shall ship such excess volume of Products consistent with a Lead Time of forty five (45) calendar days; provided, however, WISTRON shall use reasonable best efforts to reduce the Lead Time for such excess volume to twenty (20) calendar days. WISTRON shall use reasonable best efforts to reduce all Lead Times during the Term, including, without limitation, implementing such demand-pull or direct ship programs as reasonably requested by XPLORE. The Parties shall meet at mutually agreeable intervals during the Term to review, in good faith, the Lead Times, including, without limitation, reviewing material management procedures with WISTRONs suppliers, including demand-pull or direct ship programs. For long lead list of parts, the Parties will mutually review these parts and determine which parts get ordered as a risk purchase. XPLORE will give written authorization to WISTRON and approve the purchase and specified quantity of these long lead parts. Long lead materials not consumed within 6 months will be purchased by XPLORE provided that these parts could not be consumed by other products manufactured by WISTRON.
All Purchase Prices are FCA WISTRONs manufacturing plant in Taiwan. All Products delivered pursuant to the terms of this Agreement shall be packed pursuant to the packaging requirements set forth in the SOW, marked for shipment to an address designated by XPLORE, and delivered to a carrier designated by XPLORE, or if no carrier is designated by XPLORE to a carrier chosen by WISTRON, F.O.B., WISTRONs manufacturing plant. XPLORE requires a shipment acknowledgment via FAX or Email attachment which contains the Purchase Order number, the quantity and type of product shipped, including serial numbers, the customer address and contact information, and shipment carrier with tracking numbers. Upon delivery to the carrier, risk of loss with respect to the Products (and title to the Hardware included in such Products) shall pass to XPLORE. All freight, insurance and other shipping expenses shall be paid by XPLORE. Items shipped after their scheduled shipment date plus 2 business days will be shipped by WISTRON on an expedited basis (primarily air freight) with the surcharge for such expedited delivery being at WISTRONs sole expense. Provided that XPLORE places orders for Products for delivery within the applicable Lead Times as per Section 4.7, WISTRON shall, in the aggregate during each calendar quarter, deliver at least ninety-five percent (95%) of the Products so ordered by the XPLORE specified delivery date. In the event WISTRON fails for two consecutive calendar year quarters to deliver by the XPLORE specified delivery date at least ninety-five percent (95%) of Product ordered, for any reason other than a Force Majeure Event, then in addition to all other rights and remedies that XPLORE may have at law or in equity, WISTRON shall (i) immediately allow XPLORE to audit WISTRONs order fulfillment process and discuss the reasons for such failure, (ii) evaluate and consider any
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recommendations proposed by XPLORE to alleviate such problems, and (iii) at XPLOREs request, use reasonable best efforts to facilitate communication between XPLORE and any WISTRON supplier(s) that is/are causing such failure. If the aforementioned provisions do not remedy the situation, XPLORE has the right to invoke the Non-performance provisions as stated in Section 12.4 of this Agreement. XPLORE will notify WISTRON of the Non-performance in writing.
XPLORE requires WISTRON to implement a dock-to-customer shipping model as defined in the SOW.
XPLORE requires WISTRON to implement palletized volume shipments for delivery to a consolidation center or to specific customers who have purchased a large quantity of XPLORE Products as defined in the SOW.
WISTRON agrees to provide XPLORE with pricing for Product subassemblies as set forth in Exhibit G. XPLORE requires WISTRON to accept purchase orders to ship components, boards, and/or sub-assemblies to a XPLORE designated consolidation center. XPLORE shall have a small inventory of spare parts and components for internal XPLORE field and demo repairs.
XPLORE may, in its sole discretion, cancel all or any part of any Purchase Order by providing written notice without incurring any cancellation charges according to the chart set forth below in Section 4.10 of this Agreement. If XPLORE does not have the right to cancel a purchase order without incurring any cancellation charge, XPLORE may still cancel such order but shall pay WISTRON a cancellation charge equal to WISTRONs all incurred costs for raw materials, work in process, handling and reworking costs incurred by WISTRON on the Products under the cancelled Purchase Order, provided that there will be no cancellation charge for any materials that within ninety (90) days of the cancellation are subsequently used to fulfill a XPLORE purchase order or that are capable of being used in other products sold by WISTRON. In no event shall such costs exceed the Purchase Price for such cancelled Products. In the event that XPLORE cancels all or any part of a Purchase Order for which it is obligated to pay a cancellation charge, WISTRON shall use reasonable best efforts to mitigate the costs associated with such cancellation. If XPLORE pays a cancellation charge it shall own all materials subject to such charge, and the price for any future Product that includes such materials shall be reduced by the amount of the cancellation charge but shall add any incurred reworking costs.
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XPLORE shall have the right, by providing written notice to WISTRON prior to the scheduled shipment date, to reschedule or change the shipment date only once per Purchase Order without penalty, per the chart set forth below in this Section 4.10:
Lead
|
|
Allowable
|
|
Percent
|
|
Percent
|
|
Maximum
|
0-45 days |
|
25% over unit volume |
|
0% |
|
25% |
|
30 days |
46-60 days |
|
60% over unit volume |
|
25% |
|
40% |
|
60 days |
61-90 days |
|
80% over unit volume |
|
50% |
|
50% |
|
90 days |
over 90 days |
|
100% over unit volume |
|
100% |
|
100% |
|
indefinite |
WISTRON will use its reasonable best efforts, including long lead time material management, to produce any increased quantities in Product requested by XPLORE as set forth above.
XPLORE has the right to approve any change, production startup, sub-contractor, tooling acceptance process or procedural acceptance relating to the Products. For the case where it is not practical for Xplore to have access to a WISTRON subcontractor, then WISTRON will act on XPLOREs behalf and report written results required by XPLORE.
XPLORE may, in its sole discretion, perform, or cause its agents or representatives to perform, audits and inspections of WISTRONs, or its vendors, design, test, and manufacturing processes during normal business hours and by giving two (2) business days advance notice for any reason reasonably related to this Agreement, including, without limitation, to confirm compliance with the quality procedures and requirements set forth in Exhibit F. WISTRON shall provide assistance to XPLORE in conducting such inspections as may be reasonably requested by XPLORE.
XPLORE may conduct first article acceptance testing on any Product (i) that XPLORE has not previously accepted via first article testing, (ii) in which WISTRON has introduced a modification or enhancement not previously tested by XPLORE under a first article inspection, or (iii) in the event any Product is manufactured at a site other than WISTRONs location. WISTRON shall provide assistance to XPLORE in conducting such first article acceptance testing as may reasonably be requested by XPLORE. Within fifteen (15) calendar
10
days of XPLOREs receipt of a first article Product, XPLORE will provide WISTRON with a written notice of acceptance of such Product or a written statement detailing the Specifications, which such Product has failed to meet. If such Product fails to conform to the Specifications or applicable first article testing and acceptance criteria, XPLORE shall notify WISTRON in writing of such failure, detailing the nature of the failure, and the Parties will immediately discuss means to resolve such failure; WISTRON shall then deliver to XPLORE, pursuant to an agreed-upon schedule, a Product that meets the applicable Specifications or applicable first article testing and acceptance criteria. Upon re-delivery, XPLORE shall have an additional five (5) business day period to first article acceptance test the Product and provide either written acceptance of the Product or a written statement detailing the Specifications or applicable first article testing and acceptance criteria such Product failed to meet. If after two (2) such cycles, XPLORE again reasonably rejects such Product, XPLORE may elect to continue the process of modification and first article acceptance testing or determine an alternate action plan without incurring any further liability hereunder, provided that XPLORE shall remain liable to pay (or be entitled to a refund if the Advance Payment has not been consumed) with regard to any Purchase Orders that were filled with conforming Products. Notwithstanding the above provisions, if WISTRON does not achieve Acceptance of First Articles as specified above, then a material breach would have occurred due to WISTRONs Non-Performance and the provisions of Section 12.4 apply.
WISTRON shall develop, qualify, test and release to production the Products set forth on Section 1.23 of this Agreement according to the timetable set forth in the SOW. The Parties acknowledge and agree that XPLORE shall have no obligation to pay for any Product until such Product has been accepted by XPLORE in accordance with this Section. Product Acceptance shall mean that the Product shall meet all design requirements per the PRD and all regulatory and certification testing on the Product has been completed and test reports have been filed by WISTRON. The Data Package shall transfer to XPLORE in full as per Exhibit H.
WISTRON shall, at WISTRONs sole expense, conduct a failure analysis on all defective Products to determine the cause of failure in accordance with Exhibit E.
In the event that any Product is found to be Dead-on-Arrival (DOA), WISTRON shall ship, at WISTRONs sole expense, a replacement Product to XPLORE in Austin, Texas within forty eight (48) hours of receipt of notice by XPLORE in accordance with Exhibit G, and XPLORE shall return the original product to WISTRON at WISTRONs expense. All Product not rejected by XPLORE within thirty (30) days of invoice shall be deemed accepted. XPLOREs acceptance of any Product is without prejudice to or waiver of any of its rights and remedies under the Agreement. If the Product(s) turned over by XPLORE to WISTRON as DOA but no defect is found in the Product by WISTRON, then under the conditions set forth in
11
Exhibit G hereto, XPLORE shall reimburse WISTRON for such shipment costs and pay the No Fault Found (NFF) fee for testing and handling at the fixed price specified in Exhibit G.
Products received from WISTRON shall not exceed a 1% failure rate for the complete WISTRON assembled unit within thirty (30) days of delivery to End-User. WISTRON shall establish a mutually agreed to Quality Improvement Plan so as to meet the intent of Exhibit F within 30 days.
The Product and all associated assemblies and subassemblies shall be subject to sampling in accordance with Sampling Procedures and Tables for Inspection by Attributes (ANSI/ASQC Z1.4-1993). XPLORE reserves the right to define the acceptable quality level (AQL) used for sampling at any time. It is an objective to achieve an AQL of 2.
XPLORE reserves the right of lot rejection in the event of failure to meet the AQL specified by XPLORE. In the event of lot rejection, WISTRON shall be responsible for all shipping and repair/replacement costs. Lot inspections shall be performed at the discretion of XPLORE without prior notification.
WISTRON shall provide XPLORE with inventory of finished Products in the amount equal to two percent (2%) of the preceding quarters average monthly film orders, at the WISTRONs premises and at WISTRONs expense (the Safety Stock ). XPLORE shall use this inventory as necessary to replace Products that arrive at a customer Dead on Arrival or that are not accepted.
WISTRON may provide XPLORE with at least nine (9) months prior written notice of any intention to discontinue production of any Product if minimum volume requirements are not achieved for two (2) consecutive quarters, then within 30 calendar days, WISTRON will notify XPLORE in writing. During such nine month period, WISTRON will work with XPLORE to transition manufacturing to an alternate manufacturer including the full Data Package as specified in Exhibit H and any Equipment owned by XPLORE. The transition period will be completed and formal Product Discontinuance is achieved when the alternate manufacturer is able to produce and ship the Product. During such nine (9) month period, in addition to Purchase Orders issued pursuant to Section 4.5, XPLORE shall, in its sole discretion, have the right to make a one-time purchase, and WISTRON shall produce such quantities, of the End-of-Life Product. XPLORE shall have the right to schedule shipment of such one-time buy over a period of eighteen (18) months from the effective date of discontinuance of the End-of-
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Life Product based upon mutually acceptable terms and conditions to be negotiated based upon the volume of one-time buy and like Products purchased by XPLORE. If the parties cannot agree on mutually acceptable terms and conditions, then XPLORE may make the End-of-Life one-time buy at the price set forth in this Agreement and shall take delivery of such Products within six (6) months of the effective date of the discontinuance of the End-of-Life Product. WISTRON shall provide the support services described in Exhibit G for the End-of-Life Product for a period of three (3) years after the later of the effective date of discontinuance of the Product or shipment of the last discontinued Product.
WISTRON agrees that throughout the term of this Agreement, each of the prices offered to XPLORE for the purchase or other disposition of any Product and all other material terms and conditions shall be at least as favorable as each of the price and other material terms and conditions offered to any other entity for the purchase of similar quantities of Products for comparable time periods. XPLORE may request a written certificate attesting to the fact that WISTRON is in compliance with this Section 4.18 for the previous calendar year based upon a WISTRON internal review. Within 10 business days, WISTRON will comply with XPLOREs written request.
The Products as supplied by WISTRON shall comply with all applicable laws, rules and regulations. If the Product or a Service covered by this Service and Support Addendum relates to a prime contract with the United States Government, and/or is within the jurisdiction of a Department or Agency of the United States, WISTRON agrees to work with XPLORE in good faith to review the applicable provision of Federal Acquisitions Regulations and to provide agreement or feedback to such terms in a timely fashion. WISTRON agrees to indemnify and hold XPLORE harmless from any loss, damage, liability, claim fine, penalty, or expense which results from WISTRONs failure to comply with any procurement law, rule, or regulation.
5. LIMITED WARRANTY
WISTRON warrants that (i) WISTRON has all Intellectual Property Rights necessary to perform services set forth herein, sell the Products to XPLORE, and to license the Software, to XPLORE in accordance with the terms of this Agreement; (ii) each Product (including all Software contained in or accompanying such Product) will be free from Material Defects for a period of eighteen (18) months from the date of shipment of the Product to XPLORE; (iii) the Products shipped under this Agreement will be free from any Liens, encumbrances or defects in title; (iv) all Products (and all components and subassemblies thereof) sold under this Agreement are new and (v) the Product when delivered to XPLORE will comply with all Specifications for such Product.
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For defective Products, WISTRON will perform warranty service at WISTRONs designated facilities, provided XPLORE return the Product in accordance with the terms of this Agreement. Subject to the statements above, WISTRONs sole responsibility under this warranty provisions shall be, at WISTRONs option, to either repair or replace the Product upon XPLOREs return of the defective Product, unless the Product cannot be repaired or replaced with a working Product meeting Specifications within a reasonable time, in which case WISTRON shall promptly refund to XPLORE the purchase price of the Product. XPLORE shall, at WISTRONs sole expense, return defective Products to WISTRON m accordance with the terms and conditions of this Agreement, and WISTRON shall, at WISTRONs sole expense, repair or replace the defective Product and ship the repaired or replaced Product to XPLORE in accordance with and at the time frames specified in Exhibit G. WISTRON shall also assume responsibility for repairing or replacing Products or components in inventory under Section 7.13. At all times while in transit shipping to and from WISTRON, or in WISTRONs facility, the risk of loss shall remain with WISTRON, and all defective products or defective components thereof returned under this warranty and subsequently replaced shall become WISTRONs property. All shipping costs for such defective Products will be borne by WISTRON. If the defective Product(s) are not covered by the terms of the warranty or the Products(s) are outside of the warranty term, XPLORE will reimburse WISTRON for such shipment costs. In addition, if no defect is found in the Product by WISTRON, then tinder the conditions set forth in Exhibit G hereto, XPLORE shall reimburse WISTRON for such shipment costs and pay the No Fault Found (NFF) fee for testing and handling at the fixed price specified in Exhibit G. If XPLORE requests to assume warranty and repair services, the parties will agree on a commercially reasonable schedule and terms to transfer these responsibilities to XPLORE, under the procedures set forth in Section 7.1.
The procedures set forth in Section 5.2 do not cover damage resulting from the following:
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EXCEPT FOR THE EXPRESS WARRANTIES STATED HEREIN, EACH PARTY DISCLAIMS ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING ON PRODUCTS FURNISHED HEREUNDER, INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6. UNIT COST PRICING
XPLORE agrees to pay WISTRONs Prices (Prices) for Products as outlined in Exhibit E. Unless otherwise agreed by the parties in writing, all Prices quoted by WISTRON shall remain in effect for a period of three (3) months ah writing from the date of quotation, with update Pricing provided to XPLORE on a quarterly basis. The Parties agree to mutually review and approve all Product Prices prior to the beginning of each calendar quarter. Such Prices shall he exclusive of all applicable taxes. Provided that in the event that there is a change in market conditions or pricing from suppliers in connection with any raw materials to be purchased by WISTRON then either Party shall give written particulars of same to the other Party following which either party may give notice to the other requesting amendment to any quoted price, provided that such notice must be given at a minimum of thirty (30) days prior to any effective price change. The Parties shall then use their best efforts to attempt to negotiate, in good faith, an amendment to any such initially quoted price(s) so as to fairly reflect the change in market conditions and an appropriate adjustment shall be made to the price for each unit of product incorporating any devices subject to the price change from initial quoted prices.
7. ADDITIONAL OBLIGATIONS OF WISTRON
WISTRON shall provide, during the Term and for a period of three (3) years following the later of the date of shipment of the last Product to XPLORE or termination of this Agreement, the support services for the Products as set forth in Exhibit G. After the three (3) year term, the support services for the Products can be renewed for 1 additional year up to 2 years. XPLORE reserves the right to define and implement an alternate service strategy using WISTRONs support services during the Term. XPLORE will notify WISTRON in writing at least 45 days in advance of establishing a revised support arrangement and the Parties will mutually agree to an implementation plan and schedule. This specific action would require an amendment to Exhibit G.
Should XPLORE desire to change established warranty and service provisions the following practices and notifications shall apply:
(a) XPLORE shall notify WISTRON with written advance notice, at least 45 days, prior to planned modification or change of Support Services.
15
(b) XPLORE may elect in this change process to purchase warranty coverage for unique assemblies for the PRODUCT and potentially leave other assemblies without warranty coverage.
(c) For the Parties to determine who has warranty responsibility for the Product, post Support Service change; this will be determined by the Wistron serial number database referencing against the serial numbers shipped under the specific Support Services at that time. Both Parties will need to have assess to this serial number database. This data will be used to determine financial warranty responsibility for Products covered under the warranty provisions.
(d) Prior to implementation of changes to the Support Services; both Parties agree to meet to reconcile disposition of spare materials intended for warranty support by either 1) purchasing said materials, 2) upgrading said materials, 3) transferring said materials, 4) redistributing said materials to other areas of acceptable use or directing said materials to other products, or 5) paying for unususable spare materials.
In the event of a Class Failure, WISTRON will provide to XPLORE the following additional remedies:
(a) WISTRON will strive to provide to XPLORE, no later than five (5) business days following the declaration of a Class Failure, a root cause analysis and corrective action plan (Exhibit F, Sec. 6.4, 6.5). XPLORE will make available such information and assistance reasonably required to allow WISTRON to conduct its root cause analysis and to provide its corrective action plan.
(b) If, after review of the root cause analysis and corrective action plan, XPLORE determines, in its reasonable opinion, that the Class Failure necessitates a field stocking recall or customer-based recall or retrofit, XPLORE may then elect to have the Products:
1) returned to WISTRON for repair or replacement; or
2) repaired or replaced by XPLORE in the field, including products in XPLORE and WISTRONs inventory, in XPLOREs distributors inventory and in XPLOREs installed base; if XPLORE chooses to perform a field repair, WISTRON will provide the appropriate Safety Stock of Products, parts or upgrades free of charge to XPLORE; such Products, parts or upgrades will be shipped with the highest shipping priority utilized by WISTRON.
(c) WISTRON will, within ninety (90) days after completion of the foregoing actions, reimburse XPLORE for its reasonable and direct costs in
16
performing such services, including, without limitation, all shipping charges. WISTRON will reimburse for any labor charges provided that XPLORE notifies WISTRON in writing of the estimated labor charges 15 days in advance of the labor beginning and both Parties mutually agree to the total labor charges incurred.
Each Party shall respond to all inquiries from the other Party concerning matters pertaining to this Agreement within the time periods set forth in this Agreement or, in the event no time period is specified, within a commercially reasonable time period.
WISTRON requires a return materials authorization ( RMA ) number in order for XPLORE to return any Product to WISTRON. WISTRON shall immediately assign an RMA number to XPLORE upon XPLOREs request. XPLORE shall be the only Party authorized to request an RMA number from WISTRON for Products purchased under this Agreement. WISTRON shall pay the shipping expenses for the shipment of repaired or replaced Products to XPLORE and XPLORE shall pay the shipping expenses for returning defective Products to WISTRON, except for Products that are Dead-on-Arrival (DOA). DOA shipment expenses are handled in accordance with Section 4.13. If a Product is returned by XPLORE to WISTRON and no fault is found, the Product(s) defect is not covered under the terms of the warranty, or the warranty term has expired, then XPLORE shall reimburse WISTRON for the shipping and insurance costs of returning said Product.
In the event that WISTRON makes any modifications or enhancements to the Products or Documentation during the Term, WISTRON shall immediately notify XPLORE of such modifications or enhancements in accordance with the change control procedures set forth in Section 2.1 of Appendix E of Exhibit G attached hereto. Notwithstanding any other provision contained herein, in the event that such modification or enhancement alters the form, fit or function of the Products, XPLORE shall have thirty (30) days from receipt of such notification to approve or reject such modification or enhancement. In the event that XPLORE, in its sole discretion, rejects such modification or enhancement, WISTRON shall not implement such modification or enhancement and shall continue to supply the unaltered Products to XPLORE during the Term in accordance with the terms and conditions of this Agreement.
In order to ensure appropriate records are maintained by XPLORE for regulatory, service, and document control procedure reasons, WISTRON shall provide XPLORE with all proposed Engineering Change Orders (each, and ECO ) to Products and Subassemblies purchased hereunder at least thirty days prior to their proposed implementation for review, and to the extent that such ECO pertains to a modified standard product or custom product for approval by XPLORE. Following review or approval by XPLORE, as the case may be, WISTRON shall, within fifteen (15) business days after issue of the ECO by WISTRON, provide XPLORE with a
17
final copy of each ECO or like documentation issued by WISTRON with respect to operation or maintenance of the applicable Product. This cost shall be borne by WISTRON if, due to the sole fault of WISTRON, the ECO is initiated at WISTRONs initiative.
In the event that Safety Standard Changes are required to be made to the Products, WISTRON shall implement such Safety Standard Changes as soon as possible, but in no event later than the date required by the regulating agency. WISTRON shall immediately provide XPLORE with written notice of the requirement for such Safety Standard Changes when WISTRON becomes aware of such requirement. Notwithstanding any other provision contained herein, WISTRON shall be responsible for any and all costs and expenses, including, without limitation, materials, labor and XPLORES reasonable and direct costs, associated with implementing the Safety Standard Changes for Products in XPLOREs inventory, in XPLOREs Resellers and Distributors inventory and in XPLOREs End-User install base.
WISTRON agrees to apply and be bound by the quality procedures for all Products shipped pursuant to this Agreement as set forth in Exhibit F attached hereto.
WISTRON shall, at WISTRONS sole expense, provide to XPLORE during the Term those WISTRON Product functional specifications, test plans and test procedures reasonably required by XPLORE to (i) perform interoperability, compatibility, functional and audit testing on the Products, (ii) perform system design work incorporating the Products, per the Specification of each Product.
It is understood between the Parties that the formulation of volume incentive discounts is an equitable combination of actual cost reduction plus economic benefits of volume production quantities for the establishment of an updated volume incentive schedule. The Price determination will be based in part on the cost reduction activities at WISTRON who recognizes that it is XPLOREs policy to work with its suppliers on a cost reduction program, revised on a quarterly basis, which targets a 10% annual cost reduction. WISTRON recognizes such policy of XPLORE and will make its reasonable best efforts to implement such policy and achieve such cost reduction. It is the Parties expectations, that prior to each quarter or at any other time as agreed to by the parties, the parties will work a revised pricing for the Product, including revised pricing for direct materials, that will result from a cost reduction plan applicable to the Products to be prepared by WISTRON within the bounds agreed upon in Exhibit E. Cost reduction plan shall contemplate alternative suppliers and/or components, design, process changes and cost saving procedures. Such new Product unit price will apply to subsequent orders or shipments yet to be delivered as of date to be agreed for implementation by the Parties.
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WISTRON will ensure that the Product will have passed regulatory certifications as defined in the SOW by the Product Release Date in the mutually agreed upon schedule, in the countries listed in Exhibit I. WISTRON will be responsible to complete all Product safety, EMC and other testing as required for the release of the Product by Product Release as part of the NRE. For any additional countries requested by XPLORE, the patties will negotiate the payment responsibility. WISTRON shall record the XPLORE names for the Products in any filings for regulatory certifications of the Products ( i.e., dual listings) and immediately provide XPLORE with copies of all such certifications and test results upon issuance. WISTRON shall provide XPLORE with a copy of WISTRONs homologation schedule on or before the Effective Date and immediately notify XPLORE in writing of any change or update to said homologation schedule during the Term.
For a period of 12 months from start of production and during each quarter thereafter the target volumes are being met, WISTRON agrees not to directly or indirectly design, engineer, produce, manufacture or sell any rugged mobile tablet that is competitive other than those ordered by XPLORE from the start of volume production except as expressly agreed to by XPLORE in writing. Beginning with the second full quarter volume production, should the average monthly volume per quarter fall below 2000 units, then this term may be removed, but all conditions specified in Section 14 remain in full force.
For any third party relationships for parts, subcontracted services, or licenses that need to be transferred, WISTRON will notify XPLORE by Email or FAX of this proposed change and the reasons for the change. XPLORE has five (5) business days to respond with its approval, rejection, or need for more information.
The Inventory held by WISTRON on behalf of XPLORE to meet the finished Product volumes contained in the Purchase Orders and the six (6) month rolling forecast, that are defined as customer specific or Non-Cancelable or Non-Returnable (NCNR), shall be XPLOREs responsibility in the event of any variation or termination of the Agreement subject directly to Section 12.0 of this Agreement. XPLORE also acknowledges and agrees that at the end of the life of a product or upon cancellation of this Agreement that some quantity of Inventory would be deemed excess and obsolete clue to Minimum Purchase Quantities (MPQ) set by various component suppliers as well as requirements necessary for WISTRONs automated manufacturing processes and that XPLORE would have certain liability for this inventory as outlined in this Section. A list detailing the NCNR, obsolete, excess and/or customer specific material/Inventory will be provided to XPLORE in written format on a monthly basis and is included as part of this Agreement. Modifications to the NCNR report must be mutually agreed to on a monthly basis by authorized personnel of each Party. WISTRON will at all times try to minimize the level of Inventory to support the manufacture of XPLORE Products. When extraordinary purchases must be made ( i.e. long lead-time, allocation, supplier-imposed etc.) WISTRON will seek written authorization from XPLORE prior to doing so as
19
defined in Section 4.7 (Lead-time). XPLORE will not be responsible for charges that are not pre-approved by an authorized XPLORE manager, nor will XPLORE be responsible for any charges listed in this Section that do not comply with the schedule of delivery article outlined in the SOW.
WISTRON agrees to notify XPLORE and request written authorization prior to issuing purchase orders for NCNR items that have lead times in excess of thirty (30) days.
WISTRON acknowledges and agrees that the Equipment will at all times remain the property of XPLORE. WISTRON will ensure that the Equipment is kept free and clear of any liens or other encumbrances. WISTRON will keep the Equipment adequately insured, and will be responsible for any loss or damage to it while on the WISTRON premises. WISTRON will use the
Equipment only for purposes required to perform this Agreement, and will not use it on behalf of any third party without XPLOREs prior written consent.
8. APPOINTMENT AND AUTHORITY
The relationship of XPLORE and WISTRON established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to (i) give either Party the power to direct and control the day-to-day activities of the other, (ii) constitute the Parties as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking, or (iii) allow either Party to create or assume any obligation on behalf of the other Party for any purpose unless expressly provided herein.
WISTRON hereby represents and warrants to XPLORE as follows:
WISTRON is not subject to any agreement, contract, commitment, statute, judgment or decree which would prohibit or be violated by WISTRONs execution or delivery of this Agreement or by WISTRONs performance of its obligations hereunder.
WISTRON has the right, power and authority to grant the rights and licenses granted by WISTRON hereunder and to perform WISTRONs obligations hereunder.
WISTRON shall provide its services and meet its obligations hereunder in a timely and workmanlike manner, and will exercise a standard of care equal to, or superior to, care used by similar service providers on similar projects.
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Neither WISTRON nor any of its employees, representatives or agents shall cause or permit any of WISTRONs work product hereunder to include or incorporate any material in which any third party shall have any registered or unregistered copyrights, patent rights, trade secrets, trademarks or other proprietary rights or interests, and XPLOREs use of such work product as contemplated hereby will not infringe upon any copyright, patent, trade secret, trademark or other proprietary right, moral right or contract right of any third party.
Neither WISTRON nor any of its employees, representatives or agents shall cause or permit any of WISTRONs work product hereunder to include or incorporate any time or date bombs, viruses, or other intentionally disabling code of any type whatsoever. Each Product incorporating WISTRON technology will conform to all of the specifications and requirements set forth herein, including without limitation those reflected in the SOW or hereafter established in accordance with the procedures described herein.
9. INDEMNIFICATION, REMEDIES, PRODUCT LIABILITY INDEMNIFICATION
XPLORE and WISTRON agree to indemnify one another as follows:
By WISTRON . (a) WISTRON shall defend, indemnify and hold XPLORE harmless against any claim, suit, action or proceeding threatened, brought or asserted against XPLORE or any of XPLOREs subsidiaries, affiliates, parents, directors, officers and employees (hereinafter Indemnitees ) to the extent that any claim, suit, action or proceeding threatened, brought or asserted against any Indemnitee is based on a claim that any of the Products infringes any patents, copyrights, trademarks, trade secrets or other third party intellectual property, contract or moral rights (a Claim ), and WISTRON shall indemnify the Indemnitees from any royalties, judgments, costs and expenses (including attorney fees), damages, losses, liabilities, and fees suffered by such Indemnitee which are attributable to such Claim. XPLORE agrees to notify WISTRON promptly in writing of any Claim, to permit WISTRON exclusively to defend, compromise or settle the Claim and to provide all available information and reasonable assistance regarding such Claim, all at WISTRONs sole expense. In no event shall XPLORE consent to any judgment or decree or settle the Claim without the prior written consent of WISTRON, in WISTRONs sole discretion. All settlements by WISTRON shall obtain a complete release for XPLORE, at no expense to XPLORE. (b) Exclusions. Such indemnification shall not apply to infringement to the extent that (a) the infringement is required to comply with the specifications for the WISTRON Product supplied by XPLORE, (b) the alleged infringement is based solely on use by XPLORE, without WISTRONs permission, of the WISTRON Product as sold by XPLORE in combination with another item not sold by WISTRON, where the alleged infringement arises solely from the combination or from the practice of a method made possible by the combination, (c) the alleged infringement is based on the Claim that the WISTRON Product has been used for a purpose other than that for which is was intended, (d) the infringement arises from XPLOREs continued use of an WISTRON Product after WISTRON has: i) given notice to XPLORE that such Product or the use thereof are alleged to be infringing,
21
and ii) provided XPLORE with the remedy set forth in Section 9.4 of this Agreement, or (e) the alleged infringement is based solely on a modification made by XPLORE to the Product without WISTRONs permission.
By XPLORE . XPLORE shall defend, indemnify and hold WISTRON harmless against any claim, suit, action or proceeding threatened, brought or asserted against WISTRON or any of WISTRONs subsidiaries, affiliates, parents, directors, officers and employees (hereinafter WISTRON Indemnitees ) to the extent that any claim, suit, action or proceeding threatened, brought or asserted against any WISTRON Indemnitee is based on a claim (a Claim ) that (i) XPLORE made any misrepresentation in the sales, marketing or other promotion and distribution of the Product, unless such misrepresentation was based on information provided by WISTRON to XPLORE. XPLORE shall indemnify the WISTRON Indemnitees from any judgments, costs and expenses (including attorney fees), damages, losses, liabilities, and fees finally awarded against any such WISTRON Indemnitee which are attributable to such Claim. WISTRON agrees to notify XPLORE promptly in writing of any Claim, to permit XPLORE to defend, compromise or settle the Claim and to provide all available information and reasonable assistance regarding such claim, all at XPLOREs sole expense. If the claim is based on information provided to XPLORE by WISTRON, then WISTRON shall provide the foregoing indemnity to XPLORE. All settlements by XPLORE will obtain a complete release for WISTRON, at no expense to WISTRON.
Each of the parties hereto agrees that damages alone could not adequately compensate the other party hereto in the event of such partys breach of any of its obligations set forth herein. Accordingly, each of the parties hereto agrees that in the event of any such breach by such party, the other party hereto shall be entitled to obtain injunctive relief against such breaching party, without bond but upon due notice, in addition to such other relief as may appertain at law or in equity. Obtainment of any such injunction shall not be deemed to be an election of remedies or a waiver of any right to assert any other remedy which may be available at law or in equity.
10. LIMITATION OF LIABILITY
EXCEPT FOR THE INDEMNITY OBLIGATIONS SET FORTH IN SECTION 9 AND THE OBLIGATIONS IN RESPECT OF CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY SET FORTH IN SECTIONS 14.1.2, 14.1.3, 14.1.4, or14.1.5, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS OR REVENUE, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
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11. EXPORT CONTROL
WISTRON and XPLORE will not use, distribute, transfer or transmit any Products, software or technical information (even if incorporated into other products) provided under this Agreement except in compliance with U.S. and Canadian export laws and regulations (the Export Laws ). WISTRON and XPLORE will not, directly or indirectly, export or re-export the following items to any country which is in the then current list of prohibited countries specified in the applicable Export Laws: (a) software or technical data disclosed or provided to XPLORE by WISTRON or XPLOREs subsidiaries or affiliates; or (b) the direct product of such software or technical data. WISTRON and XPLORE mutually agree to promptly inform the other Party in writing of any written authorization issued by the U.S. Department of Commerce or Canadian office of export licensing to export or re-export any such items referenced in (a) or (b). The obligations stated above in this clause will survive the expiration or earlier termination of this Agreement.
12. TERM AND TERMINATION OF AGREEMENT
This Agreement shall continue in force for an initial term of five (5) years from the Effective Date ( Initial Term ) and shall automatically renew for additional one (1) year terms ( Renewal Terms ) unless either Party terminates this Agreement by providing at least one-hundred twenty (120) calendar days written notice prior to the expiration of any Renewal Term.
In the event of any material breach of this Agreement, the non-breaching Party may terminate this Agreement by giving fifteen (15) calendar days prior written notice to the other Party; provided, however, that this Agreement shall not terminate if the other Party has cured the breach prior to the expiration of such fifteen (15) calendar day period, or if such breach cannot be cured within such fifteen (15) calendar day period, the other Party has taken reasonable steps within such fifteen (15) calendar day period to cure the breach and thereafter cured such breach as soon as practicable, but not to exceed 20 calendar days.
This Agreement may also be terminated by either Party upon one hundred and twenty (120) days written notice to the other but only after mass production of Product has begun. In the event of such termination, the Data Package shall be delivered by WISTRON to XPLORE in its current and most updated form as defined in Exhibit H. WISTRON will work with XPLORE to transition manufacturing to an alternate manufacturer under the provision of Section 4.17.
This Agreement shall terminate, upon notice by either Party, (i) if the other Party files voluntary bankruptcy proceedings or the Canadian or Taiwanese equivalent thereof, (ii) if involuntary insolvency, receivership or bankruptcy proceedings, or the Canadian or Taiwanese equivalent thereof, are instituted against the other Party are not dismissed within sixty (60)
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calendar days of such institution, (iii) upon the other Partys making an assignment for the benefit of creditors, or the Canadian or Taiwanese equivalent thereof, or (iv) upon the other Partys dissolution or ceasing to do business.
As used in this Agreement, Non Performance shall mean: (a) the termination of this Agreement by XPLORE pursuant to Sections 12.3 or 12.4 hereof; (b) WISTRON is unable, for any reason other than a to fulfill its product delivery or support obligations for a period of sixty (60) consecutive days during the Term, or (c) WISTRON has failed to satisfy its obligations under Section 4 of the Service and Warranty agreement as specified in Exhibit G between the Parties. XPLORE Technologies shall not issue a notice of Non Performance unless the provisions as specified in Termination have been executed.
Should a material breach occur and the requirements of Termination and Non Performance apply then WISTRON shall within ten (10) business days (a) return all monies paid by XPLORE for Products or services not yet accepted by XPLORE, (b) provide a complete and current Data Package as specified in Exhibit H to XPLORE, (c) ship at WISTRONs expense, (including all freight, taxes, duties, and insurance) all tools, all Products and all inventory of raw materials, work in progress or finished goods relating to Products which has been paid for by XPLORE.
XPLORE shall within ten (10)-business days pay WISTRON any and all monies incurred for Products or services completed or accepted by XPLORE. Material breach by WISTRON shall not effect any and all payment due by XPLORE to WISTRON.
13. EFFECT OF TERMINATION:
Upon termination of this Agreement:
(a) WISTRON shall fulfill its obligations as contained in paragraphs 13 (b), (c), (d), (e) and XPLORE shall then immediately assume responsibility for the payment of all XPLORE material, work in process, finished Product and all other outstanding XPLORE inventory then being held by WISTRON, including the inventory being held pursuant to Section 7.13 hereof together with all other monies due and owing pursuant to this Agreement providing that such items meet the terms and conditions of Section 7.13;
(b) The Parties shall facilitate the transfer of all of XPLORE property, Inventory, Products, Equipment, and Data Package as defined in Exhibit H then being held by WISTRON to XPLORE including all documentation relating thereto;
(c) WISTRON shall immediately return all original design drawings, copies of drawings, specifications, written descriptions, and other recorded technical information furnished to WISTRON by XPLORE pursuant to this Agreement;
(d) Each Party shall cease to use the documentation and information provided to it by the other Party pursuant to the provisions of this Agreement;
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(e) WISTRON agrees to fulfill all Purchase Orders received and accepted but not yet fulfilled upon written request by XPLORE; and
(f) Return of Materials. Except as required under the SOW or for WISTRON to provide support services to End-Users, upon termination of this Agreement for any reason, each Party shall return to the other Party, or destroy and certify as to such destruction, all Confidential information, and Documentation of the other Party in their possession.
Sections 1, 4.3, 4.8, 4.9, 4.10, 4.12, 4.13, 4.19, 5.0, 7.2, 7.4, 7.10, 7.11, 8.1, 10, 11, 13.1, 14, 15, Exhibit G shall survive the expiration or earlier termination of this Agreement for any reason.
14. INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION AND NON-DISCLOSURE
If either party creates and/or owns Material prior to the date of this Agreement or independently of its performance under this Agreement ( Pre-existing Material ): (a) such party ( owning party ) shall solely own such Pre-existing Material (subject to any right of any third party), notwithstanding disclosure or delivery to the other party of such Pre-existing Material; (b) the owning party shall have the right to obtain and hold in its own name all Intellectual Property Rights that may be available in (or result from) such Pre-existing Material; and (c) the other party shall have no license, sub-license, right or immunity, either directly or indirectly, or by implication, estoppel or otherwise, under such Intellectual Property Rights, except as expressly provided elsewhere in this Agreement or in a separate written agreement.
WISTRON hereby grants to XPLORE a perpetual, irrevocable, non-exclusive, transferable, royalty-free license to use, modify and copy the WISTRON Pre-existing Materials as may be required in the design, manufacture, use, support or distribution of the Products. WISTRON does not have the right to Mark or brand the Product as their own without obtaining licenses or rights from XPLORE in writing.
Except for WISTRONs existing intellectual property including, without limitation, WISTRON design tools, methodologies, software, algorithms, or other means that may be used to design production means or the processes by which products are manufactured, assembled, or tested, WISTRON agrees that all designs, plans, reports, specifications, drawings, schematics, prototypes, models, inventions, copyrights, and all other information and items made
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or conceived by WISTRON or by its employees, contract personnel, or agents during the course of this Agreement alone or in conjunction with others and related to the Products and Services shall be and are assigned to XPLORE as its sole and exclusive property immediately upon the creation thereof. Upon XPLOREs request WISTRON agrees to assist XPLORE, at XPLOREs expense, to obtain patents for any such inventions, including the disclosure of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, and assignments, and all other instruments and papers which XPLORE shall deem necessary to apply for and to assign or convey to XPLORE, its successors and assigns or nominees, the sole and exclusive right, title and interest in such inventions, copyrights, applications and patents. WISTRON agrees to obtain or has obtained written assurances from its employees and contract personnel of their agreement to substantially the same terms as contained herein with regard to confidential information and such new developments.
The subject matter of this Agreement, in its entirety, and all information relating to all Products will remain confidential during Term and for five (5) years thereafter, during which time each party will not disclose, without the permission of the other party, such information or any of the other partys information which is conspicuously marked to indicate its confidential or proprietary nature or which the other party has otherwise instructed in writing to maintain as confidential. This paragraph shall not apply to any information which is publicly available or which is available from a third party without similar restrictions on disclosure. Upon written request of a party, the other shall return all such confidential information of the requesting party and shall destroy all copies thereof In the event the parties have executed an agreement related to confidential information prior to this agreement the terms and conditions of that agreement shall govern confidential information.
Each party (the Receiving Party ) acknowledges and agrees that any know-how, ideas, techniques, writings, information relating to marketing strategies, pricing policies or characteristics, customers, suppliers and customer and supplier information, customer and supplier lists, product or product specifications, intellectual property, designs, manufacturing, testing or assembly processes or costs, costs of materials, business or business prospects, plans, proposals, codes, marketing studies, research, reports, investigations and other proprietary information furnished to such Receiving Party or any affiliate thereof by the other party or any affiliate thereof prior to and during the negotiation and execution of this Agreement and during the Term ( Confidential Information ), regardless of the form or format of such Confidential Information and regardless of whether such Confidential Information is labeled or marked as secret, confidential or otherwise, is and will be the sole and exclusive property of the other party and/or its affiliate(s), as applicable.
The Receiving Party will (and will cause its employees, agents and affiliates, and the employees and agents of such affiliates to) maintain the confidentiality of the other partys Confidential Information and not sell, license, publish, display, distribute, disclose or otherwise make available such Confidential Information to any third party, nor use such Confidential Information, except as expressly authorized by this Agreement. The Receiving
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Party will take at least such steps to protect the confidentiality of such Confidential Information as the other party takes to protect its own proprietary information and data. The Receiving Party will not disclose any Confidential Information, including without limitation any flow charts, logic diagrams, user manuals and screens, or otherwise, to persons other than employees of the Receiving Party with a need to know such information without the prior written consent of the other party. Receiving Party shall obtain written approval from the other party before releasing any Confidential Information to any third party in the performance of work to be executed as part of this Agreement.
The foregoing Sections 14.1.5, 14.1.4 and this Section 14.1.5 will not prohibit or limit a Receiving Partys use of information, including but not limited to ideas, concepts, know how, techniques and methodologies, which: (i) is or becomes pad of the public domain through no breach of these Sections 14.1.3, 14.1.4 or 14.1.5; (ii) is rightfully obtained by the Receiving Party from a third party without restriction; (iii) is required to be disclosed in response to a valid order by a court having proper jurisdiction over the parties; or (iv) the Receiving Party already possesses without an obligation of confidentiality.
15. GENERAL PROVISIONS
This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its conflicts of laws provisions. The parties agree to attorn to the jurisdiction of the courts of Travis county and WISTRON agrees it will not bring a claim against XPLORE except in the courts of Travis county.
This Agreement and any Exhibits hereto sets forth the entire agreement and understanding of the Parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the Party to be charged. Notwithstanding any other provision contained herein, in the event that either Party assigns this Agreement to a legal successor in interest in accordance with the terms and conditions of this Section 15.2 and the other Party determines, in its sole discretion, that such assignee is a competitor of the other Party, then such other Party may, upon one hundred twenty (120) calendar days prior written notice, terminate this Agreement without incurring any further liability hereunder.
Any and all notices and other communications necessary or desirable to be served in connection with this Agreement shall be in writing and shall be either sent by registered mail, return receipt requested, postage prepaid, addressed to the intended recipient at the address for such intended recipient set forth below, or sent to facsimile telecopier to the intended recipient at the facsimile telecopier for such intended recipient set forth below. The addresses and facsimile telecopiers for the parties hereto are as follows:
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For communications to XPLORE:
XPLORE Technologies Corporation of America
11675 Jollyville Road, #150
Austin, Texas 78759
Attention: Mr. Michael Ross
Facsimile Telecopier: (512) 336-7791
with a copy to:
XPLORE Technologies Corp.
6535B Mississauga Road
Mississauga, Ontario L5N lA6 Canada
Attention: Mr. David Belbeck
Facsimile Telecopier: (905) 814-9124
For communications to WISTRON:
WISTRON
with a copy to:
Attention:
Facsimile telecopier:
or to such other addresses or facsimile telecopier numbers as either party hereto may designate for itself from time to time in a notice served upon the other party hereto in accordance herewith. Any notice sent by facsimile telecopier as provided above shall be deemed delivered on the next business day following confirmation of successful transmission of such notice by the transmitting facsimile telecopier system. Any notice sent by mail as provided above shall he deemed delivered on the third (3 rd ) business day next following the postmark date which it bears.
Except for the obligation to make payments, non-performance of either Party shall be excused to the extent the performance is rendered impossible by strike, fire, flood, governmental acts or orders or restrictions, component shortages or any other reason where failure to perform is beyond the reasonable control of and is not caused by the negligence of the nonperforming Party (each a Force Majeure Event) provided, however, that the Party so affected shall take all reasonable steps to avoid or remove such cause of non-performance and shall resume performance hereunder with dispatch whenever such causes are removed. Failure of WISTRONs subcontractors to perform shall not be considered a Force Majeure Event, unless they have a Force Majeure Event as defined above. Notwithstanding the foregoing, if a Force
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Majeure Event continues for more than 30 consecutive days, the other party may terminate this Agreement.
The prevailing Party in any legal action brought by one Party against the other and arising out of this Agreement shall be entitled, in addition to ally other rights and remedies it may have, to reimbursement for its expenses, including court costs and reasonable attorneys fees.
This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
Upon execution of this Agreement, XPLORE and/or WISTRON may issue one (1) or more joint and/or individual press releases regarding this Agreement; provided, however, such press releases must be approved by both Parties in writing prior to release. Neither Party may make any subsequent press release or other public statement concerning this Agreement without obtaining the prior written consent of the other Party, except as may be required by law. In a situation where one Party is required by law to make a press release or other public statement concerning this Agreement, the disclosing Party shall provide the other Party with reasonable notice and an opportunity to comment prior to making such disclosure.
Notwithstanding any other provision contained herein, in the event of any conflict between the terms and conditions of this Agreement and any Exhibits and/or appendices attached hereto or referenced herein, the terms and conditions of this Agreement shall control and prevail.
If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law, then the remaining provisions of this Agreement will remain in full force and effect.
No delay or omission by either Party to exercise any right or power it has under this Agreement shall impair or be construed as a waiver of such right or power. A waiver by any Party of any breach of any covenant or provision of this Agreement shall not be construed to be a waiver of any succeeding breach of any other covenant or provision. All waivers must be in writing and signed by the Party waiving its rights.
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This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Neither party hereto shall have any right to assign or delegate its rights or obligations hereunder except that a party hereto may assign or delegate its rights including any license granted herein or obligations hereunder (a) to the extent that the other party hereto shall have expressly consented to such assignment or delegation, which consent may be granted or withheld at such other partys discretion, (b) to any entity which controls, is controlled by, or is under common control with such party, and (c) to any person or entity acquiring all or substantially all of such partys assets as are associated with the business that is the subject matter of this Agreement, whether by purchase, merger, acquisition of shares, or other means.
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IN WITNESS WHEREOF , the Parties hereto have signed this Turnkey Design and Manufacturing Agreement as of the Effective Date.
XPLORE Technologies Corporation |
WISTRON Corporation |
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By: |
/s/ Brian Groh |
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By: |
/s/ Simon Lin |
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Printed Name: |
Brian Groh |
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Printed Name: |
Simon Lin |
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Title: |
President and CEO |
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Title: |
Chairman & CEO |
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Date: |
July 22, 2003 |
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Date: |
July 22, 2003 |
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Exhibit 10.2
INTERCREDITOR, TRADE CREDIT RESTRUCTURING
AND SECURITY AGREEMENT
This Intercreditor, Trade Credit Restructuring and Security Agreement , dated as of November 24, 2004 by and among Xplore Technologies Corp. , a corporation incorporated under the laws of Canada ( Xplore ), Xplore Technologies Corporation of America , a corporation incorporated under the laws of Delaware and a wholly-owned subsidiary of Xplore ( Xplore America ), Phoenix Enterprises LLC , a limited liability company organized under the laws of the State of Delaware ( P hoenix ), Phoenix Venture Fund LLC , a limited liability company organized under the laws of the State of Delaware ( P hoenix Fund ), The Philip S. Sassower 1996 Charitable Remainder Annuity Trust , a trust organized under the laws of the State of New York (the Trust ) and Wistron Corporation, a corporation incorporated under the laws of Taiwan ( Wistron ).
WHEREAS , the Parties agree that their mutual goal is to facilitate Xplores continuation as a viable entity and future achievement of profitability, and in particular, to ensure that new cash infusions to Xplore are used for the launch of the Wildcat II (Centrino) product line;
WHEREAS pursuant to that certain Debenture Purchase Agreement, dated November 5, 2002 (the November 2002 Agreement ), by and among Xplore, Phoenix, Phoenix Enterprises Family Fund, LLC (the Family Fund ), the Trust and each of the other lenders listed on Schedule 1 thereto (Phoenix, the Family Fund, the Trust and each such lender, collectively, the November 2002 Lenders ), the November 2002 Lenders loaned an aggregate of $5,000,000 to Xplore, and Xplore, among other things, issued debentures in the aggregate principal amount of $5,000,000 to the November 2002 Lenders;
WHEREAS, pursuant to that certain December 2002 Debenture Purchase Agreement, dated December 6, 2002 (the December 2002 Agreement ), by and among Xplore, Phoenix and each of the other lenders listed on Schedule 1 thereto (Phoenix and each such lender, collectively, the December 2002 Lenders ), the December 2002 Lenders loaned an aggregate of $1,000,000 to Xplore, and Xplore, among other things, issued debentures in the aggregate principal amount of $1,000,000 to the December 2002 Lenders;
WHEREAS , pursuant to terms of the April 2003 Debenture Purchase Agreement dated as of April 9, 2003 (the April 2003 Agreement ), by and among Xplore, Phoenix and each of the other lenders listed on Schedule 1 thereto (Phoenix and each such lender, collectively, the April 2003 Lenders ), the April 2003 Lenders loaned an aggregate of $1,000,000 to Xplore, and Xplore, among other things, issued debentures in the aggregate principal amount of $1,000,000 to the April 2003 Lenders;
WHEREAS , pursuant to terms of the Second April 2003 Debenture Purchase Agreement dated as of April 28, 2003 (the Second April 2003 Agreement ), by and among Xplore, Phoenix and each of the other lenders listed on Schedule 1 thereto (Phoenix and each such lender, collectively, the Second April 2003 Lenders ), the April 2003 Lenders loaned an
aggregate of $1,000,000 to Xplore, and Xplore, among other things, issued debentures in the aggregate principal amount of $1,000,000 to the Second April 2003 Lenders;
WHEREAS , pursuant to terms of the September 2004 Debenture Purchase Agreement dated as of September 15, 2004 (the September 2004 Agreement ), by and among Xplore and the Trust, the Trust loaned an aggregate of $1,050,000 to Xplore, and Xplore, among other things, issued a debenture in the aggregate principal amount of $1,050,000 to the Trust;
WHEREAS , pursuant to terms of that November 2004 Debenture Purchase Agreement dated as of the date hereof (the November 2004 Agreement ), by and among Xplore, Phoenix Fund and each of the other lenders listed on Schedule 1 thereto (Phoenix Fund and each such lender, collectively, the November 2004 Lenders ), the November 2004 Lenders have agreed to loan an aggregate of $5,000,000 to Xplore, and Xplore, among other things, has agreed to issue convertible debentures in the aggregate principal amount of $5,000,000 to the November 2004 Lenders
WHEREAS , it is in the best interests of the November 2002 Lenders, the December 2002 Lenders, the April 2003 Lenders, the Second April 2003 Lenders and the Trust, as investors in Xplore, for Xplore to receive the proceeds from the November 2004 Loan;
WHEREAS , it is in the best interests of Wistron, as a supplier to and creditor of Xplore, for Xplore to receive the proceeds from the November 2004 Loan; and
WHEREAS , as a condition precedent to the November 2004 Lenders entering into the November 2004 Agreement and making the November 2004 Loan, Xplore and Wistron must execute and deliver this Agreement, which, among other things, provides for (i) the restructuring of Xplores trade credit debt with Wistron, (ii) an increase in Xplores trade credit line with Wistron, and (iii) the restructuring of Xplore NRE debt with Wistron, including the issuance of common shares of Xplore in partial conversion thereof.
NOW , THEREFORE , in consideration of the premises herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE I
Terms used herein that are defined in the UCC have the meanings defined for those terms in the UCC unless otherwise expressly defined herein. References to sums of money herein are to U.S. dollars, unless otherwise specified. The following additional terms, as used herein, shall have the following respective meanings:
April 2003 Collateral means collectively, the Collateral, as that term is defined in Section 3(a) of the April 2003 Security Agreement and (ii) the Secured Property, as that term is defined in Section 3.1 of the April 2003 Agreement.
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April 2003 Security Agreement means that certain Security Agreement, dated as of April 9, 2003, between Xplore America and Phoenix, for the benefit of the lenders listed on Schedule 1 attached thereto.
Business Day means any day other than Saturday, Sunday or a day on which chartered banks are closed for business in New York, New York.
Claims means all present and future claims of the Creditors against Xplore (including the Obligations) for the payment of money, including all claims for principal and interest (including interest accruing after the commencement of a bankruptcy proceeding by or against Xplore) or for reimbursement of fees, costs or expenses, or otherwise, whether fixed or contingent, matured or unmatured, liquidated or unliquidated, and whether arising under contract, in tort or otherwise.
Common Shares means common shares, no par value, of Xplore.
Collateral means collectively, the Wistron Collateral and the Phoenix Collateral.
Creditors means Wistron and the Phoenix Creditors and Creditor means each of them.
Debto r means Xplore and Xplore America.
December 2002 Collateral means collectively, the Collateral, as that term is defined in Section 3(a) of the December 2002 Security Agreement and (ii) the Secured Property, as that term is defined in Section 3.1 of the December 2002 Agreement.
December 2002 Security Agreement means that certain Security Agreement, dated as of December 6, 2002, between Xplore America and Phoenix, for the benefit of the lenders listed on Schedule 1 attached thereto.
Existing Debenture Agreements means collectively, the November 2002 Agreement, the December 2002 Agreement, the April 2003 Agreement, the Second April 2003 Agreement, the September 2004 Agreement and the November 2004 Agreement.
Financing Documents means (i) the November 2002 Agreement and any other Transaction Documents (as that term is defined in the November 2002 Agreement), (ii) the December 2002 Agreement and any other Transaction Documents (as that term is defined in the December 2002 Agreement), (iii) the April 2003 Agreement and any other Transaction Documents (as that term is defined in the April 2003 Agreement), (iv) the Second April 2003 Agreement and any other Transaction Documents (as that term is defined in the Second April 2003 Agreement), (v) the September 2004 Agreement and any other Transaction Documents (as that term is defined in the September 2004 Agreement), (vi) the November 2004 Agreement and any other Transaction Documents (as that term is defined in the September 2004 Agreement), and (vii) this Agreement.
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November 2002 Collateral means collectively, the Collateral, as that term is defined in Section 3(a) of the November 2002 Security Agreement and (ii) the Secured Property, as that term is defined in Section 3.1 of the November 2002 Agreement.
November 2002 Security Agreement means that certain Security Agreement, dated as of November 5, 2002, between Xplore America and Phoenix, for the benefit of the lenders listed on Schedule 1 attached thereto.
November 2004 Collateral means collectively, the Collateral, as that term is defined in Section 3(a) of the November 2004 Security Agreement and (ii) the Secured Property, as that term is defined in Section 3.1 of the November 2004 Agreement.
November 2004 Security Agreement means that certain Security Agreement, dated as of November 23, 2004, between Xplore America and Phoenix Fund, for the benefit of the lenders listed on Schedule 1 attached thereto.
Parties means Xplore, Phoenix, Phoenix Fund, the Trust and Wistron and Party means each of them.
Phoenix Collateral means collectively, the November 2002 Collateral, the December 2002 Collateral, the April 2003 Collateral, the Second April 2003 Collateral, the September 2004 Collateral and the November 2004 Collateral.
Phoenix Creditors means collectively, the November 2002 Lenders, the December 2002 Lenders, the April 2003 Lenders, the Second April 2003 Lenders, the Trust and the November 2004 Lenders.
Securities Act means the Securities Act (Ontario).
September 2004 Collateral means collectively, (i) the Collateral, as that term is defined in Section 3(a) of the September 2004 Security Agreement and (ii) the Secured Property, as that term is defined in Section 3.1 of the September 2004 Agreement.
September 2004 Security Agreement means that certain Security Agreement, dated as of September 15, 2004, between Xplore America and the Trust.
Second April 2003 Collateral means collectively, (i) the Collateral, as that term is defined in Section 3(a) of the Second April 2003 Security Agreement and (ii) the Secured Property, as that term is defined in Section 3.1 of the Second April 2003 Agreement.
Second April 2003 Security Agreement means that certain Security Agreement, dated as of April 28, 2003, between Xplore America and Phoenix, for the benefit of the lenders listed on Schedule 1 attached thereto.
UCC means the Uniform Commercial Code as in effect on the date hereof in the State of New York, and as the same may be amended or revised from time to time; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of a security interest in any Collateral is governed by the Uniform Commercial Code
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as in effect in a jurisdiction other than the State of New York, UCC means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.
ARTICLE II
TRADE CREDIT LINE
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Xplore shall use commercially reasonable efforts to reduce its accounts receivable aging cycle and increase its inventory turn rate.
ARTICLE III
INTERCREDITOR AGREEMENT
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Each Creditor shall be solely responsible for perfecting and maintaining the perfection of its security interest in and to each item constituting the Collateral in which such Creditor has been granted a security interest. Wistron agrees that it will not contest the validity, perfection, priority or enforceability of the Phoenix Creditors security interest in the Phoenix Collateral and the Phoenix Creditors each agree that they will not contest the validity, perfection, priority or enforceability of Wistrons security interest in the Wistron Collateral, including, but not limited to, in any judicial proceedings in connection with or related to the bankruptcy and/or reorganization of Xplore.
No Creditor nor any of their respective directors, officers, agents or employees shall be responsible to any other Creditor or to any other person or entity for Xplores solvency, creditworthiness, financial condition, or ability to repay any of the Claims or for the accuracy of any recitals, statements, representations or warranties of Xplore, oral or written, or for the validity, sufficiency, enforceability or perfection of the Claims or the Financing Documents, or any security interests or liens granted by Xplore to any Creditor in connection therewith. Each Creditor has entered into its respective financing agreements with Xplore based upon its own independent investigation, and makes no warranty or representation to the other Creditors nor does it rely upon any representation of the other Creditors with respect to matters identified or referred to in this paragraph. No Creditor shall have any liability to the other Creditors for monitoring or assuring compliance by Xplore with any of Xplores covenants or representations made to any other Creditor. Without limiting the generality of the foregoing, any Creditor may perform or require performance by Xplore in accordance with the terms of its respective Financing Documents (subject to this Agreement) without regard to whether Xplores performance in accordance to the terms thereof might or would constitute or result in a breach of the covenants or representations under the other Creditors Financing Documents, and under no circumstances shall any Creditor be liable to any other Creditor for inducing a breach or violation of such Creditors Financing Documents by virtue of performing or requiring performance by Xplore in accordance with the terms of its own Financing Documents (subject to this Agreement).
ARTICLE IV
EXISTING PRODUCT PURCHASE OBLIGATIONS
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ARTICLE V
FUTURE THIRD-PARTY FINANCING
ARTICLE VI
PARTIAL CONVERSION OF AND REPAYMENT OF DEBT
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ARTICLE VII
STANDSTILL AGREEMENT
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ARTICLE VIII
CONFIDENTIALITY
Each Party hereby agrees to treat all information concerning another Party furnished, or to be furnished, by or on behalf of the other Party in accordance with the provisions of this Section 8.1 (collectively, the Information ), and to take, or abstain from taking, other actions set forth herein. The Information will be kept confidential by each Party hereto and its officers, directors, employees, representatives, agents, and advisors; provided that (i) any of such Information may be disclosed to a Partys officers, directors, employees, representatives, agents, and advisors who need to know such information for the purposes of this Agreement, (ii) any disclosure of such Information may be made if the Party from which such Information was obtained consents in writing, (iii) such Information may be disclosed to the extent such Information is in the public domain or otherwise available to a Party hereto from a source other than the other Party, and (iv) such Information may be disclosed if so required by law or regulation.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Each Party, as to itself only, represents and warrants to each other Party that:
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Xplore represents and warrants to each other Party that:
ARTICLE X
GENERAL
This Agreement is a continuing agreement and, unless each Party has specifically consented in writing to its earlier termination, this Agreement shall remain in full force and effect in all respects until such time as the Claims are paid or otherwise satisfied in full and each Creditor has released or terminated its respective security interests in its respective Collateral.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., (New York time), on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., (New York time), on any date and earlier than 11:59 p.m., (New York time), on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) actual receipt by the Party to whom such notice is required to be given. The addresses for such communications shall be addressed:
135 East 57 th Street, 12 th Floor
New York, NY 10022
Attention: Philip S. Sassower
Facsimile: (212) 319-4970
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with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, NY 10022
Attention: David M. Warburg
Facsimile: (212) 895-2900
and with a copy to Xplore and Xplore America as set forth below.
Xplore Technologies Corp.
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention:
Michael J. Rapisand
Facsimile: (512) 336-7791
with a copy to:
McCarthy Tétrault LLP
Suite 4700
Toronto Dominion Bank Tower
Toronto, ON M5K 1E6
Attention: Jonathan Grant
Facsimile: (416) 868-0673
and with a copy to Phoenix, Phoenix Fund and the Trust as set forth above.
Attention:
Facsimile:
and with a copy to Xplore, Xplore America, Phoenix, Phoenix Fund and the Trust as set forth above.
Each Party shall be solely responsible for and bear all of its own respective expenses, including, without limitation, expenses of its respective legal counsel, accountants, and other advisors, incurred at any time in connection with pursuing or consummating any of the transactions contemplated by this Agreement.
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If any term, provision or restriction contained in this Agreement is held invalid, void, or unenforceable by a court of competent jurisdiction, the remaining terms and provisions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated .
This Agreement, and the documents referred to herein constitute the entire agreement between the Parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the Parties hereto concerning such subject matter are expressly superseded.
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The Parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all of the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
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IN WITNESS WHEREOF , the Parties have executed this Agreement, as of the date first written above.
WISTRON CORPORATION |
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Title: Chairman & CEO |
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XPLORE
TECHNOLOGIES
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PHOENIX ENTERPRISES, LLC |
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/s/ Philip S. Sassower |
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Name: Brian Groh |
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Title: President and CEO |
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THE
PHILIP S. SASSOWER 1996
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PHOENIX
VENTURE FUND LLC
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its Managing Member |
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15
Exhibit 10.3
XPLORE TECHNOLOGIES CORP.
(as the Corporation)
and
PHOENIX VENTURE FUND LLC
(Phoenix)
and
EACH OF THE LENDERS LISTED
ON SCHEDULE 1 ATTACHED HERETO
(collectively, the Lenders)
DECEMBER 2004 DEBENTURE PURCHASE AGREEMENT
December 17, 2004
DECEMBER 2004 DEBENTURE PURCHASE AGREEMENT
THIS AGREEMENT is made the 17th day of December, 2004, by and among Xplore Technologies Corp. , a corporation incorporated under the laws of Canada (the Corporation ), Phoenix Venture Fund LLC , a limited liability company organized under the laws of the State of Delaware ( Phoenix ) and each of the other lenders listed on Schedule 1 attached to this Agreement (each such lender, a Lender and collectively, the Lenders ).
WHEREAS the Corporation is in the business of engineering, developing, integrating and marketing ruggedized mobile wireless pen-based computing systems;
WHEREAS the Lenders agree to subscribe for and purchase from the Corporation, and the Corporation agrees to issue to the Lenders, units (the Units ) each consisting of (a) a senior secured convertible debenture of the Corporation in the principal amount of $1,000 (each, a Debenture ), and (b) a share purchase warrant (each, a Warrant ) entitling the holder thereof to purchase up to 1,820 Common Shares of the Corporation ( Common Shares ). The Debentures, collectively held by all Lenders, will not exceed in the aggregate, the principal amount of Five Million United States Dollars ($5,000,000) and the Warrants, collectively as held by all Lenders, will be exercisable for an aggregate of no more than 9,100,000 Common Shares (subject to the adjustments provided by the terms of the Warrants);
WHEREAS the proceeds to the Corporation paid by the Lenders for the Units will be used by the Corporation solely in accordance with the terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE 1.
TRANSACTIONS
Section 1.1. Issuance of Debentures and Share Purchase Warrants to the Lenders.
On the terms and subject to the conditions hereof, on the Closing Date each Lender will purchase from the Corporation and the Corporation will issue and sell to each such Lender that number of Units as is set forth opposite such Lenders name on Schedule 1 hereto, each of which shall consist of one Debenture in the principal amount of $1,000 and a Warrant entitling the holder thereof to purchase up to 1,820 Common Shares. The terms and conditions of the Debentures are as set forth herein and are evidenced by the Debenture Certificates in the form attached hereto as Exhibit A. The terms and conditions of the Warrants are as set forth in the Share Purchase Warrant Certificate in the form attached hereto as Exhibit B .
Section 1.2. Purchase Price
On the terms and subject to the conditions hereof, on the Closing Date, each Lender shall pay the amount set forth opposite its name on Schedule 1 , which amount has been calculated by multiplying the per Unit purchase price of $1,000 (the Purchase Price ) by the number of Units being purchased by such Lender, to the Corporation by way of certified check, bank draft
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or wire transfer, less in the case of Phoenix Fund as a Lender, (i) any unpaid fees and expenses payable by the Corporation to Phoenix pursuant to Section 1.3 hereof, and (ii) an amount equal to the aggregate principal amount of the Fund Debenture plus all interest accrued thereon, which shall represent payment-in-full of the Fund Debenture. The Corporation hereby irrevocably directs Phoenix to withhold such fees and expenses from the payment of the Purchase Price and Phoenix hereby agrees that the withholding of such fees and expenses shall constitute Phoenixs acknowledgement and agreement that the Corporation shall not thereafter have any further obligation to Phoenix under Section 1.3 hereof, except as set forth in Section 7.2(f).
Section 1.3. Fees and Expenses
(a) The Corporation acknowledges and agrees that it will be responsible for and will pay or reimburse Phoenix forthwith on demand for all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by Phoenix, its representatives and consultants relating to its investigation of the Corporation, the Subsidiaries and its respective businesses, the negotiation, preparation and review of this Agreement and the other Instruments and related agreements and all other matters pertaining to the transactions hereby contemplated, including, without limitation, all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by Phoenix for legal advice and services in connection with such transactions.
(b) The Corporation acknowledges and agrees that it will be responsible for and will pay all such reasonable fees (including, but not limited to, legal fees), expenses and other out-of-pocket expenses whether or not the transactions hereunder are completed and even if it is the Lenders who terminate this Agreement pursuant to Section 7.2 hereof; provided , that if this Agreement is terminated prior to Closing, the maximum amount the Corporation will be required to pay or reimburse the Lenders for legal fees is $100,000 (inclusive of outstanding and unpaid expenses of Phoenixs counsel incurred since February 2004).
Section 1.4. Use of Proceeds
The Corporation hereby covenants, agrees, represents and warrants with and to the Lenders that the Corporation will use the net proceeds from the issuance and sale of the Units to the Lenders solely to finance its product development and for working capital and general corporate purposes; provided , that $2,686,109.59 from such net proceeds will be used to repay the CRAT Debenture and the Fund Debenture in full, plus all interest accrued thereon, and up to a maximum of $100,000 from such net proceeds will be used to pay a portion of the legal expenses incurred in connection with the financing and restructuring of the Corporations obligations and credit arrangements with Wistron Corporation.
Section 1.5. Closing Arrangements
Subject to the terms and conditions hereof, the transactions contemplated herein shall close (the Closing ) on the Closing Date at such place or places as may be mutually agreed upon by the Corporation and Phoenix.
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ARTICLE 2.
PAYMENT OBLIGATIONS
Section 2.1. Principal Sum
For value received, the Corporation, having its principal business office at 14000 Summit Drive, Austin, Texas 78728, shall pay to the order of each of the Lenders the principal amount of each Debenture held by such Lender (as set forth opposite such Lenders name on Schedule 1 ), unless such Debenture has been prepaid or has been converted by the Lender, plus all accrued and unpaid interest thereon in lawful money of the United States on October 31, 2005 (the Maturity Date ), or such earlier date as the Obligations shall become due and payable hereunder, at the offices of the respective Lenders identified on the signature pages attached hereto or such other place as the Lenders may designate in writing not less than two Business Days prior to the Maturity Date.
Section 2.2. Interest
The principal outstanding on each Debenture from time to time shall bear interest from and including the Closing Date to the date of repayment in full at 10% per annum calculated and payable semi-annually, in arrears (the Interest Rate ), and payable in cash or, at the option of the Lender with 30 days prior written notice to the Company and subject to the approval of the Toronto Stock Exchange, that number of Conversion Shares determined by dividing (a) the amount of the applicable interest payment by (b) the volume weighted average trading price of the Common Shares on the TSX for the 10 trading days preceding the applicable interest payment date less the maximum discount permitted by the TSX, on June 30th and December 31st in each year during which any Obligations are outstanding, the first of such payments being due December 31, 2004. Interest on overdue interest shall be calculated and payable at the same rate. After the occurrence of an Event of Default and for so long as it continues, all Obligations shall bear interest at a rate that is 5% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the Debentures (the Default Interest Rate ).
This Agreement and the other Transaction Documents are subject to the express condition that at no time shall the Corporation be required to pay interest on the principal balance of the Debentures at a rate which could subject Lenders to either civil or criminal liability as a result of being in excess of the maximum amount permissible under applicable usury or similar laws (the Maximum Legal Rate ). If by the terms of this Agreement or the other Transaction Documents, the Corporation is at any time required or obligated to pay interest on the principal balance due under the Debentures at a rate in excess of the Maximum Legal Rate, the Interest Rate, or the Default Interest Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lenders for the use, forbearance, or detention of the sums due under the Debentures, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of the Debentures until payment in full so that the rate or amount of interest on account of the Debentures does not exceed the Maximum Legal Rate from time to time in effect and applicable to the Debentures for so long as the Debentures are outstanding.
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Section 2.3. Repayments
The Corporation shall pay to each Lender the principal amount, any accrued and unpaid interest (in cash or Conversion Shares at the option of the Lender in accordance with Section 2.2) and any other monies owing in respect of the Debentures in full on the Maturity Date or on such earlier date as the Obligations shall become due and payable in full hereunder. Each payment of principal amount of the Debentures hereunder (whether at maturity, by way of prepayment of otherwise), and each payment of interest on the Debentures shall be made and applied to the Lenders pro rata (in cash or Conversion Shares, as the case may be) based on the ratio that each Lenders Debentures bears to the total number of Debentures issued to the Lenders hereunder.
Section 2.4. Prepayments
The Corporation may, upon at least fifteen (15) days prior notice to the Lenders, prepay the Debentures (a Voluntary Prepayment ), without premium or penalty, in whole or in part at any time (any such date, the Prepayment Date ); provided that upon any such prepayment all accrued and unpaid interest as of the date immediately preceding the Prepayment Date shall be paid in cash.
Section 2.5. Acceleration Events/Mandatory Prepayments
(a) Subject to the terms of the Intercreditor Agreement and the Wistron Intercreditor Agreement, the unpaid principal amount of the Debentures, together with any accrued and unpaid interest thereon, shall become immediately due and payable on a first priority basis prior to any repayment of the Existing Debentures, but pari passu with the CRAT Debenture, if then outstanding, and the Fund Debenture, if then outstanding, and subject to the rights of Wistron under the Wistron Intercreditor Agreement (an Acceleration Event ), in whole or in part, to the extent of fifty percent (50%) of the proceeds received by the Corporation in any one or more financing transactions (a Financing ) involving the sale and issuance by the Corporation of equity or debt securities of the Corporation (other than proceeds from the exercise of share options, stock purchase warrants or other convertible securities of the Corporation outstanding at or prior to the Closing or any Warrant). Subject to the terms of the Intercreditor Agreement and the Wistron Intercreditor Agreement, any remaining proceeds of any such Financing allocated to the repayment of Funded Indebtedness of the Corporation shall first be applied to repayment of the Debentures prior to any repayment of the Existing Debentures or any other Funded Indebtedness of the Corporation, except for the CRAT Debenture, if still outstanding, and the Fund Debenture, if then outstanding.
(b) The Corporation shall, subject to the terms of the Intercreditor Agreement and the Wistron Intercreditor Agreement, promptly upon the consummation of a sale or disposition of assets in bulk (other than as part of a bankruptcy or insolvency proceeding or a liquidation of the Corporation or any Subsidiary) by the Corporation or any Subsidiary in which the Corporation or Subsidiary, as applicable, shall receive aggregate proceeds in excess of $5,000,000, prepay the Debentures, on a first priority basis prior to any repayment of the Existing Debentures (a Mandatory Prepayment ), to the extent of all such proceeds.
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Section 2.6. Payment in US Dollars .
All payments made in cash by the Corporation shall be made in U.S. Dollars in immediately available funds.
Section 2.7. Taxes
Any and all payments or reimbursements made under the Debentures shall be made free and clear of, and without deduction for, any and all taxes, levies, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, deductions, charges or withholdings and all liabilities with respect thereto, excluding such taxes imposed on net income, Tax Liabilities ), excluding, however, (i) any taxes imposed on income or any franchise tax imposed in lieu of a net income tax; (ii) any taxes imposed on any Lender (or any Person or entity with an interest in Lender), and (iii) any taxes for which any Lender (or any Person or entity with an interest in such Lender) would be entitled to claim a credit against its income tax liability in the country in which the Lender is organized or otherwise subject to taxation. If the Corporation shall be required by law to deduct any such amounts from or in respect of any sum payable hereunder to a Lender then, the Corporation shall pay such amounts to the appropriate Governmental Body and provide such Lender with satisfactory documentary evidence of such payment within ten (10) days after such payment and the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, such Lender receives an amount equal to the sum it would have received had no such deductions been made.
ARTICLE 3.
INTERPRETATION
Section 3.1. Defined Terms
As used herein the following expressions shall have the following meanings:
Accounts Receivable means all of the Corporations accounts, contract rights, chattel paper, instruments, general intangibles and rights to payment of every kind, now or at any time hereafter arising.
Affiliate means, in respect of any corporation, any Person which, directly or indirectly, controls or is controlled by or is under common control with the Corporation; and for the purpose of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) means the power to direct, or cause to be directed, the management and policies of a Corporation whether through the ownership of Voting Shares or by contract or otherwise.
Aggregate Purchase Price means the total amount of up to $5,000,000 paid collectively by all Lenders to the Corporation for Units, as more specifically set forth on Schedule 1 hereto.
Applicable Law means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees of Governmental Bodies.
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Business Day means any day other than Saturday, Sunday or a day on which chartered banks are closed for business in New York, New York.
Capital Lease Obligations means, as to any Person, the obligation of such Person to pay rent or other liquidated amounts under a lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under generally accepted accounting principles and, for purposes of this Agreement, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles.
Cash Equivalents means: (i) marketable direct obligations issued or unconditionally guaranteed by the United States or Canadian Government or issued by any agency thereof and backed by the full faith and credit of the United States or Canada, in each case maturing within one (1) year from the date of acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poors Rating Service or at least P-1 from Moodys Investors Service, Inc.; (iii) certificates of deposit or bankers acceptances maturing within one (1) year from the date of issuance thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of Canada or the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $500,000,000; and (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks having membership in the Federal Deposit Insurance Corporation or the Canadian Deposit Insurance Corporation in amounts at any one such institution not exceeding the lesser of $100,000 or the maximum amount of insurance applicable to the aggregate amount of the Corporations deposits at such institution.
Change of Control means any of:
(i) a merger, consolidation, amalgamation or reorganization involving the Corporation, unless such merger, consolidation, amalgamation or reorganization is one in which the shareholders of the Corporation, immediately before such merger, consolidation, amalgamation or reorganization, own, directly or indirectly immediately following such merger, consolidation, amalgamation or reorganization, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, amalgamation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, amalgamation or reorganization,
(ii) the individuals who, as of the date hereof, are members of the Board (the Incumbent Board ), cease for any reason to constitute at least two-thirds of the members of the Board; provided , however , that (i) if the election, or nomination for election by the Corporations common shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board or (ii) if any new director has been designated by the Lenders pursuant to Section 6.5 or by the Existing Debenture Holders pursuant to the November 2002 Debenture Agreement, the April 2003 Debenture Agreement or the Second April 2003 Debenture Agreement, such new director shall, for purposes hereof, be considered as a member
8
of the Incumbent Board; provided further , however , that no individual (other than an individual designated pursuant to Section 6.5 or pursuant to the rights of the Existing Debenture Holders) shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a Proxy Contest ) including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest;
(iii) the Corporation shall cease to own and control all of the economic and voting rights associated with ownership of at least 100% of the outstanding shares of all classes of the Subsidiaries on a fully diluted basis, other than pursuant to the dissolution or winding-up of a Subsidiary pursuant to which all of the assets of such Subsidiary are transferred or conveyed to the Corporation or a Subsidiary; and
(iv) with respect to any of the Corporation or Subsidiaries, the time when the Corporation or such Subsidiary has sold, transferred, conveyed assigned or otherwise disposed of all or substantially all of its assets, other than pursuant to a transaction in which such assets are sold, transferred, conveyed, assigned or disposed of to the Corporation or a Subsidiary.
Closing Date means December 17, 2004 or such other date as Phoenix and the Corporation may agree upon as the Closing Date.
Contingent Liabilities means, as applied to any Person, any direct or indirect contingent liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings. Contingent Liabilities shall also include (A) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (B) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, other than pursuant to routine agreements entered into in the ordinary course of business, and (C) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefore, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Liabilities shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.
Conversion Shares means Common Shares issued to the Lenders in payment of interest on the Debentures in lieu cash.
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CRAT means The Philip S. Sassower 1996 Charitable Remainder Annuity Trust, a trust organized under the laws of the State of New York.
CRAT Debenture means that debenture of the Corporation issued pursuant to that certain Debenture Purchase Agreement, dated September 15, 2004, by and between the Corporation (as Borrower) and The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the September 2004 Debenture Agreement ).
Default means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default.
Encumbrance means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, hypothec, levy, execution, seizure, attachment, garnishment, right of distress or other claim in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back.
Environmental Laws means all applicable federal, provincial, state, municipal or local laws, statutes, regulations or ordinances relating to the environment, occupational safety, health, product liability and transportation.
Environmental Order means any prosecution, order, decision, notice, direction, report, recommendation or request issued, rendered or made by any Governmental Body in connection with Environmental Laws.
Event of Default has the meaning ascribed to such term in Section 8.1.
Existing Debentures means those debentures of the Corporation issued pursuant to (i) that certain Debenture Purchase Agreement, dated November 5, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the November 2002 Debenture Agreement ), (ii) that certain December 2002 Debenture Purchase Agreement, dated December 6, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the December 2002 Debenture Agreement ), (iii) that certain April 2003 Debenture Purchase Agreement, dated April 9, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the April 2003 Debenture Agreement ) and (iv) that certain Second April 2003 Debenture Purchase Agreement, dated April 28, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the Second April 2003 Debenture Agreement ).
Existing Debenture Agreements means (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement and (iv) the Second April 2003 Debenture Agreement.
Existing Debenture Holders means those Persons in their capacity as lenders under (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement and (iv) the Second April 2003 Debenture Agreement.
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Fund Debenture means that debenture of the Corporation issued pursuant to that certain Debenture Purchase Agreement, dated November 23, 2004, by and between the Corporation (as Borrower) and Phoenix (the November 2004 Debenture Agreement ).
Funded Indebtedness means, with respect to any Person at any particular time, the aggregate (without duplication) of the following amounts determined in accordance with generally accepted accounting principles on a consolidated basis at such time:
(i) indebtedness for money borrowed and indebtedness represented by notes payable and drafts accepted representing extensions of credit (including, as regards any note or draft issued at a discount, the face amount of such note or draft) and including the face amount of bankers acceptances and letters of credit;
(ii) all obligations (whether or not with respect to the borrowing of money) which are evidenced by bonds, debentures, notes or other similar instruments or not so evidenced but which would be considered to be indebtedness for borrowed money in accordance with generally accepted accounting principles;
(iii) all indebtedness for borrowed money secured by an Encumbrance on any property of such Person;
(iv) all indebtedness upon which interest charges are customarily paid;
(v) Capital Lease Obligations and all other indebtedness issued or assumed as full or partial payment for property or services or by way of capital contribution; and
(vi) any of the foregoing amounts in respect of any Subsidiary of the Person whose accounts are not required under generally accepted accounting principles to be consolidated with the accounts of such Person, including (without limitation) the aggregate outstanding amount of the Obligations at such time.
Notwithstanding the foregoing, trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms and not overdue for more than 90 days (or which, if overdue for more than 90 days, are being and continue to be actively and diligently contested in good faith or in respect of which no legal proceedings for payment of any such amount have been commenced and are continuing), customer advance payments and deposits received in the ordinary course of business shall not constitute Funded Indebtedness .
Governmental Body means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing (including, without limitation, any arbitrator).
Hazardous Substance means any substance or combination of substances which is or may become hazardous, toxic, injurious or dangerous to persons, property, air, land, water, flora,
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fauna or wildlife, and includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous materials or hazardous substances as defined in or pursuant to any Environmental Laws or Environmental Orders pursuant thereto.
Instrument means this Agreement, the Debenture Certificates and any other agreement or instrument (whether now existing, presently arising or created in future) delivered by or on behalf of the Corporation to the Lenders.
Intellectual Property means all right, title, interest and benefit of the Corporation and its Subsidiaries in and to any registered or unregistered world wide trade marks, trade or brand names, service marks, copyrights, copyright applications, designs, inventions, patents, patent applications, patent rights, licenses, sub-licenses, franchises, formulas, processes, know-how, technology, computer rights and other intellectual or industrial property of the Corporation or any of its Subsidiaries or pertaining to the Corporations business.
Intercreditor Agreement means that Amended and Restated Consent, Amendment and Intercreditor Agreement, dated as of December 17, 2004, by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix and each of those persons and entities listed on Schedule A attached thereto.
Inventory means any and all goods, merchandise and other personal property located in the United States, including, without limitation, goods representing returns upon any accounts, and whether now owned or hereafter acquired by the Corporation that is free and clear of all Encumbrances and is not unsellable, damaged, obsolete or otherwise not readily saleable at market value in the ordinary course of business, consistent with past practice.
Material Adverse Effect means any change or effect that is materially adverse to (i) the business, financial condition, or results of operations of such Person and its Subsidiaries, taken as a whole, other than any change or effect relating to general political, financial or economic conditions or the state of financial markets in general or (ii) the rights, remedies and benefits available to, or conferred upon, the Lenders under the Transaction Documents.
Material Authorization means, with respect to any Person, any approval, permit, license or similar authorization (including any trademark, trade name or patent) from, and any filing or registration with, any Governmental Body or other Person required by such Person to own its property and assets or to carry on its business as presently carried on by it or as contemplated hereunder to be carried on by it in each jurisdiction in which it does so or is contemplated to do so or where the failure to have such approval, permit, license, authorization, filing or registration would have a Material Adverse Effect upon such Person or upon its ability to perform its obligations under any of the Instruments.
Maturity Date shall mean October 31, 2005.
Management Committee has the meaning ascribed to such term in Section 7.2(p).
MC Operational Procedures has the meaning ascribed to such term in Section 7.2(p).
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Obligations means all monies now or at any time and from time to time hereafter owing or payable by the Corporation to the Lenders and all obligations (whether now existing, presently arising or created in the future) of the Corporation in favor of the Lenders, and whether direct or indirect, absolute or contingent, matured or not, each in connection with or relating to the Debentures, this Agreement or any of the other Transaction Documents.
Operating Expenses means, as of any date, the sum of the line items entitled Sales and marketing, Research, development and engineering, General and administrative and Depreciation and amortization on the Corporations consolidated statement of loss included in the Corporations Financial Statements, and each such line item shall have the value that such line item has on such statement of loss as of that date.
Overhead Costs means Operating Expenses less (i) sales commissions and (ii) non-cash charges as determined in accordance with GAAP.
Order means any order, notice, direction, report, recommendation or decision rendered by any Governmental Body or other regulatory agency.
Permitted Encumbrances means:
(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 Corporation or any Subsidiary, as applicable, provided reserves reasonably deemed adequate therefor by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or the Subsidiary, as applicable, in accordance with generally accepted accounting principles;
(ii) construction, mechanics, carriers, warehousemens and materialmens 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 and, in the case of construction liens, which have not yet been filed or for which the applicable has not received written notice of an Encumbrance;
(iii) Encumbrances arising from court or arbitral proceedings, provided that the claims secured thereby are being contested in good faith by the Corporation or any Subsidiary, provided reserves reasonably deemed adequate by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or Subsidiary in accordance with generally accepted accounting principles, execution thereon has been stayed and continues to be stayed and such Encumbrances 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 an Encumbrance described in (ii) above;
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(vi) deposits of cash or securities in connection with any appeal, review or contestation of any Encumbrance or any matter giving rise to an Encumbrance 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 and any related Security Document nor impair the use of such property by the Corporation or any Subsidiary, in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;
(viii) Encumbrances in favor of (i) each Lender pursuant to this Agreement, (ii) the Existing Debenture Holders pursuant to the Existing Debenture Agreements, (iii) the CRAT pursuant to the September 2004 Debenture Agreement, and (iv) Phoenix pursuant to the November 2004 Debenture Agreement;
(ix) Encumbrances pursuant to Purchase Money Security Interests;
(x) security given by the Corporation or any Subsidiary to a public utility or any Governmental Body, when required by such utility or Governmental Body in connection with the operations of the Corporation or such Subsidiary, 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 Corporation or such Subsidiary;
(xi) Encumbrances granted to Wistron under to the Wistron Intercreditor Agreement;
(xii) any other Encumbrance which Phoenix approves in writing as a Permitted Encumbrance subsequent to the date hereof; and
(xiii) the Encumbrances listed under the heading Permitted Encumbrances in Schedule 3.1 .
Person means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or governmental entity, and pronouns have a similarly extended meaning.
Premises means any premises owned or occupied by the Corporation or its Subsidiaries from time to time.
Purchase Money Security Interest means an Encumbrance on any asset, other than accounts receivable or inventory, of a Person which is assumed, created, guaranteed or reserved to secure the unpaid purchase price of such asset, provided that any such Encumbrance is limited to the asset so acquired and does not secure in excess of the purchase price thereof, such purchase price not to exceed the fair market value of the purchased asset.
Receiver means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of the undertaking, property and assets of the Corporation appointed by each
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Lender pursuant to this Agreement, any of the Security Documents or by or under any judgment or order of a court.
Release includes abandon, add, deposit, discharge, disperse, dispose, dump, emit, empty, escape, leach, leak, migrate, pour, pump, release or spill.
Secured Property means all property and assets of the Corporation subjected to the security interest under Section 4.1, including without limitation all Intellectual Property.
Security Documents means, collectively, this Agreement and all other agreements and other instruments delivered to each Lender by or on behalf of the Corporation or the US Subsidiary (whether now existing or presently arising) for the purpose of establishing, perfecting, preserving or protecting any security held by each Lender in respect of any Obligations.
Shareholders Equity of the Corporation at any particular time means the difference between (i) the aggregate of Total Tangible Assets of the Corporation and (ii) the Total Liabilities of the Corporation at such time.
Subsidiary means a corporation controlled by the Corporation, as the term control is defined in the Business Corporations Act (Ontario) as in effect at the date hereof and without reference to any amendments thereto after the date hereof and includes the corporations set out in Schedule 5.1(q) hereto.
Taxes means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon.
Total Tangible Assets of any Person means the aggregate book value amount of all tangible assets of the Person which would, on a consolidated basis in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person.
Total Liabilities of any Person means the aggregate amount of all indebtedness and liabilities determined on a consolidated basis, which would, in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person including, for greater certainty, deferred taxes, together with, without duplication:
(i) the amount of all Funded Indebtedness and all Contingent Liabilities of the Person, whether or not reflected on a balance sheet;
(ii) the amount for which any shares in the capital of the Person (if it is a corporation) may be redeemed if the holders of such shares are entitled at any time to require the Person to redeem such shares or if the Person has called such shares for redemption; and
(iii) the amount of all Capital Lease Obligations of the Person, provided that if the rights and remedies of the lessor under such Capital Lease Obligations in the
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event of default are limited to repossession or sale of property, such amount shall be deemed to be equal to the lesser of (A) the amount of the Capital Lease Obligations and (B) the book value of such property.
Transaction Documents means this Agreement, the Warrants, the Debenture Certificates, the Guaranty Agreement dated the date hereof, by the U.S. Subsidiary for the benefit of the Lenders, the Security Agreement, dated the date hereof, by the U.S. Subsidiary for the benefit of the Lenders, and any other documents, instruments or agreements entered into by the Corporation or the U.S. Subsidiary in connection with any of the foregoing.
Voting Shares means capital stock of any class of a corporation which carries voting rights under any circumstances, provided that shares which carry the right to vote conditionally upon the happening of an event shall not be considered Voting Shares until the occurrence of such event and then only during the continuance of such event.
Wistron Intercreditor Agreement means that Intercreditor, Trade Credit Restructuring and Security Agreement, dated as of November 24, 2004 by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix, the CRAT and Wistron Corporation ( Wistron ).
Section 3.2. Interpretation
(a) This Agreement, hereto , hereby , hereunder , herein , and similar expressions refer to the whole of this Agreement and not to any particular Article, Section, paragraph, clause, subdivision or other portion hereof.
(b) The expression Arms Length has the meaning ascribed to such term in the Income Tax Act (Canada).
(c) All references herein to the Income Tax Act (Canada) shall refer to such act and the regulations thereunder as the same may be amended or replaced from time to time.
(d) Except as expressly provided herein, terms which are defined in the Personal Property Security Act (Ontario) shall have the same meaning where used herein as the same may be amended or replaced from time to time.
(e) Words importing the singular number only include the plural and vice versa and words importing gender shall include all genders.
(f) All financial or accounting determinations, reports and statements provided for in this Agreement shall be made or prepared in accordance with generally accepted accounting principles applied in a consistent manner and shall be made and prepared on a consolidated basis.
(g) The division of this 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 Agreement.
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(h) The schedules and exhibits annexed hereto shall, for all purposes, form an integral part of this Agreement.
(i) References to sums of money herein are to US dollars, unless otherwise specified.
(j) Time is of the essence hereof.
(k) Where the word including or includes is used in this Agreement, it means including (or includes) without limitation.
(l) Wherever in this Agreement reference is made to generally accepted accounting principles or GAAP, such reference shall be deemed to mean the generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which a given calculation is made or required to be made in accordance with generally accepted accounting principles.
Section 3.3. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of fees or otherwise payable by the Corporation to the Lenders hereunder or under the Debenture Certificates exceed the maximum amount recoverable under applicable law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under applicable law.
Section 3.4. Day Not A Business Day
In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day.
Section 3.5. Governing Law
This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereby agrees to the non-exclusive jurisdiction of the courts of the Province of Ontario. For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have non-exclusive jurisdiction to entertain any action arising under this Agreement.
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ARTICLE 4.
SECURITY
Section 4.1. Charge
(a) In consideration of the sum of Ten Dollars ($10.00) now paid to it by each Lender (receipt of which is hereby acknowledged), and to secure the due payment of the Obligations hereunder, but subject to the exceptions set forth in Section 4.2, the Corporation hereby grants to each Lender a security interest in, and charges with payment to each Lender of all sums payable hereunder as and by way of a fixed and a floating charge, the whole of the undertaking of the Corporation and all of its property and assets, real and personal, movable and immovable, tangible and intangible, of every nature and kind whatsoever, whosesoever situate, both present and future.
(b) The Corporation and each Lender hereby acknowledge that (i) value has been given to the Corporation by such Lender, (ii) the Corporation has rights in the Secured Property (other than after-acquired property), and (iii) they have not agreed to postpone the time of attachment of the security granted hereunder.
Section 4.2. Exceptions as to Leases
The last day of any term of years reserved by any lease, verbal or written, or any agreement therefor, now held or hereafter acquired by the Corporation is excepted out of the Secured Property, but the Corporation shall stand possessed of any such reversion upon trust to assign and dispose thereof as each Lender may direct. Where the giving of a charge or security interest on any real or personal property held by the Corporation under lease requires the consent of the lessor of such property, the giving of the charge or security interest hereunder on such property shall not take effect until such consent is obtained or legally dispensed with but the suspension of the effect of the charge or security interest on such property shall not affect the charge or security interest on any other property of the Corporation.
Section 4.3. Habendum
The Lenders shall have and hold the Secured Property and all of the rights hereby conferred unto the Lenders, their successors and assigns forever, but subject nevertheless to the provisions and with the powers herein set forth.
Section 4.4. Charge Valid Irrespective of Advance of Money
The charges and security interests hereby created shall have effect and be deemed to be effective whether or not the monies or obligations hereby secured or any part thereof shall be advanced or owing or in existence before or after or upon the date of this Agreement and neither the giving of charges and security interests hereunder nor any advance of funds shall oblige each Lender to advance any funds or any additional funds.
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Section 4.5. Supplemental Indentures
The Corporation shall from time to time on demand by each Lender and at the expense of the Corporation execute and deliver such further deeds or indentures supplemental hereto, which shall thereafter form part hereof, for the purpose of charging, or securing in favor of each Lender any property now owned or hereafter acquired by the Corporation and falling within the description of the Secured Property, for correcting or amplifying the description of any property hereby charged or secured or intended so to be, or for any other purpose not inconsistent with the terms of this Agreement.
Section 4.6. Continuing Security
Any and all payments made at any time in respect of the Obligations and the proceeds realized from any securities held therefor (including moneys realized from the enforcement of this Agreement) shall be applied in accordance with the Intercreditor Agreement. Each Lender may hold as additional security hereunder any increase or profits or other proceeds realized from the Secured Property (including money) for such period of time as each Lender sees fit. The Corporation shall be accountable for any deficiency.
Section 4.7. Defeasance
If the Corporation, its successors or assigns or any of them, make or cause to be made due payment or performance of all Obligations, without any reduction or abatement, and all taxes, rates, levies, charges or assessments payable by the Corporation upon the Secured Property or in respect thereof no matter by whom or by what authority imposed which each Lender shall have paid or shall have been rendered liable to pay, then, subject to Article 8 and Sections 9.6 and 9.17 hereof, everything in this Agreement shall be absolutely null and void and each Lender shall on request therefor by the Corporation, and at the expense of the Corporation, at that time surrender the Debenture Certificate to the Corporation, but until that time it shall remain in full force and effect despite the repayment or satisfaction from time to time of the whole or any part of the Obligations.
Section 4.8. Guarantees
Contemporaneous with the execution and delivery hereof, the Corporation shall cause Xplore Technologies Corporation of America (the US Subsidiary ) to execute and deliver to each Lender unlimited guarantees of the Obligations to such Lender and a general security agreement granting security over all of the US Subsidiarys property, assets and undertaking as security for the obligations of the US Subsidiary. At the Lenders request, the Corporation shall cause any corporation that becomes a Subsidiary after the date hereof, from time to time, to provide each Lender with an unlimited guarantee supported by such security as each Lender may request, acting reasonably, in respect of the Obligations.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
Section 5.1. General Representations and Warranties of the Corporation
The Corporation represents and warrants to each Lender as follows and shall continue to represent and warrant to each Lender as follows for so long as the Obligations are outstanding:
(a) Incorporation and Status. Each of the Corporation and each Subsidiary is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the corporate power and capacity to own its properties and assets and to carry on its businesses as presently carried on by it or as contemplated hereunder to be carried on by it and hold all Material Authorizations.
(b) Power and Capacity. Each of the Corporation and each Subsidiary has the corporate power and capacity to enter into this Agreement and each Instrument to which it is a party and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it.
(c) Due Authorization. Each of the Corporation and each Subsidiary has taken all necessary corporate action to authorize the execution, delivery and performance of each of this Agreement and each Instrument to which it is a party.
(d) No Contravention. The execution and delivery of this Agreement and the other Instruments to which each of the Corporation and each Subsidiary is a party and the performance by each of the Corporation and each Subsidiary of their obligations hereunder or thereunder (i) does not and will not contravene, breach or result in any default under (A) the articles, memorandum of association, by-laws, constating documents or other organizational documents of the Corporation or such Subsidiary, or (B) under any mortgage, lease, agreement or other legally binding instrument, license, permit or Applicable Law to which any of the Corporation or Subsidiary is a party or by which any of the Corporation or Subsidiary or any of its properties or assets may be bound, (ii) will not oblige any of the Corporation or Subsidiary to grant any Encumbrance to any Person other than each Lender, and (iii) will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation of any of the Corporation or Subsidiary under any mortgage, lease, agreement or other legally binding instrument of or affecting any of the Corporation or Subsidiary.
(e) No Senior or Pari Passu Indebtedness . Other than (i) an amount of $1.05 million of the Corporations indebtedness to the CRAT plus accrued and unpaid interest thereon, (ii) an amount of $1.6 million of the Corporations indebtedness to Phoenix pursuant to the November 2004 Debenture Agreement plus accrued and unpaid interest thereon, and (iii) and the Corporations indebtedness to Wistron plus accrued and unpaid interest thereon, the Corporation has no, and shall not have any, indebtedness which ranks senior to or pari passu with the Debentures. Except for Section 2.5, the Intercreditor Agreement and the Wistron Intercreditor Agreement, nothing herein, including pursuant to Section 6.4(a), shall operate to subordinate the security interest provided for in the Security Documents to or in favor of any Encumbrance or Permitted Encumbrance, or to postpone any of the Obligations to any of the
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obligations, indebtedness or liabilities owed by the Corporation or its Subsidiaries to the holder of any Permitted Encumbrances or Encumbrance.
(f) No Consents Required. No authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required in connection with the execution, delivery or performance of this Agreement by the Corporation or any other Instrument by the Corporation or any Subsidiary, as applicable, other than (i) the consent of the CRAT, (ii) the consent of Phoenix as holder of the Fund Debenture, (iii) the consent of the Existing Debenture Holders, (iv) the approval of the Toronto Stock Exchange and the satisfaction of any conditions to such approval, (v) the filings required by applicable securities laws, and (vi) the registration of a financing statement under the Personal Property Security Act (Ontario) and the UCC, (the consents and approvals in clauses (i) through (vi) collectively, the Required Consents ).
(g) Enforceability. Each of this Agreement and the other Instruments constitutes, or upon execution and delivery will constitute, a valid and binding obligation of the Corporation and each Subsidiary which is a party thereto (as applicable) enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles.
(h) No Work Orders. As at the Closing Date, no work orders, directions or notices have been issued and remain outstanding pursuant to any Applicable Law relating to the business of the Corporation or any Subsidiary or any part of the Secured Property or any environmental matters affecting the foregoing, except such orders, directions and notices that would not have a Material Adverse Effect. As at the Closing Date, neither the Corporation or any Subsidiary have received any notification from any Governmental Body, that has not been satisfied, that any work, repairs, construction or capital expenditures are required to be made in respect of the Secured Property or any part thereof as a condition of continued compliance with any Applicable Law or any Material Authorization issued thereunder.
(i) Permits. The Corporation and each Subsidiary has all licenses, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted, except where the failure to have such license, permit approval or franchise would not have a Material Adverse Effect. All such licenses, permits, approvals and franchises are in good standing and no actions, proceedings, investigations or other steps of any kind are in process, pending, or to the knowledge of the Corporation, threatened, or would result in any such license, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation or any Subsidiary for any period of time, except where such termination, revocation, withdrawal, suspension or unavailability would not have a Material Adverse Effect. The Corporation and each Subsidiary is conducting its business in material compliance with all applicable laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on.
(j) Financial Statements. Phoenix, on behalf of the Lenders, has been furnished with a copy of:
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(i) the audited consolidated financial statements of the Corporation and its Subsidiaries for its financial year ended March 31, 2004; and
(ii) the unaudited consolidated financial statements of the Corporation and its Subsidiaries for the fiscal quarter ended September 30, 2004.
Such financial statements, including the notes thereto (the Financial Statements ) have been prepared in accordance with generally accepted accounting principles and fairly, completely and accurately present the financial condition of the Corporation (including each Subsidiary) and the financial information presented therein in all material respects for the periods and as at the dates thereof. As at the Closing Date, the Corporation and each of the Subsidiaries has no outstanding liabilities (including Funded Indebtedness, Contingent Liabilities or otherwise) other than those disclosed in the Financial Statements and other than the indebtedness owed by the Corporation to the Existing Debenture Holders, to the CRAT, to Wistron, to Phoenix and trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms, except as previously disclosed in writing to Phoenix. Since the date of the March 31, 2004 Financial Statements and except as set forth in the September 30, 2004 Financial Statements, there has been no development which has had or would reasonably be expected to have a Material Adverse Effect upon the ability of the Corporation or any Subsidiary to perform its obligations under this Agreement or any other Transaction Document to which it is a party.
(k) Non-Arms Length Transactions. During the period from March 31, 2004 through the Closing Date, none of the Corporation or Subsidiaries has entered into any transaction or agreement with any Affiliate other than on commercially reasonable terms and within the limitations of the other provisions hereof, except as disclosed in the Financial Statements or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available.
(l) No Litigation. Except as has previously been disclosed in writing by the Corporation or its counsel to Phoenix or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available, (i) as at the Closing Date, there is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal, or criminal), arbitration or other dispute settlement procedure, investigation or enquiry by any Governmental Body, or any similar matter or proceeding (collectively proceedings ) against or involving any of the Corporation or any Subsidiary (whether in progress or threatened) which, if determined adversely to the Corporation or Subsidiary would have or would reasonably be expected to have a Material Adverse Effect or have a material adverse effect upon its ability to perform any of the provisions of this Agreement or any other Transaction Document to which it is a party or which purports to affect the legality, validity and enforceability of this Agreement or any other Transaction Document; and (ii) as at the Closing Date, no event has occurred which would reasonably be expected to give rise to any proceedings and there is no judgment decree, injunction, rule, award or order of any Governmental Body outstanding against the Corporation or any Subsidiary which has or would reasonably be likely to have a Material Adverse Effect.
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(m) No Default. As at the Closing Date, neither the Corporation nor any of the Subsidiaries are in default or breach (other than a breach for which the Corporation has received a waiver from Phoenix Enterprises LLC) under any material commitment or obligation (including, without limitation, obligations in relation to Funded Indebtedness) or under the terms and conditions relating to any Material Authorizations, except such defaults that would not have a Material Adverse Effect, and, to the best knowledge of the Corporation, as at the Closing Date, there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach; and as at the Closing Date, there are no proceedings in progress, pending or, to the knowledge of the Corporation, threatened which would result in the revocation, cancellation suspension or any adverse modification of any Material Authorization.
(n) Hazardous Substances. Neither the Corporation nor any of the Subsidiaries are aware of any Hazardous Substances located at, on or under the Secured Property or the Premises, and the Secured Property, the Premises and the operations conducted thereat are not and have not been in breach of Environmental Law which has resulted or could result in the Secured Property being materially adversely affected. Neither the Corporation nor any Subsidiary has caused or permitted, nor has the Corporation or any Subsidiary the knowledge of the Release of any Hazardous Substance on, from, under or to the Secured Property or the Premises or of any Release from a facility owned or operated by third parties, including previous owners, for which the Corporation or any Subsidiary may have liability and which has resulted or could result in the Secured Property or the Premises being adversely affected. Neither the Corporation nor any of the Subsidiaries has been charged with or convicted of an offence for non-compliance with any Environmental Law or has been fined or otherwise sentenced or have settled any prosecution short of conviction; and neither the Corporation nor any Subsidiary has received any notice of judgment or commencement of proceedings of any nature or experienced any search and seizure or are under investigation related to a breach or alleged breach of any Environmental Law.
(o) All Material Information Supplied. The Corporation has provided to Phoenix all information which the Corporation, acting reasonably, determined was material relating to the financial condition, business, assets and results of operations (including forecasts and budgets) of the Corporation and the Subsidiaries, taken as a whole, and all such information, taken as a whole (other than forecasts and budgets) is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading in light of the circumstances in which such information was made and there has been no change in such information, taken as a whole, that would have or would reasonably be likely to have a Material Adverse Effect. The forecasts and budgets provided to Phoenix in connection with the entering into of this Agreement were prepared prudently and upon reasonable assumptions (which assumptions remain reasonable to the Closing Date), the forecasts and budgets are, as at the Closing Date, reasonable and attainable as at the date hereof, such forecasts and budgets have not, as of the date hereof, changed or been amended or updated, and it would, as of the date hereof, be reasonable for Phoenix to rely upon these forecasts and budgets.
(p) Taxes and Claims. The Corporation has:
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(i) delivered or caused to be delivered all required income tax returns, sales, property, franchise and value-added tax returns and other tax returns to the appropriate Governmental Body; and
(ii) withheld and collected all Taxes required to be withheld and collected by them and remitted such Taxes when due to the appropriate Governmental Body,
and no material assessment, appeal or claim is, as far as the Corporation is aware, being asserted or processed with respect to such claim, Taxes or obligations, except as previously disclosed to Phoenix in writing.
(q) Authorized and Issued Capital. Schedule 5.1(q) accurately describes the authorized and issued share capital of the Corporation and each of the Subsidiaries, as at the Closing Date. As at the Closing Date, the Corporation has no Subsidiaries except as set forth in Schedule 5.1(q) . Except as set out in Schedule 5.1(q) , as at the Closing Date, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares.
(r) Insurance. The Corporation and each of the Subsidiaries insures with reputable insurance companies all of its property and other assets of an insurable nature against fire and other casualties in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property and maintains with reputable insurance corporations adequate insurance against business interruption with respect to any rental properties or properties under construction and liability on account of damage to persons or property, and under all applicable workers compensation laws, in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property.
(s) Funded Indebtedness . Schedule 5.1(s) sets forth a complete and accurate list of all Funded Indebtedness of each of the Corporation and the Subsidiaries at the Closing Date and accurately describes the security therefor and the dollar amount thereof.
(t) Directors and Officers Insurance . The Corporation has a directors and officers insurance policy in place to the same extent as such insurance is carried by prudent public corporations and the premiums on such insurance policy are paid to date.
(u) Solvency. None of the Corporation or any of the Subsidiaries has committed an act of bankruptcy, proposed a compromise or arrangement to its creditors generally, had any petition for a receiving order in bankruptcy filed against it, taken any proceeding to have itself declared bankrupt or wound-up or taken any proceeding to have a Receiver appointed over it or any part of its assets.
(v) Articles, Memorandum, By-Laws, Etc. True and complete copies of the articles of incorporation (including all amendments thereto), memorandum of association and by-laws and all other constating documents of the Corporation in effect on the Closing Date have been delivered to Phoenix on behalf of the Lenders. On the Closing Date are outstanding no applications or filings which would alter in any way the constating documents or corporate status
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of any of the said corporations. As in effect on the Closing Date, the minute books of the Corporation contain all by-laws and resolutions of the directors and shareholders of the Corporation currently in effect and the corporate and other records of the Corporation have been maintained in all material respects in accordance with all Applicable Law.
(w) Location of Business and Assets. As of the Closing Date, the only locations at which the Corporation and the Subsidiaries have any place of business or assets are as set forth in Schedule 5.1(w) .
(x) Title. Subject only to the Permitted Encumbrances, the Corporation and each Subsidiary has good and marketable title to all of its undertaking, property and assets, free and clear of any Encumbrances and no person has any agreement or right to acquire its interest in any of such properties out of the ordinary course of business.
(y) Employment Matters. As of the Closing Date, except as is disclosed in Schedule 5.1(y) none of the Corporation nor any Subsidiary is a party to or is bound by any:
(i) written or oral contract or commitment for the employment of any senior management employee or officer;
(ii) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of $100,000 or a payment on termination of in excess of six months salary and benefits;
(iii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice;
(iv) contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (collectively called labor representatives ) and the Corporation has not conducted negotiations with respect to any such future contracts or commitments; no labor representatives, hold bargaining rights with respect to any employees of the Corporation or any Subsidiary; no labor representatives have applied to have the Corporation or any Subsidiary declared a related employer pursuant to the applicable labor legislation; and, to the knowledge of the Corporation, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Corporation or any Subsidiary; or
(v) except as is disclosed in Schedule 5.1(y), there is no bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers compensation insurance provided pursuant to statute.
As of the Closing Date, the Corporation and each of the Subsidiaries has paid all sums due to its employees and its independent contractors and has observed in all material respects the
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provisions of (i) all agreements binding upon it or (ii) any pension, bonus, profit sharing, compensation, retirement, deferred compensation, illness or other plan, agreement, trust, fund or arrangement for the benefit of or with its employees, directors, officers or shareholders and (iii) all applicable laws and regulations respecting employment, including, but not limited to, labor standards legislation and regulations and legislation and regulations prohibiting discrimination; and there is no complaint, civil action or other proceeding in process alleging a violation of any such agreement, plan, trust, fund, arrangement, law or regulation.
As of the Closing Date, none of the Corporation nor any Subsidiary has received any remedial order or notice of offence under any applicable laws and regulations respecting employment, and each of the Corporation and the Subsidiaries has performed all of its financial or monetary obligations under such laws and regulations towards its employees and independent contractors, and there are no facts which may give rise to a claim for which the Corporation or any Subsidiary might be held liable under the provisions of the said laws or regulations.
(z) Intellectual Property. The Corporation and each Subsidiary owns all right title and interest in or to, or have valid and enforceable rights to use all of the Intellectual Property including the trade marks, trade or brand names, corporate names and service marks set out in Schedule 5.1(z) , free and clear of all Encumbrances except Permitted Encumbrances. As of the Closing Date, neither the Corporation nor any Subsidiary uses or owns any trade marks, trade or brand names, corporate names or service marks except as set out in Schedule 5.1(z) . The conduct of the business of, and the use of the Intellectual Property by the Corporation and the Subsidiaries does not, nor to the Corporations knowledge, will the proposed conduct of the business and the proposed use of the Intellectual Property, infringe (and neither the Corporation nor any Subsidiary, except as previously disclosed to Phoenix in writing, has received any notice, complaint, threat or claim alleging infringement of), any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. The Intellectual Property which is not owned by the Corporation or the Subsidiaries is being used with the consent of, and in accordance with the consent or license from, the rightful owner thereof. The Corporation and each of the Subsidiaries has taken all commercially reasonable steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation or such Subsidiary.
(aa) Disclosure Restricted. Each of the statements contained in Section 5.1 is true and correct except as set forth in the specific disclosure schedule qualifying such statement or in any document filed by the Corporation with the Ontario Securities Commission and that is publicly available. The disclosure in any disclosure schedule shall qualify only the corresponding statement.
Section 5.2. Representations and Warranties of Lenders
Each of the Lenders, severally and not jointly, represents and warrants to the Corporation as follows:
(a) Authorization . Such Lender is an individual, corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and each Lender has full power and authority to
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enter into the Agreements and has duly authorized, executed and delivered the same. This Agreement, when executed and delivered by a Lender, will constitute valid and legally binding obligations of such Lender, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors rights generally, or (b) as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies.
(b) Disclosure of Information . Each Lender has had an opportunity to discuss the Corporations business, management, financial affairs and the terms and conditions of the offering of the Debentures and Warrants with the Corporations management and has had an opportunity to review the Corporations facilities. Each Lender understands that such discussions, as well as any other written information delivered by the Corporation to such Lender, were intended to describe the aspects of the Corporations business which it believes to be material. Each Lender has had all of its questions related to the Corporation and the purchase of Debentures and Warrants (and the Common Shares and Conversion Shares issuable upon exercise of the Warrants and conversion of the principal and interest outstanding on the Debentures) answered by the Corporation.
(c) Experience; Speculative Nature of Investment. Each Lender has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Corporation so that it is capable of evaluating the merits and risks of its investment in the Corporation and has the capacity to protect its own interests. Each Lender acknowledges that its investment in the Corporation is highly speculative and entails a substantial degree of risk and such Lender is in a position to lose the entire amount of such investment.
(d) Investment. The Lenders are acquiring the Debentures and Warrants for investment for their own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. By executing this Agreement, each Lender further represents that it does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Debentures, Warrants, Conversion Shares or Common Shares.
(e) Restricted Securities . The Lenders understand that the Debentures, Warrants, Conversion Shares and Common Shares issuable upon exercise of the Warrants and conversion of the Debentures as contemplated hereby have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended, (the Securities Act ) or qualified for distribution in any province or territory of Canada and are issued pursuant to a specific exemption from the registration provisions of the Securities Act and the registration and prospectus requirements of the Securities Act (Ontario), the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Lenders representations as expressed herein. Each Lender is an accredited investor within the meaning of Section 1.1 of Rule 45-501 of the Ontario Securities Commission and each Lender, which is resident in the United States, is also an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission. If any Lender is resident in or otherwise subject to the securities laws of a jurisdiction other than
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the Province of Ontario or the United States, the issuance by the Corporation, and the acquisition by such Lender, of Debentures, Warrants, Conversion Shares and Common Shares issuable upon exercise of the Warrants and conversion of the principal and interest outstanding on the Debentures as contemplated by this Agreement is in full compliance with all applicable securities laws, statutes, regulations, policy statements and orders in such jurisdiction and no authorization, consent of, or filing with or notice to, any person is required in connection therewith.
(f) Legends . The Lenders understand that the Debentures, Warrants, Conversion Shares and Common Shares issuable upon exercise of the Warrants and conversion of the principal and interest outstanding on the Debentures (each, for purposes of this paragraph, a security) may bear the following legend and any other legends that may be required by applicable securities law and stock exchange rules:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION) IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933
(g) No Public Market. The Lenders understand that no public market now exists for any of the Debentures or Warrants issued by the Corporation and that the Corporation has made no assurances that a public market will ever exist for the Corporations securities.
Section 5.3. Survival of Representations and Warranties
The statements made in any certificate hereafter delivered by the Corporation or any of the Subsidiaries to the Lenders shall be deemed to constitute representations and warranties made by the party delivering the same. The Corporation covenants that the representations and warranties made by it in this Article 5, shall be true and correct on each day that this Agreement or any other Transaction Document in favor of each Lender remain in force and effect, with the same effect as if such representations and warranties had been made and given on and as of such day, notwithstanding any investigation made at any time by or on behalf of each Lender or its counsel and notwithstanding any foreclosure or enforcement pursuant to any Security Documents; except that if any such representation and warranty is specifically given as of the date hereof or in respect of a particular date or particular period of time and relates only to such date or period of time, then such representation and warranty shall continue to be given as at such date or for such period of time.
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ARTICLE 6.
COVENANTS OF THE CORPORATION
Section 6.1. General Covenants
So long as this Agreement remains outstanding, the Corporation covenants and agrees as follows:
(a) Securities Compliance. The Corporation shall take all necessary action and proceedings as may be required and permitted by applicable law, rule and regulation for the legal and valid issuance of the Debentures and the Warrants to be acquired by the Lenders from the Corporation hereunder and the issuance of the Conversion Shares upon payment of interest and the issuance of the Common Shares upon exercise of the Warrants and conversion of the Debentures.
(b) Books and Reserves. From the date hereof until the payment in full of all Obligations (the Termination Date ), the Corporation shall (i) maintain, and cause its Subsidiaries to maintain, at all times, true and complete books, records and accounts in which true and correct entries shall be made of its transactions in accordance with GAAP consistently applied and consistent with those applied in the preparation of the Financial Statements (to the extent same are consistent with GAAP), and (ii) by means of appropriate quarterly entries, reflect in its accounts and in all financial statements, proper liabilities and reserves for all taxes and proper reserves for depreciation, renewals and replacements, obsolescence and amortization of its properties and bad debts, all in accordance with GAAP consistently applied, as above described, and all subject to normal year end adjustments.
(c) Ordinary Course of Business. The Corporation shall operate its business only in the ordinary course and will use its commercially reasonable efforts to preserve the Corporations business, organization, goodwill and relationships with Persons having business dealings with them.
(d) To Use Proceeds. The Corporation shall use the net proceeds from the sale of the Units in accordance with Section 1.4.
(e) To Pay Costs. The Corporation shall pay all reasonable costs, charges and expenses of or incurred by each Lender in inspecting the Secured Property or in or about taking, recovering or keeping possession of any of the Secured Property or in any other proceedings taken in enforcing the remedies provided herein or otherwise in relation to this Agreement or the Secured Property, or by reason of non-payment of the moneys hereby secured, costs of any sale proceedings hereunder, whether such sale proceedings prove abortive or not, and costs of any Receiver with respect to, and all expenditures made by each Lender or any Receiver in the course of, doing anything hereby permitted to be done by each Lender or such Receiver. All such costs and expenses and other monies payable hereunder, together with interest at the highest rate applicable to any Obligations, shall be payable on demand and shall constitute a charge on the Secured Property. Without limiting the generality of the foregoing, such reasonable costs shall extend to and include any legal costs incurred by or on behalf of each Lender or the Receiver as between attorney and his own client.
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(f) To Pay Certain Debts. The Corporation shall and shall cause the Subsidiaries to punctually pay and discharge every obligation, the failure to pay or discharge of which would reasonably be likely to result in any Encumbrance or right of distress, forfeiture, termination or sale or any other remedy being enforced against the Secured Property and provide to Phoenix, on behalf of the Lenders, when required by Phoenix, on behalf of the Lenders, acting reasonably, satisfactory evidence of such payment and discharge, but the Corporation may, on giving the Lenders such security (if any) as Phoenix, on behalf of the Lenders, may require, refrain from paying or discharging any obligation the liability for which is being contested in good faith.
(g) To Comply with Obligations and Maintain Corporate Existence and Security. The Corporation shall and shall cause each Subsidiary to:
(i) pay or cause to be paid all Obligations falling due hereunder on the dates and in the manner specified herein and comply with its obligations hereunder, under the Security Documents and the other Instruments;
(ii) create an annual business plan, approved by the Board of Directors of the Corporation and implemented by the Management Committee in accordance with the MC Operational Procedures, for each year in which the Debentures remain outstanding (the Annual Business Plan ), and immediately notify Phoenix, on behalf of the Lenders. of any material deviation from the Annual Business Plan;
(iii) maintain its corporate existence;
(iv) use commercially reasonable efforts to preserve all its rights, licenses, powers, privileges, franchises and goodwill;
(v) observe and perform all of its obligations and comply with all conditions under leases, licenses and other agreements to which it is a party or upon or under which any of the Secured Property is held;
(vi) carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Secured Property and income therefrom;
(vii) observe and conform to all valid requirements of Applicable Law and of any Governmental Body having jurisdiction over the Corporation or any Subsidiary;
(viii) repair and keep in repair and good order and condition all property, including the Secured Property, the use of which is necessary or advantageous in connection with its business;
(ix) immediately notify Phoenix, on behalf of the Lenders, in writing of any proposed change of name of the Corporation or any Subsidiary or of chief place of business of any of the foregoing;
(x) keep Phoenix, on behalf of the Lenders, regularly informed in writing as to the location of the Secured Property and the books of account and other records of
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each of the Corporation and the Subsidiaries to the extent that the Secured Property or such books of account are not located in Austin, Texas;
(xi) pay all Taxes levied, assessed or imposed upon it or its property as and when the same become due and payable save and except where it contests in good faith the validity thereof;
(xii) forthwith notify Phoenix, on behalf of the Lenders, of any default (or event, condition or occurrence which with the giving of notice and/or the lapse of time would constitute a default) in connection with any indebtedness, Funded Indebtedness or Contingent Liability in an amount exceeding $300,000;
(xiii) advise Phoenix, on behalf of the Lenders, forthwith upon becoming aware of any Default or Event of Default hereunder with detailed particulars thereof and deliver to Phoenix, on behalf of the Lenders, upon request a certificate in form and substance satisfactory to Phoenix, on behalf of the Lenders, signed by a senior officer of the Corporation certifying that no Default or Event of Default has occurred or, if such is not the case, specifying all Default or Events of Default and their nature and status;
(xiv) use commercially reasonable efforts to collect all accounts receivable in the ordinary course of business;
(xv) promptly cure or cause to be cured any defects in the execution or delivery of any Instrument and any defects in the validity or enforceability of any security hereunder and at its expense duly execute and deliver or cause to be duly executed and delivered all documents as the Lenders may consider necessary or desirable for such purposes;
(xvi) retain auditors nationally recognized in either the United States or Canada;
(xvii) at its cost and expense, upon the request of Phoenix, on behalf of the Lenders, duly execute and deliver, or cause to be duly executed and delivered, to Phoenix, on behalf of the Lenders, such documents and do or cause to be done such acts as may be necessary or desirable in the reasonable opinion of Phoenix, on behalf of the Lenders, to carry out the purposes of this Agreement; and
(xviii) effect such registrations as may be required by Phoenix, on behalf of the Lenders, from time to time to protect the security hereof.
(h) To Insure. The Corporation shall keep the Secured Property insured in such amounts as is carried by prudent corporations carrying on a similar business and owning similar property, and against loss or damage by fire and such other risks as Phoenix, on behalf of the Lenders, may from time to time specify, acting reasonably, with reputable insurers. The Corporation shall, whenever from time to time requested by Phoenix, on behalf of the Lenders, provide Phoenix, on behalf of the Lenders, satisfactory evidence of such insurance and any renewal thereof which shall at all times be subject to charging clauses in a form approved by Phoenix, on behalf of the Lenders, and shall cause the Lenders to be shown as loss payees under the policy or policies. Evidence satisfactory to Phoenix, on behalf of the Lenders, of the renewal
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of every policy of insurance shall be left with Phoenix, on behalf of the Lenders, at least seven (7) days before the termination thereof. Each policy of insurance shall be in form and substance acceptable to Phoenix, on behalf of the Lenders, acting reasonably, and shall not be subject to any co-insurance clause.
(i) Notice of Litigation and Damage . The Corporation will promptly give written notice to Phoenix, on behalf of the Lenders, of (a) all claims or proceedings pending or threatened against any of the Corporation or Subsidiaries which may give rise to uninsured liability in excess of $300,000 or which may have a material adverse effect on the business or operations of the Corporation or Subsidiaries and (b) all damage to or loss or destruction of any property comprising part of the Secured Property which may give rise to an insurance claim in excess of $300,000; and will supply Phoenix, on behalf of the Lenders, with all information reasonably requested in respect of any such claim.
(j) To Furnish Proofs . The Corporation shall forthwith on the happening of any loss or damage furnish or cause to be furnished at its own expense all necessary proofs and do all necessary acts to enable each Lender to obtain payment of the insurance monies, which, in the sole discretion of the Lenders, may be applied in reinstating the insured property or be paid to the Corporation or any Subsidiary or be applied in payment of the monies owing hereunder, whether due or not then due, or paid partly in one way and partly in another.
(k) Reserve Shares . The Corporation shall, at the annual meeting of its shareholders to be held on December 15, 2004, seek to obtain shareholder approval to reserve 10,000,000 Common Shares (the Reserve Pool ), to be issued to key management and employees of the Corporation as performance awards.
(l) Financial Statement Presentation . In any press release, or public disclosure document required by securities regulatory authorities, that contains the Corporations quarterly or annual financial statements, subject to compliance with applicable securities law and other regulatory requirements, such financial statements shall be prepared in accordance with Canadian GAAP and, if requested by Phoenix, contain a note reconciliation to U.S. generally accepted accounting principles ( US GAAP ). At such time as the Corporate Migration has been completed, the Corporations quarterly and annual financial statements shall be prepared in accordance with US GAAP and shall also be prepared in accordance with, or reconciled to, Canadian GAAP to the extent required by Applicable Law.
Section 6.2. Specific Covenants
So long as this Agreement remains outstanding, the Corporation covenants and agrees as follows:
(a) Cost Maintenance Program. The Corporation shall take all commercially reasonable actions necessary to implement a cost-cutting program (the Cost Maintenance Program ) satisfactory, in its sole discretion, to Phoenix. The Cost Maintenance Program (A) shall result in (i) total quarterly recurring payroll costs of not more than $1.4 million, and (ii) total quarterly recurring Overhead Costs of not more than $2.4 million by no later than December 31, 2004, and (B) shall remain in effect until (i) the Corporation has
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achieved positive net income and positive cash flow from operations for at least two (2) consecutive fiscal quarters, and (ii) management of the Corporation then reasonably projects continued positive net income and positive cash flow from operations for the Corporation for at least the next four (4) following fiscal quarters.
(b) Corporate Migration. The Corporation shall take all commercially reasonable actions necessary, subject only to (i) compliance with Applicable Law and stock exchange requirements, (ii) any required approval of the Corporations shareholders, (iii) obtaining of any required third-party consents, and (iv) avoidance of any material adverse tax consequences, to re-incorporate, continue or otherwise cause the Corporation or a successor thereof to be redomiciled, directory or indirectly, as a Delaware corporation (the Corporate Migration ), by no later than June 30, 2005.
(c) U.S. Listing . The Corporation shall use reasonable commercial efforts to obtain a listing of the Common Shares on the American Stock Exchange or other registered national stock exchange or quotation system in the United States (the U.S. Listing ) by no later than June 30, 2005, subject to the satisfaction or elimination of all regulatory, legal, tax and financial requirements to such U.S. Listing. The U.S. Listing may be either in lieu of, or in addition to, the Corporations current listing of the Common Shares on the Toronto Stock Exchange. In the event a U.S. Listing is obtained, the Corporation shall promptly enter into a registration rights agreement, with and for the benefit of the Lenders and the Existing Debenture Holders, providing for the registration for resale of the Common Shares underlying the Warrants and the Debentures with the U.S. Securities and Exchange Commission and containing, among other things, customary demand and piggy-back registration rights, and all on terms satisfactory to the Corporation, the Lenders and the Existing Debenture Holders, each acting reasonably and taking into consideration the need for future free-transferability for the Common Shares underlying the Warrants and the Debentures in the U.S. securities markets. In this Section 6.2(c), Common Shares includes any shares of voting common stock of any corporation (a Successor Corporation) carrying on the business of the Corporation and having a listing on the Toronto Stock Exchange which are issued in exchange for the Common Shares of the Corporation in connection with the Corporate Migration, and Corporation includes any such Successor Corporation.
(d) MC Operational Procedures . The Corporation shall at all times conduct its day-to-day operations in strict compliance with the MC Operational Procedures.
Section 6.3. Financial Covenants.
(a) Budget. The Corporation shall not expend any funds nor incur any expenses except as provided for in the budget delivered to Phoenix, on behalf of the Lenders (the Budget ), which shall also included a detailed income statement, balance sheet and statement of cash flows. The Corporation and Phoenix, on behalf of the Lenders, hereby agree that aggregate expenditures, if any, exceeding the total budgeted amount by 5% or less shall be deemed to be within the Budget.
(b) Financial Statements and Other Reports . The Corporation will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and
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administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP (it being understood that quarterly financial statements are not required to have footnote disclosures). The Corporation will deliver or cause to be delivered each of the financial statements and other reports described below to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly, in addition to copies of any other financial statements prepared by the Corporation for filing with securities commissions and other regulatory authorities.
(i) Monthly Financials . As soon as available and in any event within forty-five (45) days after the end of each month, the Corporation will deliver or cause to be delivered its consolidated balance sheet, as at the end of such month, and the related consolidated statements of loss and deficit and cash flows for such month, and for the period from the beginning of the then current fiscal year of the Corporation to the end of such month, along with a comparison to the operating budget for such month.
(ii) Quarterly Financials; Other Quarterly Reports. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such fiscal quarter, and the related consolidated statements of income, shareholders equity, loss and deficit (or income) and cash flows for such fiscal quarter and for the period from the beginning of the then current fiscal year of the Corporation to the end of such quarter, (B) a copy of its consolidating financial statements for such fiscal quarter, but only if material to an understanding of the Corporations operations and financial condition, and (C) a schedule of investments made by the Corporation or any of its Subsidiaries since the date such information was last provided to Lenders.
(iii) Year-End Financials. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Corporation, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such year, and the related consolidated statements of loss and deficit (or income), cash flows, and shareholders equity for such fiscal year, (B) a copy of its consolidating financial statements for such fiscal year, but only if material to an understanding of the Corporations operations and financial condition, and (C) a report with respect to the financial statements received pursuant to this Subsection from recognized certified public accountants nationally recognized in the United States or Canada, selected by the Corporation.
(iv) Other Weekly/Monthly Reports . As soon as available, and in any event within four (4) Business Days after the end of each week, the Corporation will deliver or cause to be delivered (A) a report of sales booked by the Corporation during such week, (B) a report of pending and projected order activity as of the end of such week, and (C) a report providing detailed accounts receivable as of the end of such week. As soon as available, and in any event within ten (10) days after the end of each month, the Corporation will deliver or cause to be delivered (A) a status report detailing the progress made by the Corporation in implementing the Cost Maintenance Program, until such time as the conditions set out in Section 6.2(a)(B)(i) and (ii) have been satisfied, and (B) a report providing detailed accounts payable aging information as of the end of such month.
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(c) Compliance Certificates. Together with each delivery of financial statements of the Corporation and its Subsidiaries (other than those financial statements delivered pursuant to Section 6.3(c)(iv)), the Corporation will deliver or cause to be delivered to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly (i) a fully and properly completed compliance certificate substantially in the form attached hereto as Exhibit C (each, a Compliance Certificate ) signed by the chief executive officer, chief operating officer or chief financial officer of the Corporation.
Section 6.4. Negative Covenants
At all times, the Corporation hereby covenants and agrees that, except as expressly contemplated by Section 6.2, for so long as this Agreement is in force and any portion of the Obligations remains unpaid, unfulfilled and/or unsatisfied, the Corporation shall not, nor shall the Corporation permit any Subsidiary to:
(a) Encumbrances. Create, grant, assume or suffer to exist any Encumbrance upon any of their properties or assets other than Permitted Encumbrances or enter into or assume any agreement (other than the documents entered into in connection herewith, the Intercreditor Agreement or the Wistron Intercreditor Agreement), prohibiting the creation or assumption of any Encumbrance upon its or their respective properties or assets, whether now owned or hereafter acquired.
(b) Capital Expenditures. Incur or commit or agree to incur capital expenditures in any fiscal year, including Capital Lease Obligations and Purchase Money Security Interests, involving aggregate payments in any twelve (12) month period in excess of 5% over the amount of capital expenditures provided for in the Budget.
(c) Sell. Remove, destroy, lease, transfer, assign, sell or otherwise dispose of any of the Secured Property, except for sales in the ordinary course of business.
(d) Funded Indebtedness. Incur or become liable for any Funded Indebtedness, other than the Obligations hereunder.
(e) Indebtedness. Incur or repay any debts, liabilities or obligations (including Funded Indebtedness and Contingent Liabilities) whether direct or indirect, actual or contingent, material or not, other than those specifically permitted hereunder (including indebtedness to the Existing Debenture Holders) or under the Security Documents, except for normal trade debts, liabilities or obligations to Persons dealing at Arms Length with the Corporation arising in the ordinary course of business and with customary payment terms; provided , however , that in the event any indebtedness consists of trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms which are overdue for more than 180 days (the Qualified Indebtedness ), the aggregate amount of such Qualified Indebtedness shall not exceed $1,500,000.
(f) Executive Officers . Appoint, hire, remove or change any executive officer of the Corporation without the prior written consent of Phoenix, which consent will not be unreasonably withheld or delayed.
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(g) MC Operational Procedures Compliance . Take any action, incur any expenses or incur any debts, liabilities or obligations, unless duly and properly authorized by the Management Committee in strict accordance with the MC Operational Procedures.
(h) Make Certain Changes .
(i) change their financial year end;
(ii) purchase, establish or acquire in any manner any new business entity;
(iii) change the nature of their business as presently carried on;
(iv) amalgamate, consolidate or merge or enter into a partnership, joint venture (other than joint business arrangements with the third parties for the sale of goods and services in the ordinary course of business) or syndicate with any other Person, except an amalgamation, consolidation or merger involving only the Corporation and the US Subsidiary, unless otherwise consented to by Phoenix;
(v) sell, transfer, convey, assign or otherwise dispose of all or substantially all of its assets, in the case of a Subsidiary, to the Corporation and in the case of the Corporation, to a Subsidiary other than the US Subsidiary;
(vi) dissolve or wind-up the Corporation or any Subsidiary, other than pursuant to the dissolution or winding-up of the Corporation or Subsidiary pursuant to which all of the assets of the Corporation or such Subsidiary are transferred or conveyed to the Corporation or the US Subsidiary;
(vii) enter into any transaction outside the ordinary course of business;
(viii) acquire or invest in any securities or investments, other than Cash Equivalents;
(ix) make any loans in any other Person other than the giving of trade credit or consistent with the Business Plan;
(x) engage in any commercial transactions with Persons not dealing at Arms Length with the Corporation or any Subsidiary, other than transactions relating to the compensation of any employee or director of the Corporation or a Subsidiary in the ordinary course of business, including the grant of stock under the Reserve Pool or the grant of options pursuant to the Corporations stock option plan, as in effect on the date hereof, approved by a majority of the Board of Directors (including a majority of the non-participating directors);
(xi) engage in any sale-leaseback or similar transactions;
(xii) remove any of the Secured Property or any of the books of account or other records of the Corporation or any Subsidiary from the jurisdiction where same are presently located, except for inventory sold in the ordinary course of business;
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(xiii) make or commit to any form of distribution or reduction of the profits of the Corporation or any Subsidiary or of its capital including any (i) declaration or payment of any dividend (including stock dividends) on any present or future shares; (ii) payment to purchase, redeem, retire or acquire any of its shares, or any option, warrant or other right to acquire any such shares, or apply or set apart any of its assets therefor; (iii) bonuses to shareholders; (iv) payment on account of loans made to shareholders of the Corporation or any of its Subsidiaries; or (v) payment of any bonuses or management fees (other than bonuses paid to employees in the ordinary course of business);
(xiv) other than pursuant to any agreement, option, right, instrument or privilege set forth on Schedule 5.1(q) , create, allot or issue any shares in its capital, or enter into any agreement, or grant any option, right or privilege, whether pre-emptive, contractual or otherwise for the purchase of shares or securities convertible into shares of the Corporation or any Subsidiary, amend their articles, memorandum or association or by-laws, change their capital structure, enter into any agreement, or make any offer, to do so; or
(xv) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms of any Material Contracts, except to the extent such change, amendment, modification or consent is not materially adverse to Lenders and would not otherwise have a Material Adverse Effect.
Section 6.5. Board Membership
(a) From the Closing Date and for so long as the Obligations are outstanding, the Lenders (along with the Existing Debenture Holders) shall have the right to designate up to two (2) directors to the Corporations Board of Directors and each committee thereof; provided , that the Lenders shall exercise such rights and select individuals that will not cause the Corporation to be in breach of Applicable Laws or stock exchange rules. Upon such a designation the Board of Directors of the Corporation shall, subject to Applicable Laws and applicable regulatory approval, take any and all necessary action to appoint the two persons selected by the Lenders to the Board of Directors and providing such persons with directors liability insurance then in effect for directors of the Corporation.
(b) In the event that the Lenders shall designate Philip S. Sassower as a member of the Board of Directors of the Corporation, the Corporation shall, subject to Applicable Laws, use commercially reasonable efforts to cause Mr. Sassower to be elected as Chairman of the Board.
(c) The Lenders right to appoint up to two (2) directors to the Corporations Board of Directors and each committee thereof shall be in lieu of and in substitution of the rights of the Existing Debenture Holders to appoint up to two (2) directors to the Corporations Board of Directors upon an Appointment Event, as that term is defined in the November 2002 Debenture Agreement, the April 2003 Debenture Agreement and the Second April 2003 Debenture Agreement.
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ARTICLE 7.
CONDITIONS TO CLOSING
Section 7.1. Conditions to Closing
The obligation of the Lenders and the Corporation to effect Closing are subject to the satisfaction or waiver in writing in whole or in part by Phoenix, on behalf of the Lenders, and the Corporation prior to Closing of each of the following conditions:
(a) Receipt of Consent of Existing Debenture Holders . Phoenix, on behalf of the Lenders, shall have obtained and delivered to the Corporation the consent of the Existing Debenture Holders, the holder of CRAT Debenture and the holder of the Fund Debenture to the issuance of the Debentures and security granted in respect thereof and waiver of certain rights under the Existing Debentures.
(b) Approval of the Toronto Stock Exchange . The Corporation shall have obtained and delivered to Phoenix, on behalf of the Lenders, the approval of the Toronto Stock Exchange (the TSX ) and all other applicable regulatory authorities.
(c) Consent of the Shareholders . The Corporation shall have obtained and delivered to Phoenix, on behalf of the Lenders, written consents of the Corporations shareholders holding at least a majority of the issued and outstanding Common Shares authorizing and approving the Corporations issuance of the Debentures and Warrants.
Section 7.2. Further Conditions to Obligations of Lenders
Notwithstanding anything herein contained, the obligation of each Lender to complete the transactions provided for herein and to pay the Purchase Price will be subject to the fulfillment of the following conditions at or prior to the Closing Date, and the Corporation covenants to use its commercially reasonable efforts to ensure that such conditions are fulfilled.
(a) Accuracy of Representations and Warranties and Performance of Covenants. The representations and warranties of the Corporation contained herein or in any other Security Document shall be true and accurate at the Closing Date. In addition, the Corporation shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it at or prior to the Closing Date. At the Closing Date, the Corporation shall have delivered to Phoenix, on behalf of the Lenders, a certificate in form acceptable to Phoenix confirming the facts with respect to each of the representations and warranties, confirming that all such covenants and agreements have been performed and confirming that all conditions set forth in this Section 7.2 have been satisfied or waived.
(b) Continued Implementation of Cost Maintenance Program . The Corporation shall have provided to Phoenix, on behalf of the Lenders, evidence satisfactory to Phoenix, acting reasonably, that the Cost Maintenance Program is continuing.
(c) Default or Event of Default . No Default or Event of Default shall have occurred and be continuing nor shall there be any Default or Event of Default which will or will
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likely occur as a result of the transactions contemplated by this Agreement, the Debenture Certificates or the Instruments.
(d) Consents. All consents, permits, agreements, confirmations and acknowledgements, determined by the Phoenix, on behalf of Lenders, to be required or necessary to be obtained in order to effectively complete the transactions contemplated herein, including without limitation, the Required Consents, shall have been obtained.
(e) Security Documents. Phoenix, on behalf of the Lenders, shall have received duly executed and delivered originals of the Security Documents.
(f) Payment of Fees. The Corporation shall have paid, by way of a deduction from the Purchase Price in accordance with Section 1.2, to Phoenix all fees and expenses referred to in Section 1.3, and shall have unconditionally waived and released, in form and content satisfactory to Phoenix, any right to contest the reasonableness of such agreement, fees and expenses or otherwise challenge the entitlement of Phoenix thereto. Notwithstanding such payment, the Corporation will remain liable for any other fees and expenses referred to in Section 1.3 hereof which relate to the transactions hereunder but which have not been invoiced to, paid or incurred by Phoenix as of the Closing Date.
(g) Perfection of Security. All steps necessary or desirable (including without limitation, the registration of the security interests created by the Security Documents in all public registries where such registration is necessary or desirable to perfect the security interest granted in favor of the Lenders) shall have been taken to constitute the Encumbrances under the Security Documents as valid, enforceable and prior ranking to all other Encumbrances, claims and interests in the Secured Property, subject only to Permitted Encumbrances.
(h) Receipt of Closing Documentation. All documentation relating to the due authorization and completion of the issuance of the Debentures provided for herein and the due execution and delivery of all the Security Documents and other Instruments, and all actions and proceedings taken on or prior to Closing Date in connection with the performance by the Corporation of its obligations hereunder shall be satisfactory to Phoenix, on behalf of the Lenders, and Phoenix, on behalf of the Lenders, shall have received copies of all such documentation or other evidence as they may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form and substance satisfactory to Phoenix, on behalf of the Lenders.
(i) Deliveries.
(i) The Corporation shall have executed and delivered to the Lenders, such other undertakings as it may reasonably request regarding the taking of actions and delivery of documents following the Closing Date necessary or desirable to give effect to the terms and conditions of this Agreement and the other Documents;
(ii) The Corporation shall have delivered to the Lenders a copy, certified by two executive officers of the Corporation, of the Board resolution referred to in Section 7.2(p); and
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(iii) The Corporation shall have executed and delivered to the Lenders the Share Purchase Warrants and Debenture Certificates.
(j) No Material Adverse Change . There shall have been no Material Adverse Effect on the Corporation and the Subsidiaries taken as a whole.
(k) Due Diligence. The Lenders shall have been satisfied in their absolute discretion with their due diligence review of the Corporation and its prospects.
(l) Time Frame. All of the conditions set out in this Section 7.2 shall have been satisfied, each in accordance with the provisions of this Agreement, on or prior to the fifth Business Day following the execution by the parties of this Agreement.
(m) Legal Opinion . The Lenders shall have received a legal opinion of McCarthy Tétrault LLP substantially in the form attached hereto as Exhibit D regarding the validity and enforceability of this Agreement and the Transaction Documents (other than those relating to the US Subsidiary) and the creation of the security interest created thereby and regarding such other matters as Phoenix may reasonably require.
(n) Wistron Agreement . The Corporation shall have entered into a definitive binding agreement with Wistron with respect to (i) the restructing of the Corporations trade credit debt with Wistron, (ii) an increase the Corporations trade credit line with Wistron, and (iii) the restructing of the Corporations NRE debt with Wistron, including the issuance of Common Shares in partial conversion thereof.
(o) Groh Relocation Agreement . The Corporation shall have amended, to the reasonable satisfaction of Phoenix, that certain Relocation Agreement by and between the Corporation and Brian Groh attached hereto as Exhibit E .
(p) Management Committee and Operational Procedures . The Board of Directors of the Corporation shall have duly and validly authorized by written resolution the establishment of an executive management committee (the Management Committee ) to be comprised of two representatives of Phoenix (initially Philip S. Sassower and Andrea Goren) and no more than eight executives of the Corporation, which Management Committee shall, subject to oversight and review by the Board of Directors, be responsible for oversight of day-to-day operations of the Corporation, and shall have by such resolution authorized and directed the officers of the Corporation to conduct the day-to-day operations and business of the Corporation only in accordance with the operational procedures attached hereto as Exhibit G (the MC Operational Procedures ).
Section 7.3. Waiver or Termination by the Lenders
Each of the conditions contained in Section 7.2 hereof are inserted for the exclusive benefit of the Lenders and may be waived in whole or in part by Phoenix, on behalf of the Lenders, at any time. The Corporation acknowledges that the waiver by Phoenix, on behalf of the Lenders, of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Corporation herein that
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corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Section 7.2 hereof are not fulfilled or complied with as herein provided, the Lenders may, at or prior to the Closing Date at their option, be released from any and all of their respective obligations, covenants, agreements and liabilities pursuant to this Agreement by notice in writing to the Corporation and in such event each Lender shall be released from all of its obligations, covenants, agreements and liabilities hereunder and, unless the condition or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Corporation, then the Corporation shall also be released from all obligations hereunder, except that the Corporation will remain liable for the payment of all fees and expenses referred to in Sections 1.3 and 7.2(f) hereof which shall be payable on demand.
ARTICLE 8.
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default
The occurrence of any of the following events shall constitute an Event of Default under this Agreement:
(a) If default occurs in payment when due of any principal payable under this Agreement.
(b) If default occurs in payment when due of any interest, fees or other amounts payable under this Agreement and remains unremedied for a period of 10 days after the receipt by the Corporation of notice of such default.
(c) If default occurs in payment or performance of any other Obligation (whether arising herein or otherwise) and such default remains unremedied for a period of 10 days after receipt by the Corporation of notice of such default.
(d) If default occurs in performance of any other covenant of the Corporation in favor of any of the Lenders under this Agreement (excluding any of the covenants set forth in any of Section 6.4 hereof) and remains unremedied for a period of 15 days after the receipt by the Corporation of notice of such default.
(e) If default occurs in performance of any covenant of the Corporation in favor of the Lenders set forth in Section 6.4 of this Agreement.
(f) If an event of default occurs in payment or performance of any obligation in favor of any Existing Debenture Holder or any person from whom the Corporation or any Subsidiary has borrowed money aggregating in excess of $3000,000 which would entitle the holder to accelerate repayment of the borrowed money, and such default is not waived in writing within 10 days of the occurrence of such default.
(g) The Corporation institutes proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any
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applicable federal, provincial or state law relating to bankruptcy, insolvency, reorganization or relief of debtors, or the consent by it to the filing of any such petition or to the appointment under any such law of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Corporation or of substantially all of its property, or the making by it of a general assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due.
(h) If there is the entry of a decree or order by a court having jurisdiction in the premises adjudging the Corporation a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement or adjustment of or in respect of the Corporation under any applicable law relating to bankruptcy, insolvency, reorganization or relief of debtors, or appointing under any such law a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Corporation or of substantially all of its property, or ordering pursuant to any such law the winding-up or liquidation of its affairs, and the continuance of any such decree, petition, appointment or order unstayed and in effect for a period of 45 consecutive days.
(i) If any act, matter or thing is done toward, or any action or proceeding is launched or taken to terminate the corporate existence of the Corporation or any Subsidiary, whether by winding-up, surrender of charter or otherwise.
(j) If the Corporation or any Subsidiary ceases to carry on its business or makes or proposes to make any sale of its assets in bulk or any sale of its assets out of the usual course of its business.
(k) If any receiver, administrator or manager of the property, assets or undertaking of the Corporation or any Subsidiary or a substantial part thereof is appointed pursuant to the terms of any trust deed, trust indenture, debenture or similar instrument or by or under any judgment or order of any court.
(l) If any balance sheet or other financial statement provided by the Corporation to the Lenders pursuant to the provisions hereof is false or misleading in any material respect.
(m) If any proceedings are taken to enforce any Encumbrance affecting any of the Secured Property or if a distress or any similar process be levied or enforced against any of the Secured Property.
(n) If any judgment or order for the payment of money in excess of $200,000 shall be rendered against the Corporation or any Subsidiary and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.
(o) If any action is taken or power or right be exercised by any Governmental Body which has a material adverse effect on the Corporation or any Subsidiary, its business or operations, its properties or its prospects.
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(p) If any representation or warranty made by the Corporation herein or in any other Instrument or in any certificate, statement or report furnished in connection herewith is found to be false or incorrect in any way so as to make it materially misleading when made or when deemed to have been made.
(q) If any event occurs with respect to any Subsidiary which, if a like event had occurred with respect to the Corporation, would have constituted an Event of Default.
(r) If a Change of Control occurs with respect to the Corporation or any Subsidiary and such Change of Control continues in effect for a period of 30 days.
(s) If there shall occur or arise any change (or any condition, event or development involving a prospective change) in the business, operations, affairs, assets, liabilities (including any contingent liabilities that may arise through outstanding pending or threatened litigation or otherwise), capitalization, financial condition, licenses, permits, rights or privileges, whether contractual or otherwise, or prospects of the Corporation or any Subsidiary of the which, in the judgment of Phoenix, on behalf of the Lenders, acting reasonably, has or may have a material adverse effect on the Corporation or on its ability to perform its obligations hereunder or under the Security Documents.
(t) Sixty (60) days after the employment of any of the current Chief Executive Officer, the Chief Financial Officer or the Chief Operating Officer is terminated by the Corporation (other than a termination by the Corporation for cause), without the prior consent of Phoenix, on behalf of the Lenders.
(u) If the Corporation commits an event of default pursuant to any other Transaction Document and such default continues beyond any cure period provided for in such Transaction Document.
Section 8.2. Consequences of an Event of Default
Upon the occurrence of any Event of Default, at the option of the Lenders, all Obligations and all monies secured hereby shall become forthwith due and payable, all of the rights and remedies hereby conferred in respect of the Secured Property shall become immediately enforceable and any and all additional and collateral security for payment of this Agreement shall become immediately enforceable.
Section 8.3. Enforcement
(a) Upon the happening of any Event of Default, the Lenders, may by instrument in writing declare that the security hereof has become enforceable and the Lenders shall have the following rights and powers:
(i) to enter into possession of all or any part of the Secured Property;
(ii) to preserve and maintain the Secured Property and make such replacements thereof and additions thereto as it deems advisable;
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(iii) to collect any proceeds arising in respect of the Secured Property;
(iv) to collect, realize upon or sell or otherwise deal with accounts;
(v) to institute proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Secured Property;
(vi) to institute proceedings in any court of competent jurisdiction for sale or foreclosure of the Secured Property;
(vii) to file proofs of claim and other documents to establish claims in any proceeding relating to the Corporation or any Subsidiary;
(viii) to undertake any other remedy or proceeding authorized or permitted under the Personal Property Security Act (Ontario) or otherwise by law or equity;
(ix) to pay or otherwise satisfy in whole or in part any Encumbrances which, in the Lenders opinion, may rank in priority to the security hereof;
(x) after entry by its officers or agents or without entry, to sell, lease or otherwise dispose in any way whatsoever of all or any part of the Secured Property either en bloc or separately at public auction or by tender or by private agreement and at such time or times and on such terms and conditions as the Lenders in their absolute discretion may determine and without any notice to or concurrence of the Corporation except as may be required by applicable law; and
(xi) by instrument in writing, to appoint any person or persons (whether an officer or officers of the Lenders or not) as a Receiver (as defined herein to include a receiver and manager) of the Secured Property and to remove any Receiver so appointed and appoint another or others in its stead.
(b) The security of this Agreement may be realized and the rights enforced by any remedy or in any manner permitted by this Agreement or by law or equity and no remedy for the realization of the security hereof shall be exclusive of or dependent upon any other remedy and all or any remedies may from time to time be exercised independently or in any combination.
(c) In addition to the remedies of the Lenders set forth above, the Lenders, may, whenever an Event of Default has occurred:
(i) require the Corporation, at the Corporations expense, to assemble the Secured Property at a place or places designated by notice in writing given by the Lenders to the Corporation;
(ii) require the Corporation, by notice in writing given by the Lenders to the Corporation, to disclose to the Lenders the location or locations of the Secured Property;
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(iii) repair, process, modify, complete or otherwise deal with the Secured Property and prepare for the disposition of the Secured Property, whether on the premises of the Corporation or otherwise;
(iv) carry on all or any part of the business or businesses of the Corporation and, to the exclusion of all others including the Corporation, enter upon, occupy and use all or any of the premises, buildings, plant, undertaking and other property of or used by the Corporation for such time as the Lenders see fit, free of charge, and the Lenders shall not be liable to the Corporation for any act, omission or negligence in so doing or for any rent, charges, depreciation or damages incurred in connection therewith or resulting therefrom;
(v) borrow for the purpose of carrying on the business of the Corporation or for the maintenance, preservation or protection of the Secured Property and mortgage, charge, pledge or grant a security interest in the Secured Property, whether or not in priority to the Security Documents, to secure repayment;
(vi) advance the Lenders own money to the Corporation, in any case upon such terms as the Lenders may deem reasonable and upon the security hereof; and
(vii) demand, commence, continue or defend any judicial or administrative proceedings for the purpose of protecting, seizing, collecting, realizing or obtaining possession or payment of the Secured Property, and give valid and effectual receipts and discharges therefor and compromise or give time for the payment or performance of all or any part of the accounts or any other obligation of any third party to the Corporation.
Section 8.4. Disposition
(a) Without limiting the generality of the foregoing in connection with the exercise of remedies under this Article 8, it shall be lawful for the Lenders:
(i) to make any sale, lease or other disposition of the Secured Property either for cash or upon credit or partly for one and partly for the other upon such conditions as to terms of payment as it in its absolute discretion may deem proper;
(ii) to rescind or vary any contract for sale, lease or other disposition that the Lenders may have entered into pursuant hereto and resell, release or redispose of the Secured Property with or under any of the powers conferred herein; and
(iii) to stop, suspend or adjourn any sale, lease or other disposition from time to time and to hold the same adjourned without further notice.
(b) Upon any such sale, lease or other disposition the Lenders shall be accountable only for money actually received by them. The Corporation shall be accountable for any deficiency and the Lenders shall be accountable for any surplus. The Lenders may deliver to the purchaser or purchasers of the Secured Property or any part thereof good and sufficient conveyances or deeds for the same free and clear of any claim by the Corporation. The purchaser or lessee receiving any disposition of the Secured Property or any part thereof need not inquire whether default under this Agreement has actually occurred but may as to this and all
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other matters rely upon a statutory declaration of an officer of Phoenix on behalf of the Lenders, which declaration shall be conclusive evidence as between the Corporation and any such purchaser or lessee, and the purchaser or lessee need not look to the application of the purchase money, rent or other consideration given upon such sale, lease or other disposition, which shall not be affected by any irregularity of any nature or kind relating to the crystallizing or enforcing of the security hereof or the taking of possession of the Secured Property or the sale, lease or other disposition thereof.
Section 8.5. Powers of Receiver
(a) Any Receiver appointed as aforesaid shall have the power without legal process:
(i) to take possession of the Secured Property or any part thereof wherever the same may be found;
(ii) to carry on the business of the Corporation or any part thereof in the name of the Corporation or of the Receiver; and
(iii) to exercise on behalf of each Lender all of the rights and remedies herein granted to the Lenders,
and without in any way limiting the foregoing, the Receiver shall have all the powers of a receiver appointed by a court of competent jurisdiction. Any Receiver appointed by the Lenders shall act as agent for the Lenders for the purposes of taking possession of the Secured Property, but otherwise and for all other purposes (except as provided below), as agent for the Corporation.
(b) The Receiver may sell, lease, or otherwise dispose of Secured Property as agent for the Corporation or as agent for the Lenders, as the Lenders may determine in their discretion. The Corporation agrees to ratify and confirm all actions of the Receiver acting as agent for the Corporation, and to release and indemnify the Receiver in respect of all such actions. The Lenders, in appointing or refraining from appointing any Receiver shall not incur liability to the Receiver, the Corporation or otherwise and shall not be responsible for any misconduct or negligence of such Receiver or for any loss resulting therefrom.
Section 8.6. Application of Moneys
All moneys and non-cash proceeds actually received by the Lenders or by the Receiver in enforcing the security of this Agreement, shall be initially held in trust by such person and promptly thereafter shall be applied, subject to the proper claims of any other person:
(a) first, to pay or reimburse each Lender and any Receiver the costs, charges, expenses and advances payable by the Corporation in accordance herewith;
(b) second, in or toward the payment to each Lender of all Obligations or amounts secured hereby which payment shall be made and applied to the Lenders pro rata based on the ratio that the Lenders Debentures bears to the total number of Debentures issued to the Lenders hereunder; and
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(c) third, any surplus shall be paid to the Corporation or its assigns or as a court of competent jurisdiction may direct.
Section 8.7. Care and Custody of Secured Property
No Lender shall be bound to collect, dispose of, realize, protect or enforce any of the Corporations right, title and interest in and to the Secured Property or to institute proceedings for the purpose thereof and, without limiting the generality of the foregoing, no Lender shall be required to take any steps necessary to preserve rights against prior parties in respect of any negotiable Secured Property. No Lender shall have any obligation to keep Secured Property in its possession identifiable. Each Lender may, after an Event of Default: (i) notify any person obligated on an account or on chattel paper or any obligor on an instrument to make payment thereunder to such Lender whether or not the Corporation was theretofore making collections thereon; and (ii) assume control of any proceeds arising from the Secured Property.
Section 8.8. Dealing with the Secured Property
No Lender shall be obliged to exhaust its recourse against the Corporation or any other person or persons or against any other security it may hold in respect of the Obligations before realizing upon or otherwise dealing with the Secured Property in such manner as such Lender may consider desirable. Each Lender may grant extensions or other indulgences, take and give up securities, accept compositions, grant releases and discharges and otherwise deal with the Corporation and with other parties, sureties or securities as such Lender may see fit without prejudice to the Obligations or the rights of such Lender in respect of the Secured Property. No Lender shall be (i) liable or accountable for any failure to collect, realize or obtain payment in respect of the Secured Property; (ii) bound to institute proceedings for the purpose of collecting, enforcing, realizing or obtaining payment of the Secured Property or for the purpose of preserving any rights of such Lender, the Corporation or any other parties in respect thereof; (iii) responsible for any loss occasioned by any sale or other dealing with the Secured Property or by the retention of or failure to sell or otherwise deal therewith; or (iv) bound to protect the Secured Property from depreciating in value or becoming worthless.
Section 8.9. Standards of Sale
Without prejudice to the ability of the Lenders to dispose of the Secured Property in any manner which is commercially reasonable, the Corporation acknowledges that, subject to the terms of any Permitted Encumbrance, the rights of the CRAT and the rights of Phoenix as holder of the Fund Debenture, a disposition of Secured Property by the Lenders which takes place substantially in accordance with the following provisions shall be deemed to be commercially reasonable:
(a) Secured Property may be disposed of in whole or in part;
(b) Secured Property may be disposed of by public auction, public tender or private contract, with or without advertising and without any other formality;
(c) Any purchaser or lessee of such Secured Property may be a customer of the Lenders;
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(d) A disposition of Secured Property may be on such terms and conditions as to credit or otherwise as the Lenders, in its sole discretion, may deem advantageous;
(e) The Lenders or any other Person may be the purchaser of all or any portion of the Secured Property and thereafter hold the same absolutely, free from any claim or right of whatever kind; and
(f) Each Lender may establish an upset or reserve bid or price in respect of Secured Property.
ARTICLE 9.
GENERAL
Section 9.1. Waiver
No act or omission by any Lender in any manner whatever shall extend to or be taken to affect any provision hereof or any subsequent breach or default or the rights resulting therefrom save only express waiver in writing. A waiver of default shall not extend to, or be taken in any manner whatsoever to affect the rights of any Lender with respect to, any subsequent default, whether similar or not. The Corporation waives every defense based upon any or all indulgences that may be granted by the Lenders.
Section 9.2. Other Security
The rights of each Lender hereunder shall not be prejudiced nor shall the liabilities of the Corporation or of any other Person be reduced in any way by the taking of any other security of any nature or kind whatsoever either at the time of execution of this Agreement or at any time hereafter.
Section 9.3. No Merger or Novation
Neither the taking of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the liability of the Corporation to pay the moneys hereby secured nor shall the same operate as a merger of any covenant herein contained or of any other Obligation, nor shall the acceptance of any payment or other security constitute or create any novation.
Section 9.4. Power of Attorney
The Corporation, for valuable consideration for and after the occurrence of an Event of Default, irrevocably appoints Phoenix, on behalf of the Lenders, and its officers from time to time or any of them to be the attorneys of the Corporation in the name of and on behalf of the Corporation to execute such deeds, transfers, conveyances, assignments, assurances and things which the Corporation ought to execute and do under the covenants and provisions herein contained and generally to use the name of the Corporation in the exercise of all or any of the powers hereby conferred on the Lenders.
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Section 9.5. License
The Corporation hereby grants to Phoenix, on behalf of the Lenders, and its employees and agents an irrevocable and non-exclusive license, subject to the rights of tenants, to enter any of the Premises, during regular business hours and acting in a reasonable manner, to conduct audits, testing and monitoring with respect to Hazardous Substances and to remove and analyze any Hazardous Substance at the cost and expense of the Corporation (which cost and expense shall be secured hereby).
Section 9.6. Environmental Indemnity
The Corporation shall indemnify each Lender and hold each Lender harmless against and from all losses, costs, damages and expenses which each Lender may sustain, incur or be or become liable at any time whatsoever for by reason of or arising from the past, present or future existence, clean-up, removal or disposal of any Hazardous Substance referred to in this Agreement or compliance with Environmental Laws or Environmental Orders relating thereto, including any clean-up, decommissioning, restoration or remediation of the Premises and other affected lands or property (and this indemnification shall survive the satisfaction, release or extinguishment of the indebtedness secured hereby).
Section 9.7. Amalgamation
The Corporation acknowledges that if it amalgamates with any other corporation or corporations (a) the Secured Property and the lien created hereby shall extend to and include all the property and assets of each of the amalgamating corporations and the amalgamated corporation and to any property or assets of the amalgamated corporation thereafter owned or acquired, (b) the term, Corporation , where used herein shall extend to and include each of the amalgamating corporations and the amalgamated corporation, and (c) the term, Obligations , where used herein shall extend to and include the Obligations of each of the amalgamating corporations and the amalgamated corporation. Nothing is this Section 9.7 shall permit or authorize an amalgamation that is otherwise prohibited by the provisions of this Agreement. For purposes solely of this Section 9.7, the Corporate Migration shall be deemed to constitute an amalgamation.
Section 9.8. Holder May Remedy Default
If the Corporation fails to do anything hereby required to be done by it each Lender may, but shall not be obliged to, do such thing and all reasonable sums thereby expended by such Lender shall be payable forthwith by the Corporation, shall be secured hereby and shall have the benefit of the Encumbrances hereby created, but no such performance by such Lender shall be deemed to relieve the Corporation from any default hereunder.
Section 9.9. Notices
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., (Austin, Texas time), on a
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Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., (Austin, Texas time), on any date and earlier than 11:59 p.m., (Austin, Texas time), on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be addressed:
(a) |
to the Lenders at: |
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|
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c/o Phoenix Venture Fund LLC |
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135 East 57 th Street, 12 th Floor |
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New York, NY 10022 |
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Attention: Philip S. Sassower |
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Facsimile: (212) 319-4970 |
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|
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with a copy to: |
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Brown Raysman Millstein Felder & Steiner LLP |
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900 Third Avenue |
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New York, NY 10022 |
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Attention: David M. Warburg |
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Facsimile: (212) 895-2900 |
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|
(b) |
to the Corporation at: |
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Xplore Technologies Corp. |
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14000 Summit Drive, Suite 900 |
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Austin, Texas 78728 |
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Attention: Chief Financial Officer |
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Facsimile: (512) 336-7791 |
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|
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with a copy to: |
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McCarthy Tétrault LLP |
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Suite 4700 |
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Toronto Dominion Bank Tower |
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Toronto, ON M5K 1E6 |
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Attention: Jonathan Grant |
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Fax: (416) 868-0673 |
Section 9.10. Further Assurances
Each of the Corporation and the Lenders hereby covenants and agrees that at any time and from time to time after the Closing Date it will, upon the request of the other, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required for the better carrying out and performance of all the terms of this Agreement including, without limitation, such further and other security interests as the Lenders may reasonably request.
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Section 9.11. Remedies Cumulative
The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach.
Section 9.12. Announcements
No announcement with respect to this Agreement, including any disclosure of the identity of the Lender, will be made by any party hereto without the prior approval of the other party. The foregoing will not apply to any announcement by any party required in order to comply with laws pertaining to timely disclosure, provided that such party consults with the other parties before making any such announcement.
Section 9.13. Time of the Essence
Time shall be of the essence of this Agreement.
Section 9.14. Entire Agreement
This Agreement, the schedules referred to herein, and the other documents referenced herein constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter thereof. Neither party hereto shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or the schedules or such other documents. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules and such other documents, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically referenced or set forth in this Agreement or in such schedules or such other documents.
Section 9.15. Receipt
The Corporation hereby acknowledges receipt of a true copy of this Agreement and a copy of the financing statement registered under the Personal Property Security Act (Ontario) in respect of the security created hereby.
Section 9.16. Invalidity of any Provisions
Any provision of this Agreement or any provisions of the security contemplated hereunder which is prohibited by the laws of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining terms and
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provisions hereof or thereof and no such invalidity shall affect the obligation of the Corporation to repay the Obligations.
Section 9.17. Indemnification
The Corporation agrees to indemnify each Lender from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (except by reason of the gross negligence or willful misconduct or breach of applicable laws of such Lender or any of its employees) which may be imposed on, incurred by, or asserted against such Lender and arising by reason of any action (including any action referred to herein) or inaction or omission to do any act legally required of the Corporation.
Section 9.18. Successors, Assigns and Participation, etc.
(a) The Corporation shall not assign or transfer all or any part of its rights or obligations hereunder or under any other Instrument, or permit or cause any Subsidiary to assign or transfer all or any part of its rights or obligations under any Instrument without the prior written consent of Phoenix.
(b) Each Lender may assign or grant participations in its Debentures or in all or part of its rights in respect of this Agreement, the Obligations and the Instruments and have its corresponding obligations hereunder assumed by any other Person without the consent of the Corporation, on a private sale basis to other accredited investors within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission and within the meaning of Section 1.1 of Rule 45-501 of the Ontario Securities Commission. An assignment under this Section 9.18 shall become effective when the Corporation has been notified thereof by the applicable Lender and has received from the assignee an undertaking to be bound by this Agreement and the other Security Documents and to perform the obligations, if any, assumed by it. Any such assignee shall be treated as a party to this Agreement for all purposes of this Agreement and the other Security Documents and shall be entitled to the full benefit hereof and thereof and shall be subject to the obligations of the applicable Lender to the same extent as if it were an original party in respect of the rights assigned to it and obligations assumed by it and such Lender shall be released and discharged accordingly. Any Person to whom a Lender grants participations in all or part of its rights and obligations under this Agreement and the Instruments shall not have any rights under this Agreement and the Instruments in respect of its participation interest, and shall only have, as against such Lender, as grantor, those rights and obligations in respect of such participation interest as are set forth in the agreement or agreements made between such Lender and such participant.
Section 9.19. Amendments
This Agreement may only be amended by a written agreement signed by the Corporation and Phoenix, on behalf of the Lenders. Notwithstanding anything to the contrary contained herein, any action to impose additional obligations on the Lenders, or to amend Section 8.6 hereof or any other provision hereof or in any of the Security Documents which would affect the pro rata repayment, as
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among the Lenders, of the Obligations or the pro rata disbursement, as among the Lenders, of moneys or other proceeds received in the enforcement of the security interests created hereby, shall require the consent of each Lender whose interests are adversely affected by such action.
Section 9.20. Consent of Phoenix Enterprises LLC as Agent for the Existing Debenture Holders; Consent of CRAT
(a) Phoenix Enterprises LLC, for itself and as agent for the Existing Debenture Holders under (i) Section 9.20 of the November 2002 Debenture Agreement, (ii) Section 9.21 of the December 2002 Debenture Agreement, (iii) Section 9.21 of the April 2003 Debenture Agreement, and (iv) Section 9.21 of the Second April 2003 Debenture Agreement, hereby acknowledges, agrees and gives its consent to the Corporations entering into and performing its obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the guaranty contemplated by Section 4.8 and of the Security Documents and the issue and sale of the Warrants to the Lenders.
(b) The CRAT hereby acknowledges, agrees and gives its consent to the Corporations entering into and performing its obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the guaranty contemplated by Section 4.8 and of the Security Documents and the issue and sale of the Warrants to the Lenders.
(c) Phoenix, as holder of the Fund Debenture, hereby acknowledges, agrees and gives its consent to the Corporations entering into and performing its obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the guaranty contemplated by Section 4.8 and of the Security Documents and the issue and sale of the Warrants to the Lenders.
Section 9.21. Appointment and Authorization of Phoenix as Agent
(a) Each Lender hereby irrevocably appoints and authorizes Phoenix to (A) hold the Collateral (as defined in the Security Agreement entered into on the date hereof by the US Subsidiary and Phoenix) and the Secured Property (as defined herein) for its own benefit and the pro rata benefit of the Lenders, and (B) be its attorney in its name and on its behalf to exercise such rights or powers granted to Phoenix or the Lenders under this Agreement and the other Transaction Documents to the extent and on the terms specifically provided herein and therein, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement, Phoenix shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the holders of 51% of the aggregate principal amount of Debentures outstanding, and such instructions shall be binding upon all Lenders; provided , however , that Phoenix shall not be required to take any action which exposes Phoenix to liability in such capacity, which could result in Phoenix incurring any costs and expenses or which is contrary to this Agreement or applicable law. Notwithstanding anything to the contrary contained herein, any action to impose additional obligations on the Lenders, or to amend Section 8.6 hereof or any other provision hereof or in any of the Security Documents which would affect the pro rata repayment, as among the
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Lenders, of the Obligations or the pro rata disbursement, as among the Lenders, of moneys or other proceeds received in the enforcement of the security interests created hereby, shall require the consent of each Lender whose interests are adversely affected by such action.
(b) The Corporation shall be entitled to rely upon any certificate, notice or other document or other advice, statement or instruction provided to it by Phoenix pursuant to this Agreement, and the Corporation shall generally be entitled to deal with Phoenix with respect to matters under this Agreement which Phoenix is authorized to deal with without any obligation whatsoever to satisfy itself as to the authority of Phoenix to act on behalf of the Lenders and without any liability whatsoever to the Lenders for relying upon any certificate, notice or other document or other advice, statement or instruction provided to it by Phoenix, notwithstanding any lack of authority of Phoenix to provide the same.
Section 9.22. Counterparts
This Agreement may be executed in separate counterparts (including by facsimile), each of which when so executed and delivered shall be deemed to be an original and all of such counterparts shall together constitute one and the same instrument. Any party may execute this Agreement by facsimile signature.
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IN WITNESS WHEREOF the parties have executed this Agreement.
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XPLORE TECHNOLOGIES CORP. |
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PHOENIX ENTERPRISES LLC , solely for purposes of Section 9.20 hereof, in its capacity as Agent under (i) the Debenture Purchase Agreement, dated November 5, 2002, (ii) the December 2002 Debenture Purchase Agreement, dated December 6, 2002, (iii) the April 2003 Debenture Purchase Agreement, dated April 9, 2003, and (iv) the Second April 2003 Debenture Purchase Agreement, dated April 28, 2003 |
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Title: Chief Executive Officer |
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THE
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Title: Trustee |
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DECEMBER
2004 DEBENTURE PURCHASE AGREEMENT
COUNTERPART EXECUTION PAGE
By signing below, the undersigned agrees to the terms of the December 2004 Debenture Purchase Agreement and to purchase the number of Units set forth below.
Please complete the following:
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(For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the response to item 1 above: |
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DECEMBER
2004 DEBENTURE PURCHASE AGREEMENT
COUNTERPART EXECUTION PAGE
By signing below, the undersigned agrees to the terms of the December 2004 Debenture Purchase Agreement and to purchase the number of Units set forth below.
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795233 ONTARIO INC. |
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Exhibit 10.4
Silicon Valley Bank
Loan and Security Agreement
Borrower: |
XPLORE TECHNOLOGIES CORPORATION OF AMERICA |
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14000 Summit Drive, Suite 900 |
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Austin, Texas 78728 |
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(FAX: 512-336-7791) |
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September 15, 2005 |
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK (Silicon or Bank), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above (jointly and severally, the Borrower), whose chief executive office is located at the above address (Borrowers Address). The Schedule to this Agreement (the Schedule) shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Silicon will make loans to Borrower (the Loans) up to the amounts (the Maximum Credit Limit) shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of Reserves for accrued interest and such other Reserves as Silicon deems proper from time to time in its good faith business judgment.
1.2 Interest. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement. Interest shall be payable monthly, on the last day of the month. Interest may, in Silicons discretion, be charged to Borrowers loan account, and the same shall thereafter bear interest at the same rate as the other Loans. Silicon may, in its discretion, charge interest to Borrowers Deposit Accounts maintained with Silicon. Regardless of the amount of Obligations that may be outstanding from time to time, Borrower shall pay Silicon minimum monthly interest during the term of this Agreement in the amount set forth on the Schedule (the Minimum Monthly Interest).
1.3 Overadvances. If at any time or for any reason the total of all outstanding Loans and all other monetary Obligations exceeds the Maximum Credit Limit (an Overadvance), Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand. Without limiting Borrowers obligation to repay to Silicon the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.
1.4 Fees. Borrower shall pay Silicon the fees shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable.
1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to Silicon by facsimile or telephone. Loan requests received after 12:00 Noon (Pacific Standard Time) will not be considered by Silicon until the next Business Day. Silicon may rely on any telephone request for a Loan given by a person whom Silicon believes is an authorized representative of Borrower, and Borrower will indemnify Silicon for any loss Silicon suffers as a result of that reliance.
1.6 Letters of Credit. At the request of Borrower, Silicon may, in its good faith business judgment, issue or arrange for the issuance of letters of credit for the account of Borrower, in each case in form and substance satisfactory to Silicon in its sole discretion (collectively, Letters of Credit). The aggregate face amount of all Letters of Credit from time to time outstanding shall not exceed the amount shown on the Schedule (the Letter of Credit Sublimit), and shall be reserved against Loans which would otherwise be available hereunder, and in the event at any time there are insufficient Loans available to Borrower for such reserve, Borrower shall deposit and maintain with Silicon cash collateral in an amount at all
times equal to such deficiency, which shall be held as Collateral for all purposes of this Agreement. Borrower shall pay all bank charges (including charges of Silicon) for the issuance of Letters of Credit, together with such additional fee as Silicons letter of credit department shall charge in connection with the issuance of the Letters of Credit. Any payment by Silicon under or in connection with a Letter of Credit shall constitute a Loan hereunder on the date such payment is made. Each Letter of Credit shall have an expiry date no later than thirty days prior to the Maturity Date. Borrower hereby agrees to indemnify and hold Silicon harmless from any loss, cost, expense, or liability, including payments made by Silicon, expenses, and reasonable attorneys fees incurred by Silicon arising out of or in connection with any Letters of Credit other than those arising from Silicons gross negligence or willful misconduct. Borrower agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Silicon and opened for Borrowers account or by Silicons interpretations of any Letter of Credit issued by Silicon for Borrowers account, and Borrower understands and agrees that Silicon shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrowers instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto other than Silicons gross negligence or willful misconduct. Borrower understands that Letters of Credit may require Silicon to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of Silicons indemnification of any such issuing bank. The provisions of this Loan Agreement, as it pertains to Letters of Credit, and any other Loan Documents relating to Letters of Credit are cumulative.
2. SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Silicon a security interest in all of the following (collectively, the Collateral): all right, title and interest of Borrower in and to all of the following, whether now owned or hereafter arising or acquired and wherever located: all Accounts; all Inventory; all Equipment; all Deposit Accounts; all General Intangibles (including without limitation all Intellectual Property); all Investment Property; all Other Property; and any and all claims, rights and interests in any of the above, and all guaranties and security for any of the above, and all substitutions and replacements for, additions, accessions, attachments, accessories, and improvements to, and proceeds (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties) of, any and all of the above, and all Borrowers books relating to any and all of the above.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants, throughout the term of this Agreement and until all Obligations have been paid and performed in full:
3.1 Corporate Existence and Authority. Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would result in a Material Adverse Change. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors rights generally), and (iii) do not violate Borrowers articles or certificate of incorporation, or Borrowers by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any agreement or instrument which is binding upon Borrower or its property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the heading to this Agreement is its correct name. Listed in the Representations are all prior names of Borrower and all of Borrowers present and prior trade names. Borrower shall give Silicon 30 days prior written notice before changing its name or doing business under any other name. Borrower has complied, and will in the future comply, in all material respects, with all laws relating to the conduct of business under a fictitious business name, except where the failure to so comply would not reasonably be expected to result in a Material Adverse Change.
3.3 Place of Business; Location of Collateral. The address set forth in the heading to this Agreement is Borrowers chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth in the Representations. Borrower will give Silicon at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrowers Address or
one of the locations set forth in the Representations, except that Borrower may maintain sales offices in the ordinary course of business at which not more than a total of $30,000 fair market value of Equipment is kept at each location.
3.4 Title to Collateral; Perfection; Permitted Liens.
(a) Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased to Borrower. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. Silicon now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Silicon and the Collateral against all claims of others.
(b) Borrower has set forth in the Representations all of Borrowers Deposit Accounts, and Borrower will give Silicon five Business Days advance written notice before establishing any new Deposit Accounts and will cause the institution where any such new Deposit Account is maintained to execute and deliver to Silicon a control agreement in form sufficient to perfect Silicons security interest in the Deposit Account and otherwise satisfactory to Silicon in its good faith business judgment. Nothing herein limits any requirements which may be set forth in the Schedule as to where Deposit Accounts will be maintained.
(c) In the event that Borrower shall at any time after the date hereof have any commercial tort claims against others, which it is asserting or intends to assert, and in which the potential recovery exceeds $100,000, Borrower shall promptly notify Silicon thereof in writing and provide Silicon with such information regarding the same as Silicon shall request (unless providing such information would waive the Borrowers attorney-client privilege). Such notification to Silicon shall constitute a grant of a security interest in the commercial tort claim and all proceeds thereof to Silicon, and Borrower shall execute and deliver all such documents and take all such actions as Silicon shall request in connection therewith.
(d) None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any non-statutory rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrowers right to remove any Collateral from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest, Borrower shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall specify in its good faith business judgment. Borrower will keep in full force and effect, and will comply with all material terms of, any lease of real property where any of the Collateral now or in the future may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good working condition (ordinary wear and tear and damage due to casualty excepted), and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at Borrowers Address complete and accurate books and records, comprising an accounting system in accordance with GAAP.
3.7 Financial Condition, Statements and Reports. With the exception of certain restatements of Borrowers financial statements for fiscal years 2002, 2003 and 2004 and certain interim periods for fiscal year 2005, all financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with GAAP and now and in the future will fairly present the results of operations and financial condition of Borrower, in accordance with GAAP, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no Material Adverse Change.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed, and will timely file, all required tax returns and reports, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrowers obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. Borrower is unaware of any claims or adjustments proposed for any of Borrowers prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could
reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
3.9 Compliance with Law. Borrower has, to the best of its knowledge, complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations applicable to Borrower, including, but not limited to, those relating to Borrowers ownership of real or personal property, the conduct and licensing of Borrowers business, and all environmental matters.
3.10 Litigation. There is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrowers knowledge) threatened against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which could reasonably be expected to result, either separately or in the aggregate, in any Material Adverse Change. Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted against Borrower involving any single claim of $50,000 or more, or involving $100,000 or more in the aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for lawful business purposes. Borrower is not purchasing or carrying any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.
4. ACCOUNTS.
4.1 Representations Relating to Accounts. Borrower represents and warrants to Silicon as follows: Each Account with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale and delivery of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, in the ordinary course of Borrowers business, and (ii) meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance. Borrower represents and warrants to Silicon as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and correct and all such invoices, instruments and other documents and all of Borrowers books and records are and shall be genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations. To the best of Borrowers knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms.
4.3 Schedules and Documents relating to Accounts. Borrower shall deliver to Silicon transaction reports and schedules of collections, as provided in the Schedule, on Silicons standard forms; provided, however, that Borrowers failure to execute and deliver the same shall not affect or limit Silicons security interest and other rights in all of Borrowers Accounts, nor shall Silicons failure to advance or lend against a specific Account affect or limit Silicons security interest and other rights therein. If requested by Silicon, Borrower shall furnish Silicon with copies (or, at Silicons request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to Silicon an aged accounts receivable trial balance as provided in the Schedule. In addition, Borrower shall deliver to Silicon, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary endorsements, and copies of all credit memos.
4.4 Collection of Accounts. Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing. Whether or not an Event of Default has occurred and is continuing, subject to the terms provided in the Schedule, Borrower shall hold all payments on, and proceeds of, Accounts in trust for Silicon, and Borrower shall immediately deliver all such payments and proceeds to Silicon in their original form, duly endorsed, to be applied to the Obligations in such order as Silicon shall determine. Any proceeds in excess of the Obligations shall be transferred to Borrowers operating account with Silicon. Silicon may, in its good faith business judgment, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other blocked account as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify in its good faith business judgment.
4.5. Remittance of Proceeds. All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after
receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an arms length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with any of Borrowers other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.
4.6 Disputes. Borrower shall notify Silicon promptly of all disputes or claims relating to Accounts. Borrower shall not forgive (completely or partially), compromise or settle any Account for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arms length transactions, which are reported to Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts, settlements and forgiveness, the total outstanding Loans will not exceed the Maximum Credit Limit.
4.7 Returns. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust for Silicon, and immediately notify Silicon of the return of the Inventory.
4.8 Verification. Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose.
4.9 No Liability. Silicon shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrowers obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply with the financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require and that are customary and in accordance with standard practices for Borrowers industry and locations, and Borrower shall provide evidence of such insurance to Silicon. All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its good faith business judgment, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrowers expense. Borrower shall promptly deliver to Silicon copies of all material reports made to insurance companies.
5.3 Reports. Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Silicon shall from time to time specify in its good faith business judgment.
5.4 Access to Collateral, Books and Records. At reasonable times, and on one Business Days notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrowers books and records. Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its subsidiaries or affiliates in connection with their business with Borrower and to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process. The foregoing inspections and audits shall be at Borrowers expense and the charge therefor shall be $750 per person per day (or such
higher amount as shall represent Silicons then current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule an audit more than 10 days in advance, and Borrower seeks to reschedules the audit with less than 10 days written notice to Silicon, then (without limiting any of Silicons rights or remedies), Borrower shall pay Silicon a cancellation fee of the amount of any actual out-of-pocket expenses incurred by Silicon, to compensate Silicon for the anticipated costs and expenses of the cancellation.
5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower shall not, without Silicons prior written consent (which shall be a matter of its good faith business judgment), do any of the following: (i) merge or consolidate with another corporation or entity; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business, except the re-incorporation contemplated by Section 8(c) of the Schedule; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrowers business, the grant of non-exclusive licenses and similar arrangements for the use of property of Borrower in the ordinary course of business, and the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party unless Borrower obtains subordination agreements acceptable to Silicon; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets, other than Permitted Investments; (viii) incur any debts, outside the ordinary course of business, which would result in a Material Adverse Change, other than Permitted Indebtedness; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity, other than Permitted Indebtedness; (x) pay or declare any dividends on Borrowers stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrowers stock; (xii) make any change in Borrowers capital structure which would result in a Material Adverse Change, except the sale of Borrowers equity securities in a public offering or to venture capital investors so long as Borrower identifies to Bank the venture capital investors prior to the closing of the investment; or (xiii) engage, directly or indirectly, in any business other than the businesses currently engaged in by Borrower or reasonably related thereto; or (xiv) dissolve or elect to dissolve; or (xv) prepay any Subordinated Debt, except as permitted pursuant to the terms thereof or the terms of the relevant subordination agreement governing such Subordinated Debt. Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction.
5.6 Litigation Cooperation. Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrowers books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions as Silicon may in its good faith business judgment, deem necessary or useful in order to perfect and maintain Silicons perfected first-priority security interest in the Collateral (subject to Permitted Liens), and in order to fully consummate the transactions contemplated by this Agreement. Borrower authorizes Silicon to file such UCC-1 financing statements under the Code as Silicon deems necessary.
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the Maturity Date), subject to Section 6.3 below.
6.2 Early Termination. This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three Business Days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence and during the continuance of an Event of Default after any applicable cure period has expired, without notice, effective immediately. If this Agreement is terminated by Borrower under this Section 6.2 (a) at any time within the first twelve (12) months after the date of this Agreement, Borrower shall pay to Silicon a termination fee in an amount equal to one percent (1.0%) of the Maximum Credit Limit; and, (b) at any time after the first anniversary of the date of this Agreement but prior to the Maturity Date, Borrower shall pay to Silicon a termination fee in an amount equal to one-half of one percent (0.50%) of the Maximum Credit Limit; provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from Silicon or another division of Silicon. The termination fee shall be due and payable on the effective date of any such termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations.
6.3 Payment of Obligations. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Without limiting the generality of the foregoing, if on the Maturity
Date, or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith (as estimated by Silicon in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicons then standard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of Silicons security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that Silicon may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly terminate its financing statements with respect to the Borrower and deliver to Borrower such other documents as may be required to fully terminate Silicons security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrowers officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect when made or deemed to be made; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Maximum Credit Limit; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule, or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured, or shall fail to permit Silicon to conduct an inspection or audit as specified in Section 5.4 hereof; or (e) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within five Business Days after the date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within 10 days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has resulted or may reasonably be expected to result in a Material Adverse Change; or (i) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) a Material Adverse Change shall occur. Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred and is continuing.
7.2 Remedies. Upon the occurrence and during the continuance of any Event of Default, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other Loan Document; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrowers premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Silicon deems it necessary, in its good faith business judgment, in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any of the Collateral by court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrowers premises, vehicles, hoists, lifts, cranes, and other Equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Silicon shall have the right to conduct such disposition on Borrowers premises without charge, for such time or times as Silicon deems reasonable, or on Silicons premises, or elsewhere and the Collateral need not be located at the place of disposition. Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Accounts and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrowers name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicons good faith business judgment, to grant extensions of time to pay, compromise claims and settle Accounts and the like for less than face value; (h) Offset against any sums in any of Borrowers general, special or other Deposit Accounts with Silicon against any or all of the Obligations; and (i) Demand and receive possession of any of Borrowers federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable attorneys fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of Silicons rights and remedies, from and after the occurrence and during the continuance of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent (4%) per annum (the Default Rate).
7.3 Standards for Determining Commercial Reasonableness. Borrower and Silicon agree that a sale or other disposition (collectively, sale) of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (i) written notice of the sale is given to Borrower at least ten days prior to the sale, and, in the case of a public sale, notice of the sale is published at least five days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) written notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashiers check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance of any Event of Default, without limiting Silicons other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrowers expense, to do any or all of the following, in Borrowers name or otherwise, but Silicon agrees that if it exercises any right hereunder, it will do so in good faith and in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Silicon may, in its good faith business judgment, deem advisable in order to perfect and maintain Silicons security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any invoices relating to any Account, any
draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanics, materialmans or other lien, or assignment or satisfaction of mechanics, materialmans or other lien; (c) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicons possession; (d) Endorse all checks and other forms of remittances received by Silicon; (e) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (f) Grant extensions of time to pay, compromise claims and settle Accounts and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (g) Pay any sums required on account of Borrowers taxes or to secure the release of any liens therefor, or both; (h) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (i) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (j) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other Loan Documents. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. In no event shall Silicons rights under the foregoing power of attorney or any of Silicons other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in its good faith business judgment, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the following meanings :
Account Debtor means the obligor on an Account.
Accounts means all present and future accounts as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all accounts receivable and other sums owing to Borrower.
Affiliate means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person.
Business Day means a day on which Silicon is open for business.
Code means the Uniform Commercial Code as adopted and in effect in the State of California from time to time.
Collateral has the meaning set forth in Section 2 above.
continuing and during the continuance of when used with reference to a Default or Event of Default means that the Default or Event of Default has occurred and has not been either waived in writing by Silicon or cured within any applicable cure period.
Default means any event which, with notice or passage of time or both, would constitute an Event of Default.
Default Rate has the meaning set forth in Section 7.2 above.
Deposit Accounts means all present and future deposit accounts as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all general and special bank accounts, demand accounts, checking accounts, savings accounts and certificates of deposit.
Eligible Inventory - Not Applicable
Eligible Accounts means Accounts and General Intangibles arising in the ordinary course of Borrowers business from the sale of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, for which an invoice has been issued, which Silicon, in its good faith business judgment, shall deem eligible for borrowing. Without limiting the fact that the determination of which Accounts are eligible for borrowing is a matter of Silicons good faith business judgment, the following (the Minimum Eligibility Requirements ) are the minimum requirements for an Account to be an Eligible Account: (i) the Account must not be outstanding for more than 90 days from its invoice date (the Eligibility Period ), (ii) the Account must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor, or be offsetting deferred revenue (iii) the Account must not be subject to any contingencies (including Accounts arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional), (iv) the Account must not be owing from an Account Debtor with whom Borrower has any dispute (whether or not relating to the particular Account), (v) the Account must not be owing from an Affiliate of Borrower, (vi) the Account must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not reasonably acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii) the Account must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Silicons satisfaction, with the United States Assignment of Claims Act), (viii) the Account must not be owing from an Account Debtor located outside the United States or Canada (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the Account must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise (but, in such case, the Account will be deemed not eligible only to the extent of any amounts owed by Borrower to such Account Debtor). Accounts owing from one Account Debtor will not be deemed Eligible Accounts to the extent they exceed 25% of the total Accounts outstanding. In addition, if more than 50% of the Accounts owing from an Account Debtor are outstanding for a period longer than their Eligibility Period (without regard to unapplied credits) or are otherwise not eligible Accounts, then all Accounts owing from that Account Debtor will be deemed ineligible for borrowing. Silicon may, from time to time, in its good faith business judgment, revise the Minimum Eligibility Requirements, upon written notice to Borrower, and, in the event that such revisions are material, Borrower may prepay the outstanding Loans and terminate this Agreement without payment of any early termination fee.
Equipment means all present and future equipment as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
Event of Default means any of the events set forth in Section 7.1 of this Agreement.
GAAP means generally accepted accounting principles consistently applied.
Guarantor means any present or future guarantor of the Obligations, including XPLORE TECHNOLOGIES CORP.
General Intangibles means all present and future general intangibles as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all Intellectual Property, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
good faith business judgment means honesty in fact and good faith (as defined in Section 1-201 of the Code) in the exercise of Silicons business judgment.
including means including (but not limited to).
Intellectual Property means all present and future (a) copyrights, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, (b) trade secret rights, including all rights to unpatented inventions and know-how, and confidential information; (c) mask work or similar rights available for the protection of semiconductor chips; (d) patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part
of the same; (e) trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are registered, and all applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by any such trademarks; (f) computer software and computer software products; (g) designs and design rights; (h) technology; (i) all claims for damages by way of past, present and future infringement of any of the rights included above; and (j) all licenses or other rights to use any property or rights of a type described above.
Inventory means all present and future inventory as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrowers custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
Investment Property means all present and future investment property, securities, stocks, bonds, debentures, debt securities, partnership interests, limited liability company interests, options, security entitlements, securities accounts, commodity contracts, commodity accounts, and all financial assets held in any securities account or otherwise, and all options and warrants to purchase any of the foregoing, wherever located, and all other securities of every kind, whether certificated or uncertificated.
Loan Documents means, collectively, this Agreement, the Representations, and all other present and future documents, instruments and agreements between Silicon and Borrower related to the Loans, including, but not limited to those relating to this Agreement, and all amendments and modifications thereto and replacements therefor.
Material Adverse Change means any of the following: (i) a material adverse change in the business, operations, or financial or other condition of the Borrower, or (ii) a material impairment of the prospect of repayment of any material portion of the Obligations; or (iii) a material impairment of the value or priority of Silicons security interests in the Collateral.
Obligations means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon, whether evidenced by this Agreement or any note or other instrument or document, or otherwise, whether arising from an extension of credit, opening of a letter of credit, bankers acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrowers debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorneys fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other Loan Documents.
Other Property means the following as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and all rights relating thereto: all present and future commercial tort claims (including without limitation any commercial tort claims identified in the Representations), documents, instruments, promissory notes, chattel paper, letters of credit, letter-of-credit rights, fixtures, farm products and money; and all other goods and personal property of every kind, tangible and intangible, whether or not governed by the Code.
Payment means all checks, wire transfers and other items of payment received by Silicon (including proceeds of Accounts and payment of the Obligations in full) for credit to Borrowers outstanding Loans or, if the balance of the Loans have been reduced to zero, for credit to its Deposit Accounts.
Permitted Indebtedness means the following: (a) Borrowers indebtedness to Silicon under this Agreement or the Loan Documents; (b) indebtedness existing on the date hereof which is disclosed in writing to Bank in the Representations; (c) Subordinated Debt; (d) indebtedness incurred after the date hereof not to exceed $50,000 in the aggregate in any fiscal year of Borrower secured by a lien described in clause (i) of the defined term Permitted Liens; (e) indebtedness to trade creditors incurred in the ordinary course of business; (f) indebtedness secured by Permitted Liens; and (g) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower.
Permitted Investments means the following: (a) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any state maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poors Corporation or Moodys Investors Service, Inc., (iii) Banks certificates of deposit issued maturing no more than 1 year after issue, (iv) any other investments administered through Bank; (b) Investments not to exceed $50,000 in the aggregate at any one time consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plan agreements approved by Borrowers Board of Directors; (c) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrowers business; and (d) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers who are not Affiliates, in the ordinary course of Borrowers business.
Permitted Liens means the following: (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens consented to in writing by Silicon, which consent may be withheld in its good faith business judgment; (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods; (ix) leases or subleases and non-exclusive licenses or sublicenses granted in the ordinary course of Borrowers business, if the leases, subleases, licenses and sublicenses permit granting Bank a security interest; and (x) liens related to the Subordinated Debt, including the New Phoenix Agreement referred to in the Schedule. Silicon will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicons then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement.
Person means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity.
Representations means the written Representations and Warranties or Perfection Certificate provided by Borrower to Silicon referred to in the Schedule.
Reserves means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in its good faith business judgment, reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule: (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in its good faith business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicons good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may reasonably be expected to, with notice or passage of time or both, constitute an Event of Default.
Subordinated Debt means debt incurred by Borrower subordinated to Borrowers indebtedness owed to Silicon and which is reflected in a written agreement in a manner and form acceptable to Silicon in its sole discretion and approved by Silicon in writing, including the Subordination Agreement between Phoenix Enterprises LLC and others and Bank, the Subordination Agreement between Phoenix Venture Fund LLC and another and Bank, and the Subordination Agreement between Guarantor and Bank, each dated as of April 22, 2005; the Subordination Agreement between Phoenix Venture Fund LLC and others and Bank dated the date hereof; and for purposes of this Agreement shall also include the Intercreditor Agreement entered into between Wistron Corporation and Bank dated as of April 22, 2005 and entered into in connection with the Prior Agreement (defined below).
Other Terms . All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with GAAP, consistently applied. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation; Float Charge. In computing interest on the Obligations, all Payments received after 12:00 Noon (Pacific Standard Time) on any day shall be deemed received on the next Business Day. In addition, Silicon shall be entitled to charge Borrower a float charge in an amount equal to two Business Days interest, at the interest rate applicable
to the Loans, on all Payments received by Silicon. Said float charge is not included in interest for purposes of computing Minimum Monthly Interest (if any) under this Agreement. The float charge for each month shall be payable on the last day of the month. Silicon shall not, however, be required to credit Borrowers account for the amount of any item of payment, which is unsatisfactory to Silicon in its good faith business judgment, and Silicon may charge Borrowers loan account for the amount of any item of payment which is returned to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the Obligations may be applied, and in Silicons good faith business judgment reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its good faith business judgment.
9.3 Charges to Accounts. Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrowers Loan account, in which event they will bear interest at the same rate applicable to the Loans. Silicon may also, in its discretion, charge any monetary Obligations to Borrowers Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within 60 days after such account is rendered, describing the nature of any alleged errors or omissions.
9.5 Notices. All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.
9.7 Integration. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith.
9.8 Waivers; Indemnity. The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other Loan Document shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other Loan Document shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower. Borrower waives the benefit of all statutes of limitations relating to any of the Obligations or this Agreement or any other Loan Document, and Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement. Borrower hereby agrees to indemnify Silicon and its affiliates, subsidiaries, parent, directors, officers, employees, agents, and attorneys, and to hold them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including reasonable attorneys fees), of every kind, which they may sustain or incur based upon or arising out of any of the Obligations, or any relationship or agreement between Silicon and Borrower, or any other matter relating to Borrower or the Obligations; provided that this indemnity shall not extend to damages proximately caused by the indemnitees own gross negligence or willful misconduct. Notwithstanding any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive any termination of this Agreement and shall for all purposes continue in full force and effect.
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of
Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by Borrower of each and every obligation under this Agreement.
9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all reasonable attorneys fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and all present and future documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrowers books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicons security interest in, the Collateral; and otherwise represent Silicon in any litigation relating to Borrower. In satisfying Borrowers obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for convenience, issue checks directly to Silicons attorneys, but Borrower acknowledges and agrees that Silicons attorneys are representing only Silicon and not Borrower in connection with this Agreement. If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys fees, including (but not limited to) reasonable attorneys fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All attorneys fees and costs to which Silicon may be entitled pursuant to this Paragraph shall immediately become part of Borrowers Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations.
9.14 Joint and Several Liability. If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.
9.15 Limitation of Actions. Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after Borrower has knowledge of the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Silicon, or on any other person authorized to accept service on behalf of Silicon, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other Loan Document.
9.16 Paragraph Headings; Construction. Paragraph headings are only used in this Agreement for convenience. Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the State of California. As a material part of the
consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicons option, be litigated in courts located within California, and that the exclusive venue therefor shall be the County of Santa Clara, California; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.
9.18 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (i) to Banks subsidiaries or affiliates in connection with their business with Borrower; (ii) to prospective transferees or purchasers of any interest in the Advances (provided, however, Bank shall use commercially reasonable efforts in obtaining such prospective transferees or purchasers agreement to the terms of this provision); (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Banks examination or audit; and (v) as Bank considers appropriate in exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Banks possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.
9.19 Mutual Waiver of Jury Trial. BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER RELATED PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower: |
Silicon: |
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XPLORE TECHNOLOGIES CORPORATION |
SILICON VALLEY BANK |
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OF AMERICA |
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By: |
/s/ Michael J. Rapisand |
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By: |
/s/ Shelia Colson |
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Title: Chief Financial Officer and Secretary |
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Title: Vice President |
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Exhibit 10.5
XPLORE TECHNOLOGIES CORP.,
XPLORE TECHNOLOGIES CORPORATION OF AMERICA,
PHOENIX VENTURE FUND LLC
AND
EACH OF THE LENDERS LISTED
ON SCHEDULE 1 ATTACHED HERETO
SEPTEMBER 2005 DEBENTURE PURCHASE AGREEMENT
September 15, 2005
SEPTEMBER 2005 DEBENTURE PURCHASE AGREEMENT
THIS AGREEMENT is made the 15th day of September, 2005, by and among Xplore Technologies Corp. , a corporation incorporated under the laws of Canada (the Corporation ), Xplore Technologies Corporation of America , a corporation incorporated under the laws of Delaware and a wholly-owned subsidiary of the Corporation (the US Subsidiary ), Phoenix Venture Fund LLC , a limited liability company organized under the laws of the State of Delaware ( Phoenix ) and each of the other lenders listed on Schedule 1 attached to this Agreement (each such lender, a Lender and collectively, the Lenders ).
WHEREAS the Corporation and the US Subsidiary (each a Borrower and together the Borrowers ) are in the business of engineering, developing, integrating and marketing ruggedized mobile wireless pen-based computing systems;
WHEREAS on the terms and subject to the conditions hereof, the Lenders agree to subscribe for and purchase from the Borrowers, and the Borrowers agree to issue to the Lenders, senior secured debentures of the Borrowers (the Debentures and each, a Debenture ) in an aggregate principal amount of up to Five Million United States Dollars ($5,000,000);
WHEREAS the proceeds to the Borrowers paid by the Lenders for the Debentures will be used by the Borrowers solely in accordance with the terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE 1.
TRANSACTIONS
Section 1.1. Issuance of Debentures to the Lenders.
On the terms and subject to the conditions hereof, upon the request of the Borrowers, the Lenders agree to subscribe for and purchase from the Borrowers up to an aggregate principal amount of $5 million of Debentures. The terms and conditions of the Debentures are as set forth herein and are evidenced by the Debenture Certificates in the form attached hereto as Exhibit A . The aggregate principal amount of Debentures to be purchased (the Purchase Price ) by the Lenders and sold by the Borrowers shall be determined as follows:
(a) Subject to the terms and conditions of this Agreement, at the Initial Closing (as hereinafter defined), Phoenix, The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the CRAT ) and MAG Multi Corp. ( MAG Multi and together with Phoenix and the CRAT, the Initial Lenders ) shall purchase, and the Borrowers shall sell and issue to the Initial Lenders, Debentures in an aggregate principal amount of $3 million (the Initial Debentures ), in the following amounts: (i) Phoenix shall purchase Initial Debentures in an aggregate principal amount of $2,500,000, (ii) the CRAT shall purchase Initial Debentures in an aggregate principal amount of $250,000, and (iii) MAG Multi shall purchase Initial Debentures in an aggregate principal amount of $250,000; and
(b) Subject to the terms and conditions of this Agreement, the Borrowers have the right, but not the obligation, to, upon fifteen (15) Business Days prior written notice (such notice to specify the aggregate principal amount of Debentures to be subscribed for), require Phoenix to subscribe for and purchase additional Debentures (the Additional Debentures ) in aggregate principal amount increments of $500,000, but in no event shall Phoenix be required to subscribe for or purchase Additional Debentures for more than an aggregate principal amount of $2 million. Phoenix may at any time, without the consent of the Borrowers, make an assignment of its interests, rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment.
Section 1.2. Closings
(a) The consummation of the purchase and sale of the Initial Debentures shall occur on the date when all of the conditions set forth in Sections 7.1 and 7.2 have been satisfied in full (or waived in writing) or at such later time and place as may be mutually agreed upon by the Borrowers and Phoenix (the Initial Closing ).
(b) From time to time after the Initial Closing, but no later than sixty (60) days prior to the Maturity Date, the Borrowers shall have the right to issue and sell to Phoenix, and Phoenix shall purchase, Additional Debentures up to an aggregate principal amount of $2 million (each an Additional Closing ), subject to the terms of Section 1.1(b).
Section 1.3. Purchase Price
(a) On the terms and subject to the conditions hereof, on the Initial Closing Date, each Initial Lender shall pay the Purchase Price for the Initial Debentures to the Borrowers by surrendering an equal amount of indebtedness as follows: (A) in the case of Phoenix as an Initial Lender, an amount equal to the aggregate principal amount of the Phoenix Notes then outstanding, (B) in the case of the CRAT as an Initial Lender, an amount equal to the aggregate principal amount of the CRAT Note then outstanding, and (C) in the case of MAG Multi as an Initial Lender, an amount equal to the aggregate principal amount of the MAG Multi Note then outstanding, which in each case shall represent, subject to Section 1.4(c) hereof, payment in full for such notes.
(b) On the terms and subject to the conditions hereof, on each Additional Closing Date, Phoenix shall pay the Purchase Price, equal to the aggregate principal amount of Debentures then being purchased by Phoenix, to the Borrowers by way of certified check, bank draft or wire transfer, less any unpaid fees and expenses payable by the Borrowers pursuant to Section 1.4. The Borrowers hereby irrevocably direct Phoenix to withhold such fees and expenses from the payment of its Purchase Price and Phoenix hereby agrees that the withholding of such fees and expenses shall constitute its acknowledgement and agreement that the Borrowers shall not thereafter have any further obligation to Phoenix under Section 1.3 hereof, except as set forth in Section 7.2(e).
Section 1.4. Fees and Expenses
(a) The Borrowers acknowledge and agree that they will be, jointly and severally, responsible for and will promptly pay or reimburse each Lender on demand for all
reasonable fees, expenses and other out-of-pocket expenses paid or incurred by such Lender, its representatives and consultants relating to its investigation of the Corporation, the Subsidiaries and its respective businesses, the negotiation, preparation and review of this Agreement and the other Instruments and related agreements and all other matters pertaining to the transactions hereby contemplated, including, without limitation, all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by such Lender for legal advice and services in connection with such transactions.
(b) The Borrowers acknowledge and agree that they will be responsible for and will promptly pay all such reasonable fees (including, but not limited to, legal fees), expenses and other out-of-pocket expenses whether or not the transactions hereunder are completed and even if it is the Lenders who terminate this Agreement pursuant to Section 7.3.
(c) On the Initial Closing Date, the Borrowers shall pay, by wire transfer of immediately available funds, (i) to Phoenix an amount equal to all accrued and unpaid interest on the Phoenix Notes, (ii) to the CRAT an amount equal to all accrued and unpaid interest on the CRAT Note, and (iii) to MAG Multi an amount equal to all accrued and unpaid interest on the MAG Multi Note.
Section 1.5. Use of Proceeds
Each of the Borrowers hereby covenants, agrees, represents and warrants with and to the Lenders that such Borrower will use the net proceeds from the issuance and sale of the Debentures to the Lenders solely to finance its product development and for working capital and general corporate purposes; provided , that $3,000,000 from the proceeds of the Initial Closing will be used to repay the outstanding principal balance on the Initial Closing Date of (i) the Phoenix Notes, (ii) the CRAT Note, and (iii) the MAG Multi Note.
ARTICLE 2.
PAYMENT OBLIGATIONS
Section 2.1. Principal Sum
For value received, the Corporation and the US Subsidiary, each having its principal business office at 14000 Summit Drive, Austin, Texas 78728, shall, jointly and severally, pay to the order of each of the Lenders the principal amount of each Debenture held by such Lender, unless such Debenture has been prepaid in full, plus all accrued and unpaid interest thereon in lawful money of the United States on March 31, 2006 (the Maturity Date ), or such earlier date as the Obligations shall become due and payable hereunder, at the offices of the respective Lenders set forth on Schedule 1 or such other place as the Lenders may designate in writing not less than two Business Days prior to the Maturity Date.
Section 2.2. Interest
The principal outstanding on each Debenture from time to time shall bear interest from and including the applicable Closing Date to the date of repayment in full at 10% per annum (the Interest Rate ) calculated and payable in arrears on the Maturity Date. After the occurrence of an Event of Default and for so long as it continues, all Obligations shall bear interest at a rate that
is 5% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the Debentures (the Default Interest Rate ).
This Agreement and the other Transaction Documents are subject to the express condition that at no time shall the Borrowers be required to pay interest on the principal balance of the Debentures at a rate which could subject Lenders to either civil or criminal liability as a result of being in excess of the maximum amount permissible under applicable usury or similar laws (the Maximum Legal Rate ). If by the terms of this Agreement or the other Transaction Documents, the Borrowers are at any time required or obligated to pay interest on the principal balance due under the Debentures at a rate in excess of the Maximum Legal Rate, the Interest Rate, or the Default Interest Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lenders for the use, forbearance, or detention of the sums due under the Debentures, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of the Debentures until payment in full so that the rate or amount of interest on account of the Debentures does not exceed the Maximum Legal Rate from time to time in effect and applicable to the Debentures for so long as the Debentures are outstanding.
Section 2.3. Repayments
Each Borrower jointly and severally agrees to pay to each Lender the principal amount, any accrued and unpaid interest and any other monies owing in respect of the Debentures in full on the Maturity Date or on such earlier date as the Obligations shall become due and payable in full hereunder. Each payment of principal amount of the Debentures hereunder (whether at maturity, by way of prepayment of otherwise), and each payment of interest on the Debentures shall be made and applied to the Lenders pro rata based on the ratio that each Lenders Debentures bears to the total number of Debentures issued to the Lenders hereunder.
Section 2.4. Prepayments
The Borrowers may, upon at least fifteen (15) days prior notice to the Lenders, prepay the Debentures (a Voluntary Prepayment ), without premium or penalty, in whole or in part at any time (any such date, the Prepayment Date ); provided that upon any such prepayment all accrued and unpaid interest as of the date immediately preceding the Prepayment Date shall be paid in cash. To the extent that outstanding Debentures are not all prepaid at the same time, the Debentures shall be prepaid in chronological order of issuance.
Section 2.5. Acceleration Events/Mandatory Prepayments
(a) Subject to the terms of the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, the unpaid principal amount of the Debentures, together with any accrued and unpaid interest thereon, shall become immediately due and payable on a first priority basis prior to any repayment of the Existing Debentures (an Acceleration Event ), in whole or in part, to the extent of fifty percent (50%) of the proceeds received by the Borrowers in any one or more financing transactions (a Financing ) involving
the sale and issuance by the Borrowers of equity or debt securities (other than proceeds from the exercise of share options, stock purchase warrants or other convertible securities of the Corporation outstanding at or prior to the Initial Closing or any Warrant). Subject to the terms of the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, any remaining proceeds of any such Financing allocated to the repayment of Funded Indebtedness of the Borrowers shall first be applied to repayment of the Debentures prior to any repayment of the Existing Debentures or any other Funded Indebtedness of the Borrowers.
(b) The Borrowers shall, subject to the terms of the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, promptly upon the consummation of a sale or disposition of assets in bulk (other than as part of a bankruptcy or insolvency proceeding or a liquidation of the Corporation or any Subsidiary) by the Corporation or any Subsidiary in which the Corporation or Subsidiary, as applicable, shall receive aggregate proceeds in excess of $5,000,000, prepay the Debentures, on a first priority basis prior to any repayment of the Existing Debentures (a Mandatory Prepayment ), to the extent of all such proceeds.
Section 2.6. Payment in US Dollars .
All payments made in cash by the Borrowers shall be made in U.S. Dollars in immediately available funds.
Section 2.7. Taxes
Any and all payments or reimbursements made under the Debentures shall be made free and clear of, and without deduction for, any and all taxes, levies, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, deductions, charges or withholdings and all liabilities with respect thereto, excluding such taxes imposed on net income, Tax Liabilities ), excluding, however, (i) any taxes imposed on income or any franchise tax imposed in lieu of a net income tax; (ii) any taxes imposed on any Lender (or any Person or entity with an interest in Lender), and (iii) any taxes for which any Lender (or any Person or entity with an interest in such Lender) would be entitled to claim a credit against its income tax liability in the country in which the Lender is organized or otherwise subject to taxation. If the Borrowers shall be required by law to deduct any such amounts from or in respect of any sum payable hereunder to a Lender then, the Borrowers shall pay such amounts to the appropriate Governmental Body and provide such Lender with satisfactory documentary evidence of such payment within ten (10) days after such payment and the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, such Lender receives an amount equal to the sum it would have received had no such deductions been made.
ARTICLE 3.
INTERPRETATION
Section 3.1. Defined Terms
As used herein the following expressions shall have the following meanings:
Accounts Receivable means all of the Persons accounts, contract rights, chattel paper, instruments, general intangibles and rights to payment of every kind, now or at any time hereafter arising.
Affiliate means, in respect of any corporation, any Person which, directly or indirectly, controls or is controlled by or is under common control with the Corporation; and for the purpose of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) means the power to direct, or cause to be directed, the management and policies of such Person whether through the ownership of Voting Shares or by contract or otherwise.
Applicable Law means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees of Governmental Bodies.
Business Day means any day other than Saturday, Sunday or a day on which chartered banks are closed for business in New York, New York.
Capital Lease Obligations means, as to any Person, the obligation of such Person to pay rent or other liquidated amounts under a lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under generally accepted accounting principles and, for purposes of this Agreement, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles.
Cash Equivalents means: (i) marketable direct obligations issued or unconditionally guaranteed by the United States or Canadian Government or issued by any agency thereof and backed by the full faith and credit of the United States or Canada, in each case maturing within one (1) year from the date of acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poors Rating Service or at least P-1 from Moodys Investors Service, Inc.; (iii) certificates of deposit or bankers acceptances maturing within one (1) year from the date of issuance thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of Canada or the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $500,000,000; and (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks having membership in the Federal Deposit Insurance Corporation or the Canadian Deposit Insurance Corporation in amounts at any one such institution not exceeding the lesser of $100,000 or the maximum amount of insurance applicable to the aggregate amount of the Corporations deposits at such institution.
Change of Control means any of:
(i) a merger, consolidation, amalgamation or reorganization involving the Corporation, unless such merger, consolidation, amalgamation or reorganization is one in which the shareholders of the Corporation, immediately before such merger,
consolidation, amalgamation or reorganization, own, directly or indirectly immediately following such merger, consolidation, amalgamation or reorganization, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, amalgamation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, amalgamation or reorganization,
(ii) the individuals who, as of the date hereof, are members of the Board (the Incumbent Board ), cease for any reason to constitute at least two-thirds of the members of the Board; provided , however , that (i) if the election, or nomination for election by the Corporations common shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board or (ii) if any new director has been designated by the December 2004 Lenders pursuant to the December 2004 Debenture Agreement, such new director shall, for purposes hereof, be considered as a member of the Incumbent Board; provided further , however , that no individual (other than an individual designated pursuant to the rights of the December 2004 Debenture Holders) shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board (a Proxy Contest ) including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest;
(iii) the Corporation shall cease to own and control all of the economic and voting rights associated with ownership of at least 100% of the outstanding shares of all classes of the Subsidiaries on a fully diluted basis, other than pursuant to the dissolution or winding-up of a Subsidiary pursuant to which all of the assets of such Subsidiary are transferred or conveyed to the Corporation or a Subsidiary; and
(iv) with respect to any of the Corporation or Subsidiaries, the time when the Corporation or such Subsidiary has sold, transferred, conveyed assigned or otherwise disposed of all or substantially all of its assets, other than pursuant to a transaction in which such assets are sold, transferred, conveyed, assigned or disposed of to the Corporation or a Subsidiary.
Closing means the Initial Closing together with each Additional Closing, if any.
Closing Date means the date on which a Closing is consummated.
Commitment shall mean the commitment of each Lender to purchase the aggregate principal amount of Debentures set forth opposite its name on Schedule 1.
Common Shares means the common shares, no par value, of the Corporation.
Contingent Liabilities means, as applied to any Person, any direct or indirect contingent liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; or (ii) with respect to any letter of credit issued for the account of that Person or
as to which that Person is otherwise liable for reimbursement of drawings. Contingent Liabilities shall also include (A) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (B) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, other than pursuant to routine agreements entered into in the ordinary course of business, and (C) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefore, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Liabilities shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.
CRAT Note means that Secured Promissory Note, dated July 19, 2005, in the aggregate principal amount of $250,000, issued by the US Subsidiary to the CRAT.
Default means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default.
December 2004 Debenture Holders means those Persons in their capacity as lenders under the December 2004 Agreement.
Encumbrance means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, hypothec, levy, execution, seizure, attachment, garnishment, right of distress or other claim in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back.
Environmental Laws means all applicable federal, provincial, state, municipal or local laws, statutes, regulations or ordinances relating to the environment, occupational safety, health, product liability and transportation.
Environmental Order means any prosecution, order, decision, notice, direction, report, recommendation or request issued, rendered or made by any Governmental Body in connection with Environmental Laws.
Event of Default has the meaning ascribed to such term in Section 8.1.
Existing Debentures means those debentures of the Corporation issued pursuant to (i) that certain Debenture Purchase Agreement, dated November 5, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the November 2002 Debenture Agreement ), (ii) that certain December 2002 Debenture Purchase Agreement, dated December 6, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the December 2002 Debenture Agreement ), (iii) that certain April 2003 Debenture Purchase Agreement, dated April 9, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as
amended (the April 2003 Debenture Agreement ) (iv) that certain Second April 2003 Debenture Purchase Agreement, dated April 28, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the Second April 2003 Debenture Agreement ), and (v) that certain December 2004 Debenture Purchase Agreement, dated December 17, 2004, by and among Xplore Technologies Corp. (as Borrower), Phoenix and the lenders listed on Schedule 1 thereto, as amended ( the December 2004 Debenture Agreement ).
Existing Debenture Agreements means (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement, (iv) the Second April 2003 Debenture Agreement and (v) the December 2004 Debenture Agreement.
Existing Debenture Holders means those Persons in their capacity as lenders under (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement, (iv) the Second April 2003 Debenture Agreement and (v) the December 2004 Debenture Agreement.
Funded Indebtedness means, with respect to any Person at any particular time, any of the following amounts determined in accordance with generally accepted accounting principles on a consolidated basis at such time:
(i) indebtedness for money borrowed and indebtedness represented by notes payable and drafts accepted representing extensions of credit (including, as regards any note or draft issued at a discount, the face amount of such note or draft) and including the face amount of bankers acceptances and letters of credit;
(ii) all obligations (whether or not with respect to the borrowing of money) which are evidenced by bonds, debentures, notes or other similar instruments or not so evidenced but which would be considered to be indebtedness for borrowed money in accordance with generally accepted accounting principles;
(iii) all indebtedness for borrowed money secured by an Encumbrance on any property of such Person;
(iv) all indebtedness upon which interest charges are customarily paid;
(v) Capital Lease Obligations and all other indebtedness issued or assumed as full or partial payment for property or services or by way of capital contribution; and
(vi) any of the foregoing amounts in respect of any Subsidiary of the Person whose accounts are not required under generally accepted accounting principles to be consolidated with the accounts of such Person, including (without limitation) the aggregate outstanding amount of the Obligations at such time.
Notwithstanding the foregoing, trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms and not overdue for more than 90 days (or which, if overdue for more than 90 days, are being and continue to be actively
and diligently contested in good faith or in respect of which no legal proceedings for payment of any such amount have been commenced and are continuing), customer advance payments and deposits received in the ordinary course of business shall not constitute Funded Indebtedness .
Governmental Body means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature (including, without limitation, the Ontario Securities Commission), or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing (including, without limitation, any arbitrator).
Hazardous Substance means any substance or combination of substances which is or may become hazardous, toxic, injurious or dangerous to persons, property, air, land, water, flora, fauna or wildlife, and includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous materials or hazardous substances as defined in or pursuant to any Environmental Laws or Environmental Orders pursuant thereto.
Instrument means this Agreement, the Debenture Certificates and any other agreement or instrument (whether now existing, presently arising or created in future) delivered by or on behalf of the Borrowers to the Lenders.
Intellectual Property means all right, title, interest and benefit of the Corporation and its Subsidiaries in and to any registered or unregistered world wide trade marks, trade or brand names, service marks, copyrights, copyright applications, designs, inventions, patents, patent applications, patent rights, licenses, sub-licenses, franchises, formulas, processes, know-how, technology, computer rights and other intellectual or industrial property of the Corporation or any of its Subsidiaries or pertaining to the Corporations business.
Intercreditor Agreement means that Second Amended and Restated Consent, Amendment and Intercreditor Agreement, dated as of the date hereof, by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix and each of those persons and entities listed on Schedule A attached thereto.
Inventory means any and all goods, merchandise and other personal property located in the United States, including, without limitation, goods representing returns upon any accounts, and whether now owned or hereafter acquired by the Borrowers that is free and clear of all Encumbrances and is not unsellable, damaged, obsolete or otherwise not readily saleable at market value in the ordinary course of business, consistent with past practice.
MAG Multi Note means that Secured Promissory Note, dated July 19, 2005, in the aggregate principal amount of $250,000, issued by the US Subsidiary to MAG Multi.
Material Adverse Effect means any change or effect that is materially adverse to (i) the business, financial condition, or results of operations of such Person and its Subsidiaries, taken as a whole, other than any change or effect relating to general political, financial or
economic conditions or the state of financial markets in general or (ii) the rights, remedies and benefits available to, or conferred upon, the Lenders under the Transaction Documents.
Material Authorization means, with respect to any Person, any approval, permit, license or similar authorization (including any trademark, trade name or patent) from, and any filing or registration with, any Governmental Body or other Person required by such Person to own its property and assets or to carry on its business as presently carried on by it or as contemplated hereunder to be carried on by it in each jurisdiction in which it does so or is contemplated to do so or where the failure to have such approval, permit, license, authorization, filing or registration would have a Material Adverse Effect upon such Person or upon its ability to perform its obligations under any of the Instruments.
Maturity Date shall mean March 31, 2006.
Management Committee means the Corporations Executive Management Committee.
MC Operational Procedures means the operational procedures of the Management Committee as in effect from time to time.
Obligations means all monies now or at any time and from time to time hereafter owing or payable by the Borrowers to the Lenders and all obligations (whether now existing, presently arising or created in the future) of the Borrowers in favor of the Lenders, and whether direct or indirect, absolute or contingent, matured or not, each in connection with or relating to the Debentures, this Agreement or any of the other Transaction Documents.
Operating Expenses means, as of any date, the sum of the line items entitled Sales, marketing and support, Research, development and engineering, and General and administrative on the Corporations consolidated statement of loss included in the Corporations Financial Statements, and each such line item shall have the value that such line item has on such statement of loss as of that date.
Overhead Costs means Operating Expenses less (i) sales commissions and (ii) non-cash charges as determined in accordance with GAAP.
Order means any order, notice, direction, report, recommendation or decision rendered by any Governmental Body or other regulatory agency.
Permitted Encumbrances means:
(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 Corporation or any Subsidiary, as applicable, provided reserves reasonably deemed adequate therefor by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or the Subsidiary, as applicable, in accordance with generally accepted accounting principles;
(ii) construction, mechanics, carriers, warehousemens and materialmens 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 and, in the case of construction liens, which have not yet been filed or for which the applicable has not received written notice of an Encumbrance;
(iii) Encumbrances arising from court or arbitral proceedings, provided that the claims secured thereby are being contested in good faith by the Corporation or any Subsidiary, provided reserves reasonably deemed adequate by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or Subsidiary in accordance with generally accepted accounting principles, execution thereon has been stayed and continues to be stayed and such Encumbrances 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 an Encumbrance described in (ii) above;
(vi) deposits of cash or securities in connection with any appeal, review or contestation of any Encumbrance or any matter giving rise to an Encumbrance 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 and any related Security Document nor impair the use of such property by the Corporation or any Subsidiary, in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;
(viii) Encumbrances in favor of (i) each Lender pursuant to this Agreement and (ii) the Existing Debenture Holders pursuant to the Existing Debenture Agreements;
(ix) Encumbrances pursuant to Purchase Money Security Interests;
(x) security given by the Corporation or any Subsidiary to a public utility or any Governmental Body, when required by such utility or Governmental Body in connection with the operations of the Corporation or such Subsidiary, 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 Corporation or such Subsidiary;
(xi) Encumbrances granted to Wistron under to the Wistron Intercreditor Agreement;
(xii) Encumbrances granted to SVB under the SVB Loan Agreement;
(xiii) Encumbrances granted to secure obligations under the Phoenix Notes, the CRAT Note and the MAG Multi Note; provided, that immediately after the Initial Closing this clause shall be deemed to have been deleted in its entirety and shall be of no force or effect;
(xiv) any other Encumbrance which Phoenix approves in writing as a Permitted Encumbrance subsequent to the date hereof; and
(xv) the Encumbrances listed under the heading Permitted Encumbrances in Schedule 3.1 .
Person means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or governmental entity, and pronouns have a similarly extended meaning.
Phoenix Notes means (i) that Secured Promissory Note dated May 20, 2005 in the aggregate principal amount of $1,500,000 and (ii) that Secured Promissory Note dated July 19, 2005 in the aggregate principal amount of $1,000,000, each issued by the US Subsidiary to Phoenix.
Premises means any premises owned or occupied by the Corporation or its Subsidiaries from time to time.
Purchase Money Security Interest means an Encumbrance on any asset, other than accounts receivable or inventory, of a Person which is assumed, created, guaranteed or reserved to secure the unpaid purchase price of such asset, provided that any such Encumbrance is limited to the asset so acquired and does not secure in excess of the purchase price thereof, such purchase price not to exceed the fair market value of the purchased asset.
Receiver means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of the undertaking, property and assets of the Corporation appointed by Phoenix pursuant to this Agreement, any of the Security Documents or by or under any judgment or order of a court.
Release includes abandon, add, deposit, discharge, disperse, dispose, dump, emit, empty, escape, leach, leak, migrate, pour, pump, release or spill.
Restatement means the restatement of the Corporations (i) annual consolidated financial statements for the fiscal years ended March 31, 2002 and 2003, (ii) interim and annual consolidated financial statements for the fiscal year ended March 31, 2004, and (iii) interim consolidated financial statements for the fiscal year ended March 31, 2005.
Reserve Pool means those 10 million Common Shares issuable to key management and employees of the Corporation as performance awards pursuant to the Corporations 1995 Share Option Plan.
Secured Property has the meaning assigned to such term in the Security Agreement.
Security Agreement means that Security Agreement, dated the date hereof, between the Borrowers and Phoenix, as agent for the benefit of the Lenders.
Security Documents means, collectively, this Agreement and all other agreements and other instruments (whether now existing or presently arising) for the purpose of establishing, perfecting, preserving or protecting any security for the benefit of any Lender in respect of any Obligations, including, but not limited to, the Security Agreement.
Shareholders Equity of the Corporation at any particular time means the difference between (i) the aggregate of Total Assets of the Corporation and (ii) the Total Liabilities of the Corporation at such time.
Subsidiary means a corporation controlled by the Corporation, as the term control is defined in the Business Corporations Act (Ontario) as in effect at the date hereof and without reference to any amendments thereto after the date hereof and includes the corporations set out in Schedule 5.1(q) hereto.
SVB Loan Agreement means that Loan and Security Agreement, dated as of September 15, 2005, between Silicon Valley Bank ( SVB ) and the US Subsidiary, which replaces and supercedes that Loan and Security Agreement, dated as of April 22, 2005, between SVB and the US Subsidiary.
Taxes means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon.
Total Assets of any Person means the aggregate book value amount of all assets of the Person which would, on a consolidated basis in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person.
Total Liabilities of any Person means the aggregate amount of all indebtedness and liabilities determined on a consolidated basis, which would, in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person including, for greater certainty, deferred taxes, together with, without duplication:
(i) the amount of all Funded Indebtedness and all Contingent Liabilities of the Person, whether or not reflected on a balance sheet;
(ii) the amount for which any shares in the capital of the Person (if it is a corporation) may be redeemed if the holders of such shares are entitled at any time to require the Person to redeem such shares or if the Person has called such shares for redemption; and
(iii) the amount of all Capital Lease Obligations of the Person, provided that if the rights and remedies of the lessor under such Capital Lease Obligations in the event of default are limited to repossession or sale of property, such amount shall be deemed to
be equal to the lesser of (A) the amount of the Capital Lease Obligations and (B) the book value of such property.
Transaction Documents means this Agreement, the Share Purchase Warrant Certificates, the Debenture Certificates, the Security Agreement and any other documents, instruments or agreements entered into by the Corporation or the U.S. Subsidiary in connection with any of the foregoing.
Voting Shares means capital stock of any class of a corporation which carries voting rights under any circumstances, provided that shares which carry the right to vote conditionally upon the happening of an event shall not be considered Voting Shares until the occurrence of such event and then only during the continuance of such event.
Wistron Intercreditor Agreement means that Intercreditor, Trade Credit Restructuring and Security Agreement, dated as of November 24, 2004 by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix, the Philip S. Sassower 1996 Charitable Remainder Annuity Trust and Wistron Corporation ( Wistron ).
Section 3.2. Interpretation
(a) This Agreement, hereto , hereby , hereunder , herein , and similar expressions refer to the whole of this Agreement and not to any particular Article, Section, paragraph, clause, subdivision or other portion hereof.
(b) The expression Arms Length has the meaning ascribed to such term in the Income Tax Act (Canada).
(c) All references herein to the Income Tax Act (Canada) shall refer to such act and the regulations thereunder as the same may be amended or replaced from time to time.
(d) Words importing the singular number only include the plural and vice versa and words importing gender shall include all genders.
(e) All financial or accounting determinations, reports and statements provided for in this Agreement shall be made or prepared in accordance with generally accepted accounting principles applied in a consistent manner and shall be made and prepared on a consolidated basis.
(f) The division of this 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 Agreement.
(g) The schedules and exhibits annexed hereto shall, for all purposes, form an integral part of this Agreement.
(h) References to sums of money herein are to US dollars, unless otherwise specified.
(i) Time is of the essence hereof.
(j) Where the word including or includes is used in this Agreement, it means including (or includes) without limitation.
(k) Wherever in this Agreement reference is made to generally accepted accounting principles or GAAP, such reference shall be deemed to mean the generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which a given calculation is made or required to be made in accordance with generally accepted accounting principles.
Section 3.3. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of fees or otherwise payable by the Borrowers to the Lenders hereunder or under the Debenture Certificates exceed the maximum amount recoverable under applicable law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under applicable law.
Section 3.4. Day Not A Business Day
In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day.
Section 3.5. Governing Law
This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereby agrees to the non-exclusive jurisdiction of the courts of the Province of Ontario. For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have non-exclusive jurisdiction to entertain any action arising under this Agreement.
ARTICLE 4.
SECURITY
Section 4.1. Charge
(a) In consideration of the sum of Ten Dollars ($10.00) now paid to it by each Lender (receipt of which is hereby acknowledged), and to secure the due payment of the Obligations hereunder, the Corporation hereby grants to each Lender a security interest in, and charges with payment to each Lender of all sums payable hereunder as and by way of a fixed and a floating charge, the whole of the undertaking of the Corporation and all of its property and
assets, real and personal, movable and immovable, tangible and intangible, of every nature and kind whatsoever, whosesoever situate, both present and future.
(b) The Corporation and each Lender hereby acknowledge that (i) value has been given to the Corporation by such Lender, (ii) the Corporation has rights in the property and assets of the Corporation subject to the security interest granted under Section 4.1 (other than after-acquired property), and (iii) they have not agreed to postpone the time of attachment of the security granted hereunder.
Section 4.2. Habendum
The Lenders shall have and hold the property and assets of the Corporation subject to the security interest granted under Section 4.1 and all of the rights hereby conferred unto the Lenders, their successors and assigns forever, but subject nevertheless to the provisions and with the powers herein set forth.
Section 4.3. Charge Valid Irrespective of Advance of Money
The charges and security interests hereby created shall have effect and be deemed to be effective whether or not the monies or obligations hereby secured or any part thereof shall be advanced or owing or in existence before or after or upon the date of this Agreement and neither the giving of charges and security interests hereunder nor any advance of funds shall oblige each Lender to advance any funds or any additional funds.
Section 4.4. Supplemental Indentures
The Corporation shall from time to time on demand by each Lender and at the expense of the Corporation execute and deliver such further deeds or indentures supplemental hereto, which shall thereafter form part hereof, for the purpose of charging, or securing in favor of each Lender any property now owned or hereafter acquired by the Corporation, for correcting or amplifying the description of any property hereby charged or secured or intended so to be, or for any other purpose not inconsistent with the terms of this Agreement.
Section 4.5. Continuing Security
Any and all payments made at any time in respect of the Obligations and the proceeds realized from any securities held therefore (including moneys realized from the enforcement of this Agreement) shall be applied in accordance with the Intercreditor Agreement. Each Lender may hold as additional security hereunder any increase or profits or other proceeds realized from the property and assets of the Corporation subject to the security interest granted under Section 4.1 (including money) for such period of time as each Lender sees fit. The Corporation shall be accountable for any deficiency.
Section 4.6. Defeasance
If the Corporation, its successors or assigns or any of them, make or cause to be made due payment or performance of all Obligations, without any reduction or abatement, and all taxes, rates, levies, charges or assessments payable by the Corporation upon the Secured
Property or in respect thereof no matter by whom or by what authority imposed which each Lender shall have paid or shall have been rendered liable to pay, then, subject to Article 8 and Sections 9.6 and 9.16 hereof, everything in this Agreement shall be absolutely null and void and each Lender shall on request therefor by the Corporation, and at the expense of the Corporation, at that time surrender the Debenture to the Corporation, but until that time it shall remain in full force and effect despite the repayment or satisfaction from time to time of the whole or any part of the Obligations.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
Section 5.1. General Representations and Warranties of the Borrowers
The Corporation and the US Subsidiary, jointly and severally, represent and warrant to each Lender as follows and shall continue to represent and warrant to each Lender as follows for so long as the Obligations are outstanding:
(a) Incorporation and Status. Each of the Corporation and the US Subsidiary is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the corporate power and capacity to own its properties and assets and to carry on its businesses as presently carried on by it or as contemplated hereunder to be carried on by it and holds all Material Authorizations.
(b) Power and Capacity. Each of the Corporation and the US Subsidiary has the corporate power and capacity to enter into this Agreement and each Instrument to which it is a party and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it.
(c) Due Authorization. Each of the Corporation and the US Subsidiary has taken all necessary corporate action to authorize the execution, delivery and performance of each of this Agreement and each Instrument to which it is a party.
(d) No Contravention. The execution and delivery of this Agreement and the other Instruments to which the Corporation or the US Subsidiary is a party and the performance by each of the Corporation or the US Subsidiary of their respective obligations hereunder or thereunder (i) does not and will not contravene, breach or result in any default under (A) the articles, memorandum of association, by-laws, or other organizational documents of the Corporation or the US Subsidiary, or (B) any mortgage, lease, agreement or other legally binding instrument, license, permit or Applicable Law to which the Corporation or the US Subsidiary is a party or by which any of the Corporation or the US Subsidiary or any of its properties or assets may be bound, (ii) will not oblige the Corporation or the US Subsidiary to grant any Encumbrance to any Person other than each Lender, and (iii) will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation of the Corporation or the US Subsidiary under any mortgage, lease, agreement or other legally binding instrument of or affecting the Corporation or the US Subsidiary.
(e) No Senior or Pari Passu Indebtedness . Other than the Corporations indebtedness to SVB under the SVB Loan Agreement (including all accrued and unpaid interest
thereon, but excluding any refinancing or other modification which increases the amount of such indebtedness) and Wistron, and after complying with Section 1.5, the Borrowers do not have, and shall not have, any indebtedness for borrowed money which ranks senior to or pari passu with the Debentures. Except for the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, nothing herein, including pursuant to Section 6.4(a), shall operate to subordinate the security interest provided for in the Security Documents to or in favor of any Encumbrance or Permitted Encumbrance, or to postpone any of the Obligations to any of the obligations, indebtedness or liabilities owed by the Corporation or its Subsidiaries to the holder of any Permitted Encumbrances or Encumbrance.
(f) No Consents Required. No authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required in connection with the execution, delivery or performance of this Agreement by the Corporation or the US Subsidiary or any other Instrument by the Corporation or the US Subsidiary, as applicable, other than (i) the consent of the Existing Debenture Holders, (ii) the approval of the Toronto Stock Exchange and the satisfaction of any conditions to such approval, (iii) the filings required by applicable securities laws, and (iv) the registration of a financing statement under the UCC, (the consents and approvals in clauses (i) through (iv) collectively, the Required Consents ).
(g) Enforceability. Each of this Agreement and the other Instruments to which it is a party constitutes, or upon execution and delivery will constitute, a valid and binding obligation of the Corporation and the US Subsidiary, as the case may be, enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles.
(h) No Work Orders. As at each Closing Date, no work orders, directions or notices have been issued and remain outstanding pursuant to any Applicable Law relating to the business of the Corporation or any Subsidiary or any part of the Secured Property or any environmental matters affecting the foregoing, except such orders, directions and notices that would not have a Material Adverse Effect. As at each Closing Date, neither the Corporation or any Subsidiary have received any notification from any Governmental Body, that has not been satisfied, that any work, repairs, construction or capital expenditures are required to be made in respect of the Secured Property or any part thereof as a condition of continued compliance with any Applicable Law or any Material Authorization issued thereunder.
(i) Permits and Compliance with Laws. The Corporation and each Subsidiary has all licenses, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted, except where the failure to have such license, permit approval or franchise would not have a Material Adverse Effect. All such licenses, permits, approvals and franchises are in good standing and no actions, proceedings, investigations or other steps of any kind are in process, pending, or to the knowledge of the Corporation, threatened, or would result in any such license, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation or any Subsidiary for any period of time, except where such termination, revocation, withdrawal, suspension or unavailability would not have a Material Adverse Effect. Except as set forth on Schedule 5.1(i), the Corporation and each Subsidiary is conducting its
business in material compliance with all applicable laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on.
(j) Financial Statements. Phoenix, on behalf of the Lenders, has been furnished with a copy of:
(i) the unaudited consolidated financial statements of the Corporation and its Subsidiaries for its financial year ended March 31, 2005; and
(ii) the unaudited consolidated financial statements of the Corporation and its Subsidiaries for the fiscal quarter ended June 30, 2005.
Subject to the Restatement, such financial statements, including the notes thereto (the Financial Statements ) have been prepared in accordance with generally accepted accounting principles and fairly, completely and accurately present the financial condition of the Corporation (including each Subsidiary) and the financial information presented therein in all material respects for the periods and as at the dates thereof. As at each Closing Date, the Corporation and each of the Subsidiaries has no outstanding liabilities (including Funded Indebtedness, Contingent Liabilities or otherwise) other than those disclosed in the Financial Statements and other than the indebtedness owed by the Corporation to the Existing Debenture Holders, to Wistron, to SVB and trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms, except as previously disclosed in writing to Phoenix. Since March 31, 2005 and except as set forth in the June 30, 2005 Financial Statements, there has been no development which has had or would reasonably be expected to have a Material Adverse Effect upon the ability of the Corporation or any Subsidiary to perform its obligations under this Agreement or any other Transaction Document to which it is a party, except for the management cease trade order, dated July 15, 2005, imposed by the Ontario Securities Commission with respect to securities of the Corporation.
(k) Non-Arms Length Transactions. During the period from March 31, 2005 through each Closing Date, none of the Corporation or Subsidiaries has entered into any transaction or agreement with any Affiliate other than on commercially reasonable terms and within the limitations of the other provisions hereof, except as disclosed in the Financial Statements or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available.
(l) No Litigation. Except as has previously been disclosed in writing by the Corporation or its counsel to Phoenix or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available, (i) as at each Closing Date, there is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal, or criminal), arbitration or other dispute settlement procedure, investigation or enquiry by any Governmental Body, or any similar matter or proceeding (collectively proceedings ) against or involving any of the Corporation or any Subsidiary (whether in progress or threatened) which, if determined adversely to the Corporation or Subsidiary would have or would reasonably be expected to have a Material Adverse Effect or have a material adverse effect upon its ability to perform any of the provisions of this Agreement or any other Transaction Document to which it
is a party or which purports to affect the legality, validity and enforceability of this Agreement or any other Transaction Document; and (ii) as at each Closing Date, no event has occurred which would reasonably be expected to give rise to any proceedings and there is no judgment decree, injunction, rule, award or order of any Governmental Body outstanding against the Corporation or any Subsidiary which has or would reasonably be likely to have a Material Adverse Effect.
(m) No Default. Except with respect to the Restatement, as at each Closing Date, neither the Corporation nor any of the Subsidiaries are in default or breach (other than any breach for which the Corporation has received a written waiver from Phoenix Enterprises LLC) under any material commitment or obligation (including, without limitation, obligations in relation to Funded Indebtedness) or, except with respect to the Restatement, under the terms and conditions relating to any Material Authorizations, and, to the best knowledge of the Borrowers, as at each Closing Date, there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach; and as at each Closing Date, there are no proceedings in progress, pending or, to the knowledge of the Borrowers, threatened which would result in the revocation, cancellation suspension or any adverse modification of any Material Authorization.
(n) Hazardous Substances. Neither the Corporation nor any of the Subsidiaries are aware of any Hazardous Substances located at, on or under the Secured Property or the Premises, and the Secured Property, the Premises and the operations conducted thereat are not and have not been in breach of any Environmental Law which has resulted or could result in the Secured Property being materially adversely affected. Neither the Corporation nor any Subsidiary has caused or permitted, nor does the Corporation or any Subsidiary have any knowledge of the Release of any Hazardous Substance on, from, under or to the Secured Property or the Premises or of any Release from a facility owned or operated by third parties, including previous owners, for which the Corporation or any Subsidiary may have liability and which has resulted or could result in the Secured Property or the Premises being adversely affected. Neither the Corporation nor any of the Subsidiaries has been charged with or convicted of an offence for non-compliance with any Environmental Law or has been fined or otherwise sentenced or have settled any prosecution short of conviction; and neither the Corporation nor any Subsidiary has received any notice of judgment or commencement of proceedings of any nature or experienced any search and seizure or are under investigation related to a breach or alleged breach of any Environmental Law.
(o) All Material Information Supplied. The Borrowers have provided to Phoenix all information which the Borrowers, acting reasonably, determined was material relating to the financial condition, business, assets and results of operations (including forecasts and budgets) of the Corporation and the Subsidiaries, taken as a whole, and all such information, taken as a whole (other than forecasts and budgets) is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading in light of the circumstances in which such information was made and there has been no change in such information, taken as a whole, that would have or would reasonably be likely to have a Material Adverse Effect. The forecasts and budgets provided to Phoenix in connection with the entering into of this Agreement were prepared prudently and upon reasonable assumptions (which assumptions remain reasonable at each Closing Date), the forecasts and budgets are, as at each Closing Date, reasonable and attainable as at the date hereof, such forecasts and budgets have
not, as of the date hereof, changed or been amended or updated, and it would, as of the date hereof, be reasonable for Phoenix to rely upon these forecasts and budgets. Each Lender acknowledges the Corporations obligation to perform the Restatement as a result of the matters identified by the Ontario Securities Commission in its letter to the Corporation dated June 3, 2005 and agrees that the representations and warranties made by the Corporation and the US Subsidiary in this Section 5.1(o) are qualified by the Restatement.
(p) Taxes and Claims. The Borrowers have:
(i) delivered or caused to be delivered all required income tax returns, sales, property, franchise and value-added tax returns and other tax returns to the appropriate Governmental Body; and
(ii) withheld and collected all Taxes required to be withheld and collected by them and remitted such Taxes when due to the appropriate Governmental Body,
and no material assessment, appeal or claim is, as far as the Borrowers are aware, being asserted or processed with respect to such claim, Taxes or obligations, except as previously disclosed to Phoenix in writing.
(q) Authorized and Issued Capital. Schedule 5.1(q) accurately describes the authorized and issued share capital of the Corporation and each of the Subsidiaries, as at each Closing Date. As at each Closing Date, the Corporation has no Subsidiaries except as set forth in Schedule 5.1(q) . Except as set out in Schedule 5.1(q) , as at each Closing Date, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares.
(r) Insurance. The Corporation and each of the Subsidiaries insures with reputable insurance companies all of its property and other assets of an insurable nature against fire and other casualties in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property and maintains with reputable insurance corporations adequate insurance against business interruption with respect to any rental properties or properties under construction and liability on account of damage to persons or property, and under all applicable workers compensation laws, in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property.
(s) Funded Indebtedness . Schedule 5.1(s) sets forth a complete and accurate list of all Funded Indebtedness of each of the Corporation and the Subsidiaries at each Closing Date and accurately describes the security therefor and the dollar amount thereof.
(t) Directors and Officers Insurance . The Corporation has a directors and officers insurance policy in place to the same extent as such insurance is carried by prudent public corporations and the premiums on such insurance policy are paid to date.
(u) Solvency. None of the Corporation or any of the Subsidiaries has committed an act of bankruptcy, proposed a compromise or arrangement to its creditors
generally, had any petition for a receiving order in bankruptcy filed against it, taken any proceeding to have itself declared bankrupt or wound-up or taken any proceeding to have a Receiver appointed over it or any part of its assets.
(v) Articles, Memorandum, By-Laws, Etc. True and complete copies of the articles of incorporation (including all amendments thereto), memorandum of association and by-laws and all other organizational documents of each of the Borrowers in effect on each Closing Date have been delivered to Phoenix on behalf of the Lenders. On each Closing Date, there are outstanding no applications or filings which would alter in any way the organizational documents or corporate status of any of the said corporations. As in effect on each Closing Date, the respective minute books of the Borrowers contain all by-laws and resolutions of the respective directors and shareholders of the Borrowers currently in effect and the corporate and other records of the Borrowers have been maintained in all material respects in accordance with all Applicable Law.
(w) Location of Business and Assets. As of each Closing Date, the only locations at which the Corporation and the Subsidiaries have any place of business or material assets are as set forth in Schedule 5.1(w) .
(x) Title. Subject only to the Permitted Encumbrances, the Corporation and each Subsidiary has good and marketable title to all of its undertaking, property and assets, free and clear of any Encumbrances and no person has any agreement or right to acquire its interest in any of such properties out of the ordinary course of business.
(y) Employment Matters. As of each Closing Date, except as is disclosed in Schedule 5.1(y) neither the Corporation nor any Subsidiary is a party to or is bound by any:
(i) written or oral contract or commitment for the employment of any senior management employee or officer;
(ii) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of $100,000 or a payment on termination of in excess of six months salary and benefits;
(iii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice;
(iv) contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (collectively called labor representatives ) and the Borrowers have not conducted negotiations with respect to any such future contracts or commitments; no labor representatives hold bargaining rights with respect to any employees of the Corporation or any Subsidiary; no labor representatives have applied to have the Corporation or any Subsidiary declared a related employer pursuant to the applicable labor legislation; and, to the knowledge of either of the Borrowers, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Corporation or any Subsidiary; or
(v) except as is disclosed in Schedule 5.1(y), there is no bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers compensation insurance provided pursuant to statute.
As of each Closing Date, the Corporation and each of the Subsidiaries has paid all sums due to its employees and its independent contractors and has observed in all material respects the provisions of (i) all agreements binding upon it or (ii) any pension, bonus, profit sharing, compensation, retirement, deferred compensation, illness or other plan, agreement, trust, fund or arrangement for the benefit of or with its employees, directors, officers or shareholders and (iii) all applicable laws and regulations respecting employment, including, but not limited to, labor standards legislation and regulations and legislation and regulations prohibiting discrimination; and there is no complaint, civil action or other proceeding in process alleging a violation of any such agreement, plan, trust, fund, arrangement, law or regulation.
As of each Closing Date, none of the Corporation nor any Subsidiary has received any remedial order or notice of offence under any applicable laws and regulations respecting employment, and each of the Corporation and the Subsidiaries has performed all of its financial or monetary obligations under such laws and regulations towards its employees and independent contractors, and there are no facts which may give rise to a claim for which the Corporation or any Subsidiary might be held liable under the provisions of the said laws or regulations.
(z) Intellectual Property. The Corporation and each Subsidiary owns all right title and interest in or to, or have valid and enforceable rights to use all of the Intellectual Property including the trade marks, trade or brand names, corporate names and service marks set out in Schedule 5.1(z) , free and clear of all Encumbrances except Permitted Encumbrances. As of each Closing Date, neither the Corporation nor any Subsidiary uses or owns any trade marks, trade or brand names, corporate names or service marks except as set out in Schedule 5.1(z) . The conduct of the business of, and the use of the Intellectual Property by, the Corporation and the Subsidiaries does not, nor to the Borrowers knowledge, will the proposed conduct of the business and the proposed use of the Intellectual Property, infringe (and neither the Corporation nor any Subsidiary, except as previously disclosed to Phoenix in writing, has received any notice, complaint, threat or claim alleging infringement of) any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. The Intellectual Property which is not owned by the Corporation or the Subsidiaries is being used with the consent of, and in accordance with, the consent or license from, the rightful owner thereof. The Corporation and each of the Subsidiaries has taken all commercially reasonable steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation or such Subsidiary.
(aa) Disclosure Restricted. Each of the statements contained in Section 5.1 is true and correct except as set forth in the specific disclosure schedule qualifying such statement or in any document filed by the Corporation with the Ontario Securities Commission and that is
publicly available. The disclosure in any disclosure schedule shall qualify only the corresponding statement.
Section 5.2. Representations and Warranties of Lenders
Each of the Lenders, severally and not jointly, represents and warrants to the Borrowers as follows:
(a) Authorization . Such Lender is an individual, corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and each Lender has full power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, and has duly authorized, executed and delivered the same. This Agreement, when executed and delivered by a Lender, will constitute valid and legally binding obligations of such Lender, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors rights generally, or (ii) as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies.
(b) Disclosure of Information . Each Lender has had an opportunity to discuss the Borrowers business, management, financial affairs (including the Restatement) and the terms and conditions of the offering of the Debentures with the Borrowers management and has had an opportunity to review the Borrowers facilities. Each Lender understands that such discussions, as well as any other written information delivered by the Borrowers to such Lender, were intended to describe the aspects of the Borrowers business which it believes to be material. Each Lender has had all of its questions related to the Borrowers and the purchase of Debentures answered by the Borrowers.
(c) Experience; Speculative Nature of Investment. Each Lender has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Borrowers so that it is capable of evaluating the merits and risks of its investment in the Borrowers and has the capacity to protect its own interests. Each Lender acknowledges that its investment in the Borrowers is highly speculative and entails a substantial degree of risk and such Lender is in a position to lose the entire amount of such investment.
(d) Investment. The Lenders are acquiring the Debentures and Warrants (if and when issued) for investment for their own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. By executing this Agreement, each Lender further represents that it does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Debentures, Warrants or Common Shares.
(e) Restricted Securities . The Lenders understand that the Debentures, Warrants (if and when issued) and Common Shares issuable upon exercise of the Warrants as contemplated hereby have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act ), or qualified for distribution in any province or territory of Canada and are issued pursuant to a specific exemption from the registration provisions of the Securities Act and
the registration and prospectus requirements of the Securities Act (Ontario), the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Lenders representations as expressed herein. Each Lender is an accredited investor within the meaning of Section 1.1 of Rule 45-501 of the Ontario Securities Commission and each Lender, which is resident in the United States, is also an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission. If any Lender is resident in or otherwise subject to the securities laws of a jurisdiction other than the Province of Ontario or the United States, the issuance by the Corporation, and the acquisition by such Lender, of the Debentures, Warrants (if and when acquired) and Common Shares issuable upon exercise of the Warrants as contemplated by this Agreement is in full compliance with all applicable securities laws, statutes, regulations, policy statements and orders in such jurisdiction and no authorization, consent of, or filing with or notice to, any person is required in connection therewith.
(f) Legends . The Lenders understand that the Debentures, Warrants (if and when issued) and Common Shares issuable upon exercise of the Warrants (each, for purposes of this paragraph, a security) may bear the following legend and any other legends that may be required by applicable securities law and stock exchange rules:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION) IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(g) No Public Market. The Lenders understand that no public market now exists for any of the Debentures or Warrants issued by the Borrowers and that the Borrowers have made no assurances that a public market will ever exist for the Corporations securities except to the extent made pursuant to Section 6.2(c).
Section 5.3. Survival of Representations and Warranties
The statements made in any certificate hereafter delivered by the Corporation or any of the Subsidiaries to the Lenders shall be deemed to constitute representations and warranties made by the party delivering the same. The Borrowers covenant that the representations and warranties made by them in this Article 5 shall be true and correct on each day that any of the Obligations remain outstanding, with the same effect as if such representations and warranties had been made and given on and as of such day, notwithstanding any investigation made at any time by or on behalf of each Lender or its counsel and notwithstanding any foreclosure or enforcement pursuant to any Security Documents; except that if any such representation and
warranty is specifically given as of the date hereof or in respect of a particular date or particular period of time and relates only to such date or period of time, then such representation and warranty shall continue to be given as at such date or for such period of time.
ARTICLE 6.
COVENANTS OF THE CORPORATION
Section 6.1. General Covenants
So long as the Obligations remain outstanding, the Borrowers covenant and agree as follows:
(a) Securities Compliance. Subject to the representations and warranties of the Lenders in Section 5.2(e) being true and correct on the date of issuance of the Debentures and Warrants (if and when issued), the Borrowers shall take all necessary action and proceedings as may be required and permitted by applicable law, rule and regulation for the legal and valid issuance of the Debentures and the Warrants (if and to the extent issued) to be acquired by the Lenders, hereunder and the issuance of the Common Shares upon exercise of the Warrants.
(b) Books and Reserves. From the date hereof until the payment in full of all Obligations (the Termination Date ), the Corporation shall (i) maintain, and cause its Subsidiaries to maintain, at all times, true and complete books, records and accounts in which true and correct entries shall be made of its transactions in accordance with GAAP consistently applied and consistent with those applied in the preparation of the Financial Statements (to the extent same are consistent with GAAP), and (ii) by means of appropriate quarterly entries, reflect in its accounts and in all financial statements, proper liabilities and reserves for all taxes and proper reserves for depreciation, renewals and replacements, obsolescence and amortization of its properties and bad debts, all in accordance with GAAP consistently applied, as above described, and all subject to normal year end adjustments.
(c) Ordinary Course of Business. The Borrowers shall operate their respective businesses only in the ordinary course and will use commercially reasonable efforts to preserve their respective business, organization, goodwill and relationships with Persons having business dealings with them.
(d) To Use Proceeds. The Borrowers shall use the net proceeds from the sale of the Debentures in accordance with Section 1.5.
(e) To Pay Costs. The Borrowers shall pay all reasonable costs, charges and expenses of or incurred by any Lender in inspecting the Secured Property or in or about taking, recovering or keeping possession of any of the Secured Property or in any other proceedings taken in enforcing the remedies provided herein or otherwise in relation to this Agreement or the Secured Property, or by reason of non-payment of the moneys hereby secured, costs of any sale proceedings hereunder, whether such sale proceedings prove abortive or not, and costs of any Receiver with respect to, and all expenditures made by any Lender or any Receiver in the course of, doing anything hereby permitted to be done by any Lender or such Receiver. All such costs and expenses and other monies payable hereunder, together with interest at the Maximum Legal Rate applicable to such Obligations, shall be payable on
demand and shall constitute a charge on
the Secured Property. Without limiting the generality of the foregoing, such reasonable costs shall extend to and include any legal costs incurred by or on behalf of each Lender or the Receiver as between attorney and his own client.
(f) To Pay Certain Debts. The Corporation shall and shall cause each of the Subsidiaries to punctually pay and discharge every obligation, the failure to pay or discharge of which would reasonably be likely to result in any Encumbrance or right of distress, forfeiture, termination or sale or any other remedy being enforced against the Secured Property and provide to Phoenix, on behalf of the Lenders, when required by Phoenix, on behalf of the Lenders, acting reasonably, satisfactory evidence of such payment and discharge, but the Borrowers may, on giving the Lenders such security (if any) as Phoenix, on behalf of the Lenders, may require, refrain from paying or discharging any obligation the liability for which is being contested in good faith.
(g) To Comply with Obligations and Maintain Corporate Existence and Security. The Corporation shall and shall cause each Subsidiary to:
(i) pay or cause to be paid all Obligations falling due hereunder on the dates and in the manner specified herein and comply with its obligations hereunder, under the Security Documents and the other Instruments;
(ii) create an annual business plan, approved by the Board of Directors of the Corporation and implemented by the Management Committee in accordance with the MC Operational Procedures, for each year in which the Debentures remain outstanding (the Annual Business Plan ), and immediately notify Phoenix, on behalf of the Lenders of any material deviation from the Annual Business Plan;
(iii) maintain its corporate existence;
(iv) use commercially reasonable efforts to preserve all its rights, licenses, powers, privileges, franchises and goodwill;
(v) observe and perform all of its obligations and comply with all conditions under leases, licenses and other agreements to which it is a party or upon or under which any of the Secured Property is held;
(vi) carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Secured Property and income therefrom;
(vii) observe and conform to all Applicable Laws and of any Governmental Body having jurisdiction over the Corporation or any Subsidiary;
(viii) repair and keep in repair and good order and condition all property, including the Secured Property, the use of which is necessary or advantageous in connection with its business;
(ix) immediately notify Phoenix, on behalf of the Lenders, in writing of any proposed change of name of the Corporation or any Subsidiary or of chief place of business of any of the foregoing;
(x) keep Phoenix, on behalf of the Lenders, regularly informed in writing as to the location of the Secured Property and the books of account and other records of each of the Corporation and the Subsidiaries to the extent that the Secured Property or such books of account are not located at 14000 Summit Drive, Suite 900, Austin, Texas 78728;
(xi) pay all Taxes levied, assessed or imposed upon it or its property as and when the same become due and payable save and except where it contests in good faith the validity thereof;
(xii) forthwith notify Phoenix, on behalf of the Lenders, of any default (or event, condition or occurrence which with the giving of notice and/or the lapse of time would constitute a default) in connection with any indebtedness, Funded Indebtedness or Contingent Liability in an amount exceeding $300,000;
(xiii) advise Phoenix, on behalf of the Lenders, forthwith upon becoming aware of any Default or Event of Default hereunder with detailed particulars thereof and deliver to Phoenix, on behalf of the Lenders, upon request a certificate in form and substance satisfactory to Phoenix, on behalf of the Lenders, signed by a senior officer of the Corporation certifying that no Default or Event of Default has occurred or, if such is not the case, specifying all Default or Events of Default and their nature and status;
(xiv) use commercially reasonable efforts to collect all accounts receivable in the ordinary course of business;
(xv) promptly cure or cause to be cured any defects in the execution or delivery of any Instrument and any defects in the validity or enforceability of any security hereunder and at its expense duly execute and deliver or cause to be duly executed and delivered all documents as the Lenders may consider necessary or desirable for such purposes;
(xvi) retain auditors approved by the Audit Committee of the Board of Directors of the Corporation;
(xvii) at its cost and expense, upon the request of Phoenix, on behalf of the Lenders, duly execute and deliver, or cause to be duly executed and delivered, to Phoenix, on behalf of the Lenders, such documents and do or cause to be done such acts as may be necessary or desirable in the reasonable opinion of Phoenix, on behalf of the Lenders, to carry out the purposes of this Agreement; and
(xviii) effect such registrations as may be required by Phoenix, on behalf of the Lenders, from time to time to protect the security granted under the Transaction Documents.
(h) To Insure. The Borrowers shall keep the Secured Property insured in such amounts as is carried by prudent corporations carrying on a similar business and owning
similar property, and against loss or damage by fire and such other risks as Phoenix, on behalf of the Lenders, may from time to time specify, acting reasonably, with reputable insurers. The Borrowers shall, whenever from time to time requested by Phoenix, on behalf of the Lenders, provide Phoenix, on behalf of the Lenders, satisfactory evidence of such insurance and any renewal thereof which shall at all times be subject to charging clauses in a form approved by Phoenix, on behalf of the Lenders, and shall cause the Lenders to be shown as loss payees under the policy or policies. Evidence satisfactory to Phoenix, on behalf of the Lenders, of the renewal of every policy of insurance shall be left with Phoenix, on behalf of the Lenders, at least seven (7) days before the termination thereof. Each policy of insurance shall be in form and substance acceptable to Phoenix, on behalf of the Lenders, acting reasonably, and shall not be subject to any co-insurance clause.
(i) Notice of Litigation and Damage . The Borrowers will promptly give written notice to Phoenix, on behalf of the Lenders, of (a) all claims or proceedings pending or threatened against any of the Corporation or Subsidiaries which may give rise to uninsured liability in excess of $300,000 or which may have a material adverse effect on the business or operations of the Corporation or Subsidiaries and (b) all damage to or loss or destruction of any property comprising part of the Secured Property which may give rise to an insurance claim in excess of $300,000; and will supply Phoenix, on behalf of the Lenders, with all information reasonably requested in respect of any such claim.
(j) To Furnish Proofs . The Borrowers shall forthwith on the happening of any loss or damage furnish or cause to be furnished at their expense all necessary proofs and do all necessary acts to enable each Lender to obtain payment of the insurance monies, which, in the sole discretion of the Lenders, may be applied in reinstating the insured property or be paid to the Corporation or any Subsidiary or be applied in payment of the monies owing hereunder, whether due or not then due, or paid partly in one way and partly in another.
(k) Financial Statement Presentation . In any press release, or public disclosure document required by securities regulatory authorities, that contains the Corporations quarterly or annual financial statements, subject to compliance with applicable securities law and other regulatory requirements, such financial statements shall be prepared in accordance with Canadian GAAP and, if requested by Phoenix, contain a note reconciliation to U.S. generally accepted accounting principles ( US GAAP ). At such time as the Corporate Migration has been completed, the Corporations quarterly and annual financial statements shall be prepared in accordance with US GAAP and shall also be prepared in accordance with, or reconciled to, Canadian GAAP to the extent required by Applicable Law.
Section 6.2. Specific Covenants
So long as the Obligations remain outstanding, the Corporation covenants and agrees as follows:
(a) Cost Maintenance Program. The Corporation shall continue its previously implemented cost-cutting program (the Cost Maintenance Program ) in a manner satisfactory, in its sole discretion, to Phoenix. The Cost Maintenance Program (A) shall result in (i) total quarterly recurring payroll costs of not more than 5% above amounts in the Corporations
forecast approved by Phoenix and attached hereto as Exhibit E, and (ii) total quarterly recurring Overhead Costs of not more than $150,000 higher than the Corporations forecast approved by Phoenix and attached hereto as Exhibit E, and (B) shall remain in effect until (i) the Corporation has achieved positive net income and positive cash flow from operations for at least two (2) consecutive fiscal quarters, and (ii) management of the Corporation then reasonably projects continued positive net income and positive cash flow from operations for the Corporation for at least the next four (4) following fiscal quarters.
(b) Corporate Migration. The Corporation shall take all commercially reasonable actions necessary, subject only to (i) compliance with Applicable Law and stock exchange requirements, (ii) any required approval of the Corporations shareholders, (iii) obtaining of any required third-party consents, and (iv) avoidance of any material adverse tax consequences, to re-incorporate, continue or otherwise cause the Corporation or a successor thereof to be redomiciled, directory or indirectly, as a Delaware corporation (the Corporate Migration ), by no later than January 31, 2006.
(c) U.S. Listing . The Corporation shall use reasonable commercial efforts to obtain a listing of the Common Shares on the American Stock Exchange or other registered national stock exchange or quotation system in the United States (the U.S. Listing ) by no later than January 31, 2006, subject to the satisfaction or elimination of all regulatory, legal, tax and financial requirements to such U.S. Listing. The U.S. Listing may be either in lieu of, or in addition to, the Corporations current listing of the Common Shares on the Toronto Stock Exchange. In the event a U.S. Listing is obtained, the Corporation shall promptly enter into a registration rights agreement, with and for the benefit of the Lenders and the Existing Debenture Holders, providing for the registration for resale of the Common Shares underlying the Warrants (if and to the extent issued) and the warrants and convertible debentures held by the Existing Debentures Holders with the U.S. Securities and Exchange Commission and containing, among other things, customary demand and piggy-back registration rights, and all on terms satisfactory to the Corporation, the Lenders and the Existing Debenture Holders, each acting reasonably and taking into consideration the need for future free-transferability for the Common Shares underlying the warrants and the debentures in the U.S. securities markets. In this Section 6.2(c), Common Shares includes any shares of voting common stock of any corporation (a Successor Corporation) carrying on the business of the Corporation and having a listing on the Toronto Stock Exchange which are issued in exchange for the Common Shares of the Corporation in connection with the Corporate Migration, and Corporation includes any such Successor Corporation.
(d) MC Operational Procedures . The Corporation shall at all times conduct its day-to-day operations in strict compliance with the MC Operational Procedures.
Section 6.3. Financial Covenants.
(a) Budget. The Corporation shall not, and shall cause its Subsidiaries not to, expend any funds nor incur any expenses except as provided for in the budget delivered to Phoenix, on behalf of the Lenders (the Budget ), which shall also included a detailed income statement, balance sheet and statement of cash flows. The Borrowers and Phoenix, on behalf of
the Lenders, hereby agree that aggregate expenditures, if any, exceeding the total budgeted amount by 5% or less shall be deemed to be within the Budget.
(b) Financial Statements and Other Reports . The Corporation will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP (it being understood that quarterly financial statements are not required to have footnote disclosures). The Corporation will deliver or cause to be delivered each of the financial statements and other reports described below to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly, in addition to copies of any other financial statements prepared by the Corporation for filing with securities commissions and other regulatory authorities.
(i) Monthly Financials . As soon as available and in any event within forty-five (45) days after the end of each month, the Corporation will deliver or cause to be delivered its consolidated balance sheet, as at the end of such month, and the related consolidated statements of loss and deficit and cash flows for such month, and for the period from the beginning of the then current fiscal year of the Corporation to the end of such month, along with a comparison to the operating budget for such quarter.
(ii) Quarterly Financials; Other Quarterly Reports. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such fiscal quarter, and the related consolidated statements of income, shareholders equity, loss and deficit (or income) and cash flows for such fiscal quarter and for the period from the beginning of the then current fiscal year of the Corporation to the end of such quarter, (B) a copy of its consolidating financial statements for such fiscal quarter, but only if material to an understanding of the Corporations operations and financial condition, and (C) a schedule of investments made by the Corporation or any of its Subsidiaries since the date such information was last provided to Lenders.
(iii) Year-End Financials. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Corporation, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such year, and the related consolidated statements of loss and deficit (or income), cash flows, and shareholders equity for such fiscal year, (B) a copy of its consolidating financial statements for such fiscal year, but only if material to an understanding of the Corporations operations and financial condition, and (C) a report with respect to the financial statements received pursuant to this Subsection from certified public accountants nationally recognized in the United States or Canada, selected by the Corporation.
(iv) Other Weekly/Monthly Reports . As soon as available, and in any event within four (4) Business Days after the end of each week, the Corporation will deliver or cause to be delivered (A) a report of sales booked by the Corporation during such week, (B) a report of pending and projected order activity as of the end of such week, and (C) a report providing detailed accounts receivable as of the end of such week. As soon as available, and in any event within ten (10) days after the end of each month, the Corporation will deliver or cause
to be delivered a report providing detailed accounts payable aging information as of the end of such month.
(c) Compliance Certificates. Together with each delivery of financial statements of the Corporation or its Subsidiaries (other than those financial statements delivered pursuant to Section 6.3(c)(iv)), the Corporation or the Subsidiary, as the case may be, will deliver or cause to be delivered to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly a fully and properly completed compliance certificate substantially in the form attached hereto as Exhibit C (each, a Compliance Certificate ) signed by the chief executive officer, chief operating officer or chief financial officer of the Corporation or such Subsidiary.
Section 6.4. Negative Covenants
At all times, the Borrowers hereby covenant and agree that, except as expressly contemplated by Section 6.2, for so long as any portion of the Obligations remains unpaid, unfulfilled and/or unsatisfied, the Borrowers shall not, nor shall the Corporation permit any Subsidiary to:
(a) Encumbrances. Create, grant, assume or suffer to exist any Encumbrance upon any of their properties or assets other than Permitted Encumbrances or enter into or assume any agreement (other than the documents entered into in connection herewith, the Intercreditor Agreement or the SVB Loan Agreement) prohibiting the creation or assumption of any Encumbrance upon its or their respective properties or assets, whether now owned or hereafter acquired.
(b) Capital Expenditures. Incur or commit or agree to incur capital expenditures in any fiscal year, including Capital Lease Obligations and Purchase Money Security Interests, involving aggregate payments in any twelve (12) month period in excess of 5% over the amount of capital expenditures provided for in the Budget.
(c) Sell. Remove, destroy, lease, transfer, assign, sell or otherwise dispose of any of the Secured Property, except for sales in the ordinary course of business.
(d) Funded Indebtedness. Incur or become liable for any Funded Indebtedness, other than the Obligations hereunder and those obligations existing on the date hereof; provided such obligations do not exceed the amount outstanding as of the date hereof.
(e) Indebtedness. Incur or repay any debts, liabilities or obligations (including Funded Indebtedness and Contingent Liabilities) whether direct or indirect, actual or contingent, material or not, other than those specifically permitted hereunder (including indebtedness to the Existing Debenture Holders, Wistron and SVB in the aggregate amounts existing as of the date hereof) or under the Security Documents, except for normal trade debts, liabilities or obligations to Persons dealing at Arms Length with the Borrowers arising in the ordinary course of business and with customary payment terms; provided , however , that in the event any indebtedness consists of trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms which are overdue for
more than 180 days (the Qualified Indebtedness ), the aggregate amount of such Qualified Indebtedness shall not exceed $1,500,000.
(f) Executive Officers . Appoint, hire, remove or change any executive officer without the prior written consent of Phoenix, which consent will not be unreasonably withheld or delayed.
(g) MC Operational Procedures Compliance . Take any action, incur any expenses or incur any debts, liabilities or obligations, unless duly and properly authorized by the Management Committee in strict accordance with the MC Operational Procedures.
(h) Make Certain Changes .
(i) change their financial year end;
(ii) purchase, establish or acquire in any manner any new business entity;
(iii) change the nature of their business as presently carried on;
(iv) amalgamate, consolidate or merge or enter into a partnership, joint venture (other than joint business arrangements with the third parties for the sale of goods and services in the ordinary course of business) or syndicate with any other Person, except an amalgamation, consolidation or merger involving only the Corporation and the US Subsidiary, unless otherwise consented to by Phoenix;
(v) sell, transfer, convey, assign or otherwise dispose of all or substantially all of its assets;
(vi) dissolve or wind-up the Corporation or any Subsidiary, other than pursuant to the dissolution or winding-up of a Subsidiary (other than the US Subsidiary) pursuant to which all of the assets of such Subsidiary are transferred or conveyed to the Corporation or the US Subsidiary;
(vii) enter into any transaction outside the ordinary course of business;
(viii) acquire or invest in any securities or investments, other than Cash Equivalents;
(ix) make any loans in any other Person other than the giving of trade credit or consistent with the Business Plan;
(x) engage in any commercial transactions with Persons not dealing at Arms Length with the Corporation or any Subsidiary, other than transactions relating to the compensation of any employee or director of the Corporation or a Subsidiary in the ordinary course of business, including the grant of stock under the Reserve Pool or the grant of options pursuant to the Corporations stock option plan, as in effect on the date hereof, approved by a majority of the Board of Directors (including a majority of the non-participating directors);
(xi) engage in any sale-leaseback or similar transactions;
(xii) remove any of the Secured Property or any of the books of account or other records of the Corporation or any Subsidiary from the jurisdiction where same are presently located, except for inventory sold in the ordinary course of business;
(xiii) make or commit to any form of distribution or reduction of the profits of the Corporation or any Subsidiary or of its capital including any (i) declaration or payment of any dividend (including stock dividends) on any present or future shares; (ii) payment to purchase, redeem, retire or acquire any of its shares, or any option, warrant or other right to acquire any such shares, or apply or set apart any of its assets therefor; (iii) bonuses to shareholders; (iv) payment on account of loans made to shareholders of the Corporation or any of its Subsidiaries; or (v) payment of any bonuses or management fees (other than bonuses paid to employees in the ordinary course of business);
(xiv) other than pursuant to any agreement, option, right, instrument or privilege set forth on Schedule 5.1(q) , create, allot or issue any shares in its capital, or enter into any agreement, or grant any option, right or privilege, whether pre-emptive, contractual or otherwise for the purchase of shares or securities convertible into shares of the Corporation or any Subsidiary, amend the articles, memorandum or association or by-laws, change the capital structure, enter into any agreement, or make any offer, to do so; or
(xv) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms of any material contracts, except to the extent such change, amendment, modification or consent is not materially adverse to Lenders and would not otherwise have a Material Adverse Effect.
Section 6.5. Warrants.
In the event that any Debenture has not been paid in full, including all outstanding principal and interest accrued thereon and all fees related thereto, on or before the Maturity Date (each a Past Due Debenture ), the Corporation shall promptly (but in no event more than ten (10) days thereafter) issue share purchase warrants (each a Warrant ), substantially in the form attached hereto as Exhibit B , to each holder of a Past Due Debenture entitling the holder thereof to purchase that number of Common Shares equal to the number of dollars representing the aggregate Obligations due on such Past Due Debenture (including accrued interest and expenses related thereto). Prior to, and as a condition of, the issuance of such Warrants, the Corporation shall be entitled to receive a certificate from such applicable Lender for a Past Due Debenture confirming that the representations and warranties in Section 5.2(e) hereof are true and correct on such date. The exercise price of the Warrants shall be the volume weighted average trading price of the Common Shares, as reported on the Toronto Stock Exchange, for the 5 trading days immediately prior to the Maturity Date.
ARTICLE 7.
CONDITIONS TO CLOSING
Section 7.1. Conditions to Initial Closing
The obligation of the Lenders (and in the case of Section 7.1(a)) the Borrowers, to effect the Initial Closing are subject to the satisfaction or waiver in writing in whole or in part by Phoenix, on behalf of the Lenders (and in the case of Section 7.1(a)) the Borrowers, of each of the following conditions:
(a) Receipt of Consent of Existing Debenture Holders . Phoenix, on behalf of the Lenders, shall have obtained and delivered to the Borrowers the consent of the Existing Debenture Holders, to the issuance of the Debentures and security granted in respect thereof and waiver of certain rights under the Existing Debentures.
(b) Regulatory Approval . The Borrowers shall have obtained and delivered to Phoenix, on behalf of the Lenders, the approval of the Ontario Securities Commission, Toronto Stock Exchange and all other applicable regulatory authorities with respect to the transactions contemplated hereby, each in form and substance satisfactory to Phoenix.
(c) Consent of the Board . The Borrowers shall have obtained and delivered to Phoenix, on behalf of the Lenders, unanimous written consents of their respective Boards of Directors authorizing and approving the Corporations issuance of the Debentures, the Warrants and the Warrant Shares.
(d) Security Agreement. Phoenix, on behalf of the Lenders, shall have received originally executed copies of the Security Agreement duly executed by the Borrowers.
(e) Legal Opinion . The Lenders shall have received a legal opinion of McCarthy Tétrault LLP substantially in the form attached hereto as Exhibit D regarding the validity and enforceability of this Agreement and the Transaction Documents (other than those relating to the US Subsidiary) and such other matters as Phoenix may reasonably require.
(f) Existing Debentures . The Corporation and the Existing Debenture Holders shall have extended the maturity date of the Existing Debentures to April 30, 2007.
(g) SVB Loan Agreement . The US Subsidiary shall have entered into a $5 million senior secured working capital facility with SVB pursuant to the SVB Loan Agreement, in such form as shall be acceptable to the Phoenix.
(h) Intercreditor Agreement . The Lenders, the Existing Debenture Holders and the Borrowers shall have entered into the Intercreditor Agreement.
Section 7.2. Conditions to each Closing
Notwithstanding anything herein contained, the obligation of each Lender to consummate the purchase of the Debentures at the Initial Closing and each Additional Closing, if any, and to pay the Purchase Price will be subject to the fulfillment of the following conditions at or prior to
each Closing Date, and the Borrowers covenant to use their respective commercially reasonable efforts to ensure that such conditions are fulfilled.
(a) Accuracy of Representations and Warranties and Performance of Covenants. The representations and warranties of the Borrowers contained herein or in any other Security Document shall be true and accurate at each Closing Date. In addition, the Borrowers shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it at or prior to each Closing Date. At each Closing Date, the Borrowers shall have delivered to Phoenix, on behalf of the Lenders, a certificate, substantially in the form attached hereto as Exhibit F , confirming the facts with respect to each of the representations and warranties, confirming that all such covenants and agreements have been performed and confirming that all conditions set forth in this Sections 7.1 and 7.2 have been satisfied or waived.
(b) Cost Maintenance Program . The Corporation shall have provided to Phoenix, on behalf of the Lenders, evidence satisfactory to Phoenix, acting reasonably, that the Cost Maintenance Program is continuing.
(c) Default or Event of Default . No Default or Event of Default shall have occurred and be continuing nor shall there be any Default or Event of Default which will or will likely occur as a result of the transactions contemplated by this Agreement, the Debenture Certificates or the Instruments.
(d) Consents. All consents, permits, agreements, confirmations and acknowledgements, determined by the Phoenix on behalf of Lenders, as required or necessary to be obtained in order to effectively complete the transactions contemplated herein, including without limitation, the Required Consents, shall have been obtained.
(e) Payment of Fees. The Borrowers shall have paid, by way of a deduction from the Purchase Price in accordance with Section 1.3(b), to Phoenix all fees and expenses referred to in Section 1.4, and shall have unconditionally waived and released, in form and content satisfactory to Phoenix, any right to contest the reasonableness of such agreement, fees and expenses or otherwise challenge the entitlement of Phoenix or the Lenders thereto. Notwithstanding such payment, the Borrowers will remain liable for any other fees and expenses referred to in Section 1.4 hereof which relate to the transactions hereunder.
(f) Perfection of Security. All steps necessary or desirable (including without limitation, the registration of the security interests created by the Security Documents in all public registries where such registration is necessary or desirable to perfect the security interest granted in favor of the Lenders) shall have been taken to constitute the Encumbrances under the Security Documents as valid, enforceable and prior ranking to all other Encumbrances, claims and interests in the Secured Property, subject only to Permitted Encumbrances.
(g) Receipt of Closing Documentation. All documentation relating to the due authorization and completion of the issuance of the Debentures provided for herein and the due execution and delivery of all the Security Documents and other Instruments, and all actions and proceedings taken on or prior to each Closing Date in connection with the performance by
the Borrowers of their respective obligations hereunder shall be satisfactory to Phoenix, on behalf of the Lenders, and Phoenix, on behalf of the Lenders, shall have received copies of all such documentation or other evidence as it may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form and substance satisfactory to Phoenix, on behalf of the Lenders.
(h) Deliveries.
(i) The Borrowers shall have executed and delivered to the Lenders, such other undertakings as they may reasonably request regarding the taking of actions and delivery of documents following each Closing Date necessary or desirable to give effect to the terms and conditions of this Agreement and the other Transaction Documents; and
(ii) The Borrowers shall have executed and delivered to the Lenders the Debenture Certificates.
(i) No Material Adverse Change . There shall have been no material adverse change with respect to the Corporation and the Subsidiaries taken as a whole.
(j) Due Diligence. The Lenders shall have been satisfied in their absolute discretion with their due diligence review of the Borrowers and their prospects.
Section 7.3. Waiver or Termination by the Lenders
Each of the conditions contained in Sections 7.1 (other than 7.1(a) and (f)) and 7.2 hereof are inserted for the exclusive benefit of the Lenders and may be waived in whole or in part by Phoenix, on behalf of the Lenders, at any time. The Borrowers acknowledge that the waiver by Phoenix, on behalf of the Lenders, of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Borrowers herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Sections 7.1 (other than 7.1(a) and (f)) and 7.2 hereof are not fulfilled or complied with as herein provided, the Lenders may, at or prior to any Closing Date at their option, be released from any and all of their respective obligations, covenants, agreements and liabilities pursuant to this Agreement by notice in writing to the Borrowers and in such event each Lender shall be released from all of its obligations, covenants, agreements and liabilities hereunder.
ARTICLE 8.
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default
The occurrence of any of the following events shall constitute an Event of Default under this Agreement:
(a) If default occurs in payment when due of any principal payable under this Agreement.
(b) If default occurs in payment when due of any interest, fees or other amounts payable under this Agreement and remains unremedied for a period of 10 days after the receipt by the Borrowers of notice of such default.
(c) If default occurs in payment or performance of any other Obligation (whether arising herein or otherwise) and such default remains unremedied for a period of 10 days after receipt by the Borrowers of notice of such default.
(d) If default occurs in performance by any of the Borrowers of any covenant in favor of any of the Lenders under this Agreement (excluding any of the covenants set forth in Section 6.4) and remains unremedied for a period of 15 days after the receipt by the Borrowers of notice of such default.
(e) If default occurs in performance by any of the Borrowers of any covenant in favor of the Lenders set forth in Section 6.4 of this Agreement.
(f) If an event of default occurs in payment or performance of any obligation in favor of any Existing Debenture Holder or any person from whom the Corporation or any Subsidiary has borrowed money aggregating in excess of $300,000 which would entitle the holder to accelerate repayment of the borrowed money, and such default is not waived in writing within 10 days of the occurrence of such default.
(g) Either the Corporation or the US Subsidiary institutes proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, provincial or state law relating to bankruptcy, insolvency, reorganization or relief of debtors, or the consent by it to the filing of any such petition or to the appointment under any such law of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Borrower or of substantially all of its property, or the making by it of a general assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due.
(h) If there is the entry of a decree or order by a court having jurisdiction in the premises adjudging either the Corporation or the US Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement or adjustment of or in respect of such Borrowers under any applicable law relating to bankruptcy, insolvency, reorganization or relief of debtors, or appointing under any such law a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Borrower or of substantially all of its property, or ordering pursuant to any such law the winding-up or liquidation of its affairs, and the continuance of any such decree, petition, appointment or order unstayed and in effect for a period of 45 consecutive days.
(i) If any act, matter or thing is done to, or any action or proceeding is launched or taken to, terminate the corporate existence of the Corporation or any Subsidiary, whether by winding-up, surrender of charter or otherwise.
(j) If the Corporation or any Subsidiary ceases to carry on its business or makes or proposes to make any sale of its assets in bulk or any sale of its assets out of the usual course of its business.
(k) If any receiver, administrator or manager of the property, assets or undertaking of the Corporation or any Subsidiary or a substantial part thereof is appointed pursuant to the terms of any trust deed, trust indenture, debenture or similar instrument or by or under any judgment or order of any court.
(l) If any balance sheet or other financial statement provided by the Corporation to the Lenders after the date hereof pursuant to the provisions hereof is false or misleading in any material respect.
(m) If any proceedings are taken to enforce any Encumbrance affecting any of the Secured Property or if a distress or any similar process is levied or enforced against any of the Secured Property.
(n) If any judgment or order for the payment of money in excess of $200,000 shall be rendered against the Corporation or any Subsidiary and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.
(o) If any action is taken or power or right be exercised by any Governmental Body which has a Material Adverse Effect on the Corporation or any Subsidiary.
(p) If any representation or warranty made by any Borrower herein or in any other Instrument or in any certificate, statement or report furnished in connection herewith is found to be false or incorrect in any way so as to make it materially misleading when made or when deemed to have been made.
(q) If any event occurs with respect to any Subsidiary which, if a like event had occurred with respect to the Corporation, would have constituted an Event of Default.
(r) If a Change of Control occurs with respect to the Corporation or any Subsidiary and such Change of Control continues in effect for a period of 30 days.
(s) If there shall occur or arise any change (or any condition, event or development involving a prospective change) in the business, operations, affairs, assets, liabilities (including any contingent liabilities that may arise through outstanding pending or threatened litigation or otherwise), capitalization, financial condition, licenses, permits, rights or privileges, whether contractual or otherwise, or prospects of the Corporation or any Subsidiary which, in the judgment of Phoenix, on behalf of the Lenders, acting reasonably, has or may have a Material Adverse Effect on any Borrower or on its ability to perform its obligations hereunder or under the Security Documents.
(t) Sixty (60) days after the employment of any of the current Chief Executive Officer or the Chief Financial Officer is terminated by the Corporation (other than a
termination by the Corporation for cause), without the prior consent of Phoenix, on behalf of the Lenders.
(u) If either Borrower commits an event of default pursuant to any other Transaction Document and such default continues beyond any cure period provided for in such Transaction Document.
Section 8.2. Consequences of an Event of Default
Upon the occurrence of any Event of Default, at the option of Phoenix on behalf of the Lenders, all Obligations and all monies secured hereby shall become forthwith due and payable, all of the rights and remedies hereby conferred in respect of the Secured Property shall become immediately enforceable and any and all additional and collateral security for payment of this Agreement shall become immediately enforceable.
Section 8.3. Enforcement
(a) Upon the happening of any Event of Default, Phoenix on behalf of the Lenders, may by instrument in writing declare that the security hereof has become enforceable and the Lenders shall have the following rights and powers:
(i) to enter into possession of all or any part of the Secured Property;
(ii) to preserve and maintain the Secured Property and make such replacements thereof and additions thereto as it deems advisable;
(iii) to collect any proceeds arising in respect of the Secured Property;
(iv) to collect, realize upon or sell or otherwise deal with accounts;
(v) to institute proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Secured Property;
(vi) to institute proceedings in any court of competent jurisdiction for the sale or foreclosure of the Secured Property;
(vii) to file proofs of claim and other documents to establish claims in any proceeding relating to the Corporation or any Subsidiary
(viii) to undertake any other remedy or proceeding authorized or permitted by law or equity;
(ix) to pay or otherwise satisfy in whole or in part any Encumbrances which, in the opinion of Phoenix, may rank in priority to the security hereof;
(x) after entry by its officers or agents or without entry, to sell, lease or otherwise dispose in any way whatsoever of all or any part of the Secured Property either en bloc or separately at public auction or by tender or by private agreement and at such time or times and
on such terms and conditions as the Lenders in their absolute discretion may determine and without any notice to or concurrence of the Borrowers except as may be required by applicable law; and
(xi) by instrument in writing, to appoint any person or persons (whether an officer or officers of the Lenders or not) as a Receiver (as defined herein to include a receiver and manager) of the Secured Property and to remove any Receiver so appointed and appoint another or others in its stead.
(b) The security of this Agreement may be realized and the rights enforced by any remedy or in any manner permitted by this Agreement or by law or equity and no remedy for the realization of the security hereof shall be exclusive of or dependent upon any other remedy and all or any remedies may from time to time be exercised independently or in any combination.
(c) In addition to the remedies of the Lenders set forth above, Phoenix on behalf of the Lenders, may, whenever an Event of Default has occurred:
(i) require the Borrowers, at their expense, to assemble the Secured Property at a place or places designated by notice in writing given by the Lenders to the Borrowers;
(ii) require the Borrowers, by notice in writing given by Phoenix on behalf of the Lenders to the Borrowers, to disclose to the Lenders the location or locations of the Secured Property;
(iii) repair, process, modify, complete or otherwise deal with the Secured Property and prepare for the disposition of the Secured Property, whether on the premises of the Borrowers or otherwise;
(iv) carry on all or any part of the business or businesses of the Borrowers and, to the exclusion of all others including the Borrowers, enter upon, occupy and use all or any of the premises, buildings, plant, undertaking and other property of or used by the Borrowers for such time as the Lenders see fit, free of charge, and the Lenders shall not be liable to the Borrowers for any act, omission or negligence in so doing or for any rent, charges, depreciation or damages incurred in connection therewith or resulting therefrom;
(v) borrow for the purpose of carrying on the business of the Borrowers or for the maintenance, preservation or protection of the Secured Property and mortgage, charge, pledge or grant a security interest in the Secured Property, whether or not in priority to the Security Documents, to secure repayment;
(vi) advance the Lenders own money to the Borrowers, in any case upon such terms as the Lenders may deem reasonable and upon the security hereof; and
(vii) demand, commence, continue or defend any judicial or administrative proceedings for the purpose of protecting, seizing, collecting, realizing or obtaining possession or payment of the Secured Property, and give valid and effectual receipts
and discharges therefor and compromise or give time for the payment or performance of all or any part of the accounts or any other obligation of any third party to either of the Borrowers.
Section 8.4. Disposition
(a) Without limiting the generality of the foregoing in connection with the exercise of remedies under this Article 8, it shall be lawful for the Lenders:
(i) to make any sale, lease or other disposition of the Secured Property either for cash or upon credit or partly for one and partly for the other upon such conditions as to terms of payment as it in its absolute discretion may deem proper;
(ii) to rescind or vary any contract for sale, lease or other disposition that the Lenders may have entered into pursuant hereto and resell, release or redispose of the Secured Property with or under any of the powers conferred herein; and
(iii) to stop, suspend or adjourn any sale, lease or other disposition from time to time and to hold the same adjourned without further notice.
(b) Upon any such sale, lease or other disposition the Lenders shall be accountable only for money actually received by them. The Borrowers shall be accountable for any deficiency and the Lenders shall be accountable for any surplus. The Lenders may deliver to the purchaser or purchasers of the Secured Property or any part thereof good and sufficient conveyances or deeds for the same free and clear of any claim by the Borrowers. The purchaser or lessee receiving any disposition of the Secured Property or any part thereof need not inquire whether default under this Agreement has actually occurred but may as to this and all other matters rely upon a statutory declaration of an officer of Phoenix on behalf of the Lenders, which declaration shall be conclusive evidence as between the Borrowers and any such purchaser or lessee, and the purchaser or lessee need not look to the application of the purchase money, rent or other consideration given upon such sale, lease or other disposition, which shall not be affected by any irregularity of any nature or kind relating to the crystallizing or enforcing of the security hereof or the taking of possession of the Secured Property or the sale, lease or other disposition thereof.
Section 8.5. Powers of Receiver
(a) Any Receiver appointed pursuant to Section 8.3(a)(xi) shall have the power without legal process:
(i) to take possession of the Secured Property or any part thereof wherever the same may be found;
(ii) to carry on the business of the Borrowers or any part thereof in the name of the Borrowers or of the Receiver; and
(iii) to exercise on behalf of each Lender all of the rights and remedies herein granted to the Lenders,
and without in any way limiting the foregoing, the Receiver shall have all the powers of a receiver appointed by a court of competent jurisdiction. Any Receiver appointed by Phoenix shall act as agent for the Lenders for the purposes of taking possession of the Secured Property, but otherwise and for all other purposes (except as provided below), as agent for the Borrowers.
(b) The Receiver may sell, lease, or otherwise dispose of Secured Property as agent for the Borrowers or as agent for the Lenders, as Phoenix may determine in its discretion. The Borrowers agree to ratify and confirm all actions of the Receiver acting as agent for the Borrowers, and to release and indemnify the Receiver in respect of all such actions. The Lenders, in appointing or refraining from appointing any Receiver, shall not incur liability to the Receiver, the Borrowers or otherwise and shall not be responsible for any misconduct or negligence of such Receiver or for any loss resulting therefrom.
Section 8.6. Application of Moneys
All moneys and non-cash proceeds actually received by the Lenders or by the Receiver in enforcing the security of this Agreement shall be initially held in trust by such person and promptly thereafter shall be applied, subject to the proper claims of any other person:
(a) first, to pay or reimburse each Lender and any Receiver the costs, charges, expenses and advances payable by the Borrowers in accordance herewith;
(b) second, in or toward the payment to each Lender of all Obligations or amounts secured hereby which payment shall be made and applied to the Lenders pro rata based on the ratio that such Lenders Debentures bears to the total number of Debentures issued to the Lenders hereunder; and
(c) third, any surplus shall be paid to the Borrowers or their assigns or as a court of competent jurisdiction may direct.
Section 8.7. Care and Custody of Secured Property
No Lender shall be bound to collect, dispose of, realize, protect or enforce any of a Borrowers right, title and interest in and to the Secured Property or to institute proceedings for the purpose thereof and, without limiting the generality of the foregoing, no Lender shall be required to take any steps necessary to preserve rights against prior parties in respect of any negotiable Secured Property. No Lender shall have any obligation to keep Secured Property in its possession identifiable. Phoenix on behalf of the Lenders may, after an Event of Default: (i) notify any person obligated on an account or on chattel paper or any obligor on an instrument to make payment thereunder to such Lender whether or not the Borrowers were theretofore making collections thereon; and (ii) assume control of any proceeds arising from the Secured Property.
Section 8.8. Dealing with the Secured Property
No Lender shall be obliged to exhaust its recourse against the Borrowers or any other person or persons or against any other security it may hold in respect of the Obligations before realizing upon or otherwise dealing with the Secured Property in such manner as such Lender may consider desirable. Phoenix on behalf of the Lenders may grant extensions or other
indulgences, take and give up securities, accept compositions, grant releases and discharges and otherwise deal with the Borrowers and with other parties, sureties or securities as Phoenix may see fit without prejudice to the Obligations or the rights of any Lender in respect of the Secured Property. No Lender shall be (i) liable or accountable for any failure to collect, realize or obtain payment in respect of the Secured Property; (ii) bound to institute proceedings for the purpose of collecting, enforcing, realizing or obtaining payment of the Secured Property or for the purpose of preserving any rights of such Lender, the Borrowers or any other parties in respect thereof; (iii) responsible for any loss occasioned by any sale or other dealing with the Secured Property or by the retention of or failure to sell or otherwise deal therewith; or (iv) bound to protect the Secured Property from depreciating in value or becoming worthless.
Section 8.9. Standards of Sale
Without prejudice to the ability of the Lenders to dispose of the Secured Property in any manner which is commercially reasonable, the Borrowers acknowledge that, subject to the terms of any Permitted Encumbrance, the rights of Wistron and the rights of SVB, a disposition of Secured Property by the Lenders which takes place substantially in accordance with the following provisions shall be deemed to be commercially reasonable:
(a) Secured Property may be disposed of in whole or in part;
(b) Secured Property may be disposed of by public auction, public tender or private contract, with or without advertising and without any other formality;
(c) Any purchaser or lessee of such Secured Property may be a customer of the Lenders;
(d) A disposition of Secured Property may be on such terms and conditions as to credit or otherwise as Phoenix on behalf of the Lenders, in its sole discretion, may deem advantageous;
(e) Any Lender or any other Person may be the purchaser of all or any portion of the Secured Property and thereafter hold the same absolutely, free from any claim or right of whatever kind; and
(f) Any Lender may establish an upset or reserve bid or price in respect of Secured Property.
ARTICLE 9.
GENERAL
Section 9.1. Waiver
No act or omission by any Lender in any manner whatsoever shall extend to or be taken to affect any provision hereof or any subsequent breach or default or the rights resulting therefrom save only an express waiver in writing. A waiver of default shall not extend to, or be taken in any manner whatsoever to affect the rights of any Lender with respect to, any
subsequent default, whether similar or not. The Borrowers waive every defense based upon any or all indulgences that may be granted by the Lenders.
Section 9.2. Other Security
The rights of each Lender hereunder shall not be prejudiced nor shall the liabilities of the Borrowers or of any other Person be reduced in any way by the taking of any other security of any nature or kind whatsoever either at the time of execution of this Agreement or at any time hereafter.
Section 9.3. No Merger or Novation
Neither the taking of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the liability of the Corporation to pay the moneys hereby secured nor shall the same operate as a merger of any covenant herein contained or of any other Obligation, nor shall the acceptance of any payment or other security constitute or create any novation.
Section 9.4. Power of Attorney
Each of the Borrowers, for valuable consideration for and after the occurrence of an Event of Default, irrevocably appoints Phoenix, on behalf of the Lenders, and its officers from time to time or any of them to be the attorneys of such Borrower in the name of and on behalf of such Borrower to execute such deeds, transfers, conveyances, assignments, assurances and things which such Borrower ought to execute and do under the covenants and provisions herein contained and generally to use the name of such Borrower in the exercise of all or any of the powers hereby conferred on the Lenders.
Section 9.5. License
Each Borrower hereby grants to Phoenix, on behalf of the Lenders, and its employees and agents an irrevocable and non-exclusive license, subject to the rights of tenants, to enter any of the Premises, during regular business hours and acting in a reasonable manner, to conduct audits, testing and monitoring with respect to Hazardous Substances and to remove and analyze any Hazardous Substance at the cost and expense of the Borrowers (which cost and expense shall be secured hereby).
Section 9.6. Environmental Indemnity
The Borrowers shall jointly and severally indemnify each Lender and hold each Lender harmless against and from all losses, costs, damages and expenses which each Lender may sustain, incur or be or become liable at any time whatsoever for by reason of or arising from the past, present or future existence, clean-up, removal or disposal of any Hazardous Substance referred to in this Agreement or compliance with Environmental Laws or Environmental Orders relating thereto, including any clean-up, decommissioning, restoration or remediation of the Premises and other affected lands or property (and this indemnification shall survive the satisfaction, release or extinguishment of the indebtedness secured hereby).
Section 9.7. Amalgamation
(a) The Corporation acknowledges that if it amalgamates with any other corporation or corporations (a) the Secured Property and the lien created hereby shall extend to and include all the property and assets of each of the amalgamating corporations and the amalgamated corporation and to any property or assets of the amalgamated corporation thereafter owned or acquired, (b) the term, Corporation , where used herein shall extend to and include each of the amalgamating corporations and the amalgamated corporation, and (c) the term, Obligations , where used herein shall extend to and include the Obligations of each of the amalgamating corporations and the amalgamated corporation. Nothing is this Section 9.7(a) shall permit or authorize an amalgamation that is otherwise prohibited by the provisions of this Agreement. For purposes solely of this Section 9.7(a), the Corporate Migration shall be deemed to constitute an amalgamation.
(b) The US Subsidiary acknowledges that if it merges with any other corporation or corporations (a) the Secured Property and the lien created hereby shall extend to and include all the property and assets of each of the merging corporations and the surviving corporation and to any property or assets of the surviving corporation thereafter owned or acquired, (b) the term, US Subsidiary , where used herein shall extend to and include each of the merging corporations and the surviving corporation, and (c) the term, Obligations , where used herein shall extend to and include the Obligations of each of the merging corporations and the surviving corporation. Nothing is this Section 9.7(b) shall permit or authorize an merger that is otherwise prohibited by the provisions of this Agreement. For purposes solely of this Section 9.7(b), the Corporate Migration shall be deemed to constitute a merger.
Section 9.8. Holder May Remedy Default
If the Borrowers fail to do anything hereby required to be done by it each Lender may, but shall not be obliged to, do such thing and all reasonable sums thereby expended by such Lender shall be payable forthwith by the Borrowers, shall be secured hereby and shall have the benefit of the Encumbrances hereby created, but no such performance by such Lender shall be deemed to relieve the Borrowers from any default hereunder.
Section 9.9. Notices
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., (Austin, Texas time), on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., (Austin, Texas time), on any date and earlier than 11:59 p.m., (Austin, Texas time), on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be addressed:
(a) to the Lenders at:
c/o Phoenix Venture Fund LLC
110 East 59 th Street, Suite 1901
New York, NY 10022
Attention: Philip S. Sassower
Facsimile: (212) 319-4970
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, NY 10022
Attention: Jonathan J. Russo, Esq.
Facsimile: (212) 895-2900
(b) to the Borrowers at:
Xplore Technologies Corp.
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention: Mr. Michael J. Rapisand
Facsimile: (512) 336-7791
Xplore Technologies Corporation of America
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention: Mr. Michael J. Rapisand
Facsimile: (512) 336-7791
with a copy to:
McCarthy Tétrault LLP
Suite 4700
Toronto Dominion Bank Tower
Toronto, ON M5K 1E6
Attention: Jonathan Grant, Esq.
Fax: (416) 868-0673
Section 9.10. Further Assurances
Each of the Borrowers and the Lenders hereby covenant and agree that at any time and from time to time after any Closing Date it will, upon the request of the other, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required for the better carrying out and performance of all the terms of this Agreement including, without limitation, such further and other security interests as the Lenders may reasonably request.
Section 9.11. Remedies Cumulative
The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach.
Section 9.12. Announcements
No announcement with respect to this Agreement, including any disclosure of the identity of the Lender, will be made by any party hereto without the prior approval of the other party. The foregoing will not apply to any announcement by any party required in order to comply with laws pertaining to timely disclosure, provided that such party consults with the other parties before making any such announcement.
Section 9.13. Time of the Essence
Time shall be of the essence of this Agreement.
Section 9.14. Entire Agreement
This Agreement, the schedules referred to herein, and the other documents referenced herein constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter thereof. Neither party hereto shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or the schedules or such other documents. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules and such other documents, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically referenced or set forth in this Agreement or in such schedules or such other documents.
Section 9.15. Invalidity of any Provisions
Any provision of this Agreement or any provisions of the security contemplated hereunder which is prohibited by the laws of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining terms and provisions hereof or thereof and no such invalidity shall affect the obligation of the Borrowers to repay the Obligations.
Section 9.16. Indemnification
The Borrowers agree to jointly and severally indemnify each Lender from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (except by reason of the gross negligence or willful misconduct or breach of applicable laws of such Lender or any of its employees) which may be imposed on, incurred by, or asserted against such Lender and arising by reason of any action (including any action referred to herein) or inaction or omission to do any act legally required of the Borrowers.
Section 9.17. Successors, Assigns and Participation, etc.
(a) The Corporation shall not assign or transfer all or any part of its rights or obligations hereunder or under any other Instrument, or permit or cause any Subsidiary to assign or transfer all or any part of its rights or obligations under any Instrument without the prior written consent of Phoenix on behalf of the Lenders.
(b) Each Lender may assign or grant participations in its Debentures or in all or part of its rights in respect of this Agreement, the Obligations and the Instruments and have its corresponding obligations hereunder assumed by any other Person without the consent of the Borrowers, on a private sale basis to other accredited investors within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission and within the meaning of Section 1.1 of Rule 45-501 of the Ontario Securities Commission. An assignment under this Section 9.17 shall become effective when the Borrowers have been notified thereof by the applicable Lender and has received from the assignee an undertaking to be bound by this Agreement and the other Security Documents and to perform the obligations, if any, assumed by it. Any such assignee shall be treated as a party to this Agreement for all purposes of this Agreement and the other Security Documents and shall be entitled to the full benefit hereof and thereof and shall be subject to the obligations of the applicable Lender to the same extent as if it were an original party in respect of the rights assigned to it and obligations assumed by it and such Lender shall be released and discharged accordingly. Any Person to whom a Lender grants participations in all or part of its rights and obligations under this Agreement and the Instruments shall not have any rights under this Agreement and the Instruments in respect of its participation interest, and shall only have, as against such Lender, as grantor, those rights and obligations in respect of such participation interest as are set forth in the agreement or agreements made between such Lender and such participant.
Section 9.18. Amendments
This Agreement may only be amended by a written agreement signed by the Borrowers and Phoenix, on behalf of the Lenders. Notwithstanding anything to the contrary contained herein, any action to impose additional obligations on the Lenders, or to amend Section 8.6 hereof or any other provision hereof or in any of the Security Documents which would affect the pro rata repayment, as among the Lenders, of the Obligations or the pro rata disbursement, as among the Lenders, of moneys or other proceeds received in the enforcement of the security interests created hereby, shall require the consent of each Lender whose interests are adversely affected by such action.
Section 9.19. Consent of Phoenix Enterprises LLC and Phoenix as Agent for the Existing Debenture Holders;
(a) Phoenix Enterprises LLC, for itself and as agent for the Existing Debenture Holders (other than the December 2004 Debenture Holders) under (i) Section 9.20 of the November 2002 Debenture Agreement, (ii) Section 9.21 of the December 2002 Debenture Agreement, (iii) Section 9.21 of the April 2003 Debenture Agreement, and (iv) Section 9.21 of the Second April 2003 Debenture Agreement, hereby acknowledges, agrees and gives its consent to the Borrowers entering into and performing their obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the Security Documents and, if applicable, the issue and sale of the Warrants to the Lenders.
(b) Phoenix for itself and as agent for the December 2004 Debenture Holders under Section 9.21 of the December 2004 Debenture Agreement, hereby acknowledges, agrees and gives its consent to the Borrowers entering into and performing their obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the Security Documents and, if applicable, the issue and sale of the Warrants to the Lenders.
Section 9.20. Appointment and Authorization of Phoenix as Agent
(a) Each Lender hereby irrevocably appoints and authorizes Phoenix to (A) hold the Secured Property for its own benefit and the pro rata benefit of the Lenders, and (B) be its attorney in its name and on its behalf to exercise such rights or powers granted to Phoenix or the Lenders under this Agreement and the other Transaction Documents to the extent and on the terms specifically provided herein and therein, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement, Phoenix shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the holders of 51% of the aggregate principal amount of Debentures outstanding (the Requisite Lenders ), and such instructions shall be binding upon all Lenders; provided , however , that Phoenix shall not be required to take any action which exposes Phoenix to liability in such capacity, which could result in Phoenix incurring any costs and expenses or which is contrary to this Agreement or applicable law. For the avoidance of doubt, Phoenix and its members, officers, agents, and employees shall in no event be liable to the Lenders or to any of them for any action taken or omitted to be taken by Phoenix pursuant to instructions received by it from the Requisite Lenders or in reliance upon the advice of counsel. Notwithstanding anything to the contrary contained herein, any action to impose additional obligations on the Lenders, or to amend Section 8.6 hereof or any other provision hereof or in any of the Security Documents which would affect the pro rata repayment, as among the Lenders, of the Obligations or the pro rata disbursement, as among the Lenders, of moneys or other proceeds received in the enforcement of the security interests created hereby, shall require the consent of each Lender whose interests are adversely affected by such action.
(b) The Borrowers shall be entitled to rely upon any certificate, notice or other document or other advice, statement or instruction provided to it by Phoenix pursuant to this Agreement, and the Borrowers shall generally be entitled to deal with Phoenix with respect to
matters under this Agreement which Phoenix is authorized to deal with without any obligation whatsoever to satisfy itself as to the authority of Phoenix to act on behalf of the Lenders and without any liability whatsoever to the Lenders for relying upon any certificate, notice or other document or other advice, statement or instruction provided to it by Phoenix, notwithstanding any lack of authority of Phoenix to provide the same.
Section 9.21. Counterparts
This Agreement may be executed in separate counterparts (including by facsimile), each of which when so executed and delivered shall be deemed to be an original and all of such counterparts shall together constitute one and the same instrument. Any party may execute this Agreement by facsimile signature.
IN WITNESS WHEREOF the parties have executed this Agreement.
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XPLORE TECHNOLOGIES CORPORATION OF AMERICA |
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THE PHILIP S. SASSOWER 1996
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PHOENIX ENTERPRISES LLC , solely for purposes of Section 9.19 hereof, in its capacity as Agent under (i) the Debenture Purchase Agreement, dated November 5, 2002, (ii) the December 2002 Debenture Purchase Agreement, dated December 6, 2002, (iii) the April 2003 Debenture Purchase Agreement, dated April 9, 2003, and (iv) the Second April 2003 Debenture Purchase Agreement, dated April 28, 2003 |
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Exhibit 10.6
XPLORE TECHNOLOGIES CORP.,
XPLORE TECHNOLOGIES CORPORATION OF AMERICA,
PHOENIX VENTURE FUND LLC
AND
EACH OF THE LENDERS LISTED
ON SCHEDULE 1 ATTACHED HERETO
APRIL 2006 DEBENTURE PURCHASE AGREEMENT
April 20, 2006
APRIL 2006 DEBENTURE PURCHASE AGREEMENT
THIS AGREEMENT is made the 20th day of April, 2006, by and among Xplore Technologies Corp. , a corporation incorporated under the laws of Canada (the Corporation ), Xplore Technologies Corporation of America , a corporation incorporated under the laws of Delaware and a wholly-owned subsidiary of the Corporation (the US Subsidiary ), Phoenix Venture Fund LLC , a limited liability company organized under the laws of the State of Delaware ( Phoenix ) and each of the other lenders listed on Schedule 1 attached to this Agreement (each such lender, a Lender and collectively, the Lenders ).
WHEREAS the Corporation and the US Subsidiary (each a Borrower and together the Borrowers ) are in the business of engineering, developing, integrating and marketing ruggedized mobile wireless pen-based computing systems;
WHEREAS on the terms and subject to the conditions hereof, the Lenders at their discretion shall make available to the Borrowers up to Five Million United States Dollars ($5,000,000) which may be drawn by the Borrowers in Five Hundred Thousand United States Dollars ($500,000) increments, each such drawdown to be represented by a senior secured debenture issued jointly by Borrowers (the Debentures and each, a Debenture ) to one or more of the Lenders;
WHEREAS the proceeds to the Borrowers paid by the Lenders for the Debentures will be used by the Borrowers solely in accordance with the terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE 1.
TRANSACTIONS
Section 1.1. Issuance of Debentures to the Lenders.
On the terms and subject to the conditions hereof, the Lenders, at the discretion of Phoenix, shall make available to the Borrowers up to Five Million United States Dollars ($5,000,000) which may be drawn by the Borrowers in Five Hundred Thousand United States Dollars ($500,000) increments. In connection with each such drawdown, the Borrowers shall issue to each Lender a Debenture in an aggregate principal amount equal to such Lenders share of the drawdown, as determined by Phoenix in its sole discretion. The terms and conditions of the Debentures are as set forth herein and are evidenced by the Debenture Certificates in the form attached hereto as Exhibit A .
(a) Subject to the terms and conditions of this Agreement, at the Initial Closing (as hereinafter defined), Phoenix and/or its assignee(s) shall purchase, and the Borrowers shall sell and issue to Phoenix and/or its assignee(s), Debentures in an aggregate principal amount of $1,000,000 (the Initial Debentures ); and
(b) Subject to the terms and conditions of this Agreement (including Section 1.6), the Lenders have the right (to be exercised at the sole discretion of Phoenix), but not the obligation, upon fifteen (15) Business Days prior written notice from the Borrowers (such notice to specify the aggregate principal amount of Debentures requested to be subscribed for), to subscribe for and purchase additional Debentures (the Additional Debentures ) in aggregate principal amount increments of $500,000 but in no event shall the Borrowers request the Lenders to subscribe for or purchase Additional Debentures in an aggregate principal amount of more than $4,000,000. Phoenix may at any time, without the consent of the Borrowers, make an assignment of its interests, rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment.
Section 1.2. Closings
(a) The consummation of the purchase and sale of the Initial Debentures shall occur on the date when all of the conditions set forth in Sections 7.1 and 7.2 have been satisfied in full (or waived in writing) or at such later time and place as may be mutually agreed upon by the Borrowers and Phoenix (the Initial Closing ).
(b) From time to time after the Initial Closing, but no later than fifteen (15) Business Days prior to the Maturity Date, the Borrowers may issue and sell to the Lenders, and the Lenders may purchase, Additional Debentures up to an aggregate principal amount of $4,000,000 (each an Additional Closing ), subject to the terms of Sections 1.1(b) and 1.6(b).
Section 1.3. Purchase Price
On the terms and subject to the conditions hereof, on each Closing Date, each Lender shall pay the purchase price (the Purchase Price ), equal to the aggregate principal amount of Debentures then being purchased by such Lender, to the Borrowers by way of certified check, bank draft or wire transfer, less any unpaid fees and expenses payable by the Borrowers pursuant to Section 1.4. The Borrowers hereby irrevocably direct each Lender to withhold such fees and expenses from the payment of its Purchase Price and each Lender hereby agrees that the withholding of such fees and expenses shall constitute its acknowledgement and agreement that the Borrowers shall not thereafter have any further obligation to such Lender under Section 1.4, except as set forth in Section 7.2(e).
Section 1.4. Fees and Expenses
(a) The Borrowers acknowledge and agree that they will be, jointly and severally, responsible for and will promptly pay or reimburse each Lender on demand for all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by such Lender, its representatives and consultants relating to its investigation of the Corporation, the Subsidiaries and its respective businesses, the negotiation, preparation and review of this Agreement and the other Instruments and related agreements and all other matters pertaining to the transactions hereby contemplated, including, without limitation, all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by such Lender for legal advice and services in connection with such transactions.
(b) The Borrowers acknowledge and agree that they will be responsible for and will promptly pay all such reasonable fees (including, but not limited to, legal fees), expenses and other out-of-pocket expenses whether or not the transactions hereunder are completed and even if it is the Lenders who terminate this Agreement pursuant to Section 7.3.
Section 1.5. Use of Proceeds
Each of the Borrowers hereby covenants, agrees, represents and warrants with and to the Lenders that such Borrower will use the net proceeds from the issuance and sale of the Debentures to the Lenders solely to finance its product development and for working capital and general corporate purposes.
Section 1.6. Exchange for Series A Preferred Shares.
(a) The Corporation intends to consummate an exchange of up to approximately $18.1 million of indebtedness (which includes outstanding principal plus accrued and unpaid interest) under the Existing Debentures for up to approximately 53.2 million Series A Preferred Shares, whereby each Existing Debenture owned by an Existing Debenture Holder who is a party to the Exchange Agreement (as defined below) will be exchanged for Series A Preferred Shares at the rate of one (1) Series A Preferred Share for each $0.34 of principal plus accrued but unpaid interest outstanding on such Existing Debenture (the Recapitalization ). The Recapitalization shall be effected pursuant to the terms of an exchange agreement to be entered into by and among the Corporation, the US Subsidiary and the other parties listed therein (the Exchange Agreement ). Immediately following the closing of the exchange of the Existing Debentures pursuant to the Exchange Agreement, all Debentures owned by a Debenture holder who is a party to the Exchange Agreement shall be deemed to be purchased by the Corporation in exchange for Series A Preferred Shares at the rate of one Series A Preferred Share for each $0.34 of principal plus accrued but unpaid interest then outstanding on such Debentures (the Debenture Exchange ), without any further action (including the prior agreement of the holder of any Debenture) on behalf of the holder of such Existing Debenture. The Debenture Exchange shall be effected in accordance with the terms of the Exchange Agreement as if the holders of Debentures were a party thereto and, for all such purposes, the Debentures shall constitute Existing Debentures. Following such exchange of Debentures, such Debentures shall be cancelled and of no further force and effect other than evidence of entitlement to receive the Series A Preferred Shares issuable in accordance with the Exchange Agreement. Upon consummation of the Debenture Exchange and the transactions contemplated by the Exchange Agreement, each Lender shall be entitled to all of the rights and benefits of the Lenders under the Exchange Agreement, and such Lender and the Corporation shall be deemed to have made the representations and warranties contained therein, as if it were an original party to the Exchange Agreement. The Recapitalization and the exchange of Debentures for Series A Preferred Shares pursuant to this Section 1.6 are each subject to approval by the Toronto Stock Exchange and the Corporations shareholders.
(b) In the event that the Borrowers have not drawn the full $5,000,000 made available by the Lenders pursuant to the terms of Section 1.1 of this Agreement prior to consummation of the Recapitalization, pursuant to the Exchange Agreement, the Corporation may issue to Phoenix, and Phoenix may purchase, in its sole discretion, Series A Preferred
Shares (of the same class and series being issued pursuant to the Recapitalization) equal to the difference of $5,000,000 and the aggregate principal amount of debentures issued under this Agreement at the purchase price of $0.34 per Series A Preferred Share in increments of at least $500,000. Each Lender who purchases Series A Preferred Shares pursuant to this Section 1.6(b) shall be entitled to all of the rights and benefits of the Lenders under the Exchange Agreement, and each Lender and the Corporation shall be deemed to have made the representations and warranties contained therein, as if it were an original party to the Exchange Agreement. The Borrowers and Lenders acknowledge and agree that $0.34 per Series A Preferred Share is the fair market value of such security.
ARTICLE 2.
PAYMENT OBLIGATIONS
Section 2.1. Principal Sum
For value received, the Corporation and the US Subsidiary, each having its principal business office at 14000 Summit Drive, Austin, Texas 78728, shall, jointly and severally, pay to the order of each of the Lenders the principal amount of each Debenture held by such Lender, unless such Debenture has been prepaid in full, plus all accrued and unpaid interest thereon in lawful money of the United States, or exchanged for Series A Preferred Shares pursuant to Section 1.6 on the Maturity Date, or such earlier date as the Obligations shall become due and payable hereunder, at the offices of the respective Lenders set forth on Schedule 1 or such other place as the Lenders may designate in writing not less than two Business Days prior to the Maturity Date.
Section 2.2. Interest
The principal outstanding on each Debenture from time to time shall bear interest from and including the applicable Closing Date to the date of repayment in full at 10% per annum (the Interest Rate ) calculated and payable in arrears on the Maturity Date. After the occurrence of an Event of Default and for so long as it continues, all Obligations shall bear interest at a rate that is 5% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the Debentures (the Default Interest Rate ).
This Agreement and the other Transaction Documents are subject to the express condition that at no time shall the Borrowers be required to pay interest on the principal balance of the Debentures at a rate which could subject Lenders to either civil or criminal liability as a result of being in excess of the maximum amount permissible under applicable usury or similar laws (the Maximum Legal Rate ). If by the terms of this Agreement or the other Transaction Documents, the Borrowers are at any time required or obligated to pay interest on the principal balance due under the Debentures at a rate in excess of the Maximum Legal Rate, the Interest Rate, or the Default Interest Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lenders for the use, forbearance, or detention of the sums due under the Debentures, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of the Debentures
until payment in full so that the rate or amount of interest on account of the Debentures does not exceed the Maximum Legal Rate from time to time in effect and applicable to the Debentures for so long as the Debentures are outstanding.
Section 2.3. Repayments
Subject to Section 1.6, each Borrower, jointly and severally, agrees to pay to each Lender the principal amount, any accrued and unpaid interest, and any other monies owing in respect of the Debentures in full on the Maturity Date or on such earlier date as the Obligations shall become due and payable in full hereunder. Each payment of principal amount of the Debentures hereunder (whether at maturity, by way of prepayment of otherwise), and each payment of interest on the Debentures shall be made and applied to the Lenders pro rata based on the ratio that each Lenders Debentures bears to the total number of Debentures issued to the Lenders hereunder.
Section 2.4. Prepayments
The Borrowers may, upon at least fifteen (15) days prior notice to the Lenders, prepay the Debentures (a Voluntary Prepayment ), without premium or penalty, in whole or in part at any time (any such date, the Prepayment Date ); provided that upon any such prepayment all accrued and unpaid interest as of the date immediately preceding the Prepayment Date shall be paid in cash. To the extent that outstanding Debentures are not all prepaid at the same time, the Debentures shall be prepaid in chronological order of issuance.
Section 2.5. Acceleration Events/Mandatory Prepayments
(a) Subject to the terms of the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, the unpaid principal amount of the Debentures, together with any accrued and unpaid interest thereon, shall become immediately due and payable on a first priority basis prior to any repayment of the Existing Debentures (an Acceleration Event ), in whole or in part, to the extent of fifty percent (50%) of the proceeds received by the Borrowers in any one or more financing transactions (a Financing ) involving the sale and issuance by the Borrowers of equity or debt securities (other than as contemplated by the Recapitalization and proceeds from the exercise of share options, stock purchase warrants or other convertible securities of the Corporation outstanding at or prior to the Initial Closing or any Warrant). Subject to the terms of the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, any remaining proceeds of any such Financing allocated to the repayment of Funded Indebtedness of the Borrowers shall first be applied to repayment of the Debentures prior to any repayment of the Existing Debentures or any other Funded Indebtedness of the Borrowers.
(b) The Borrowers shall, subject to the terms of the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, promptly upon the consummation of a sale or disposition of assets in bulk (other than as part of a bankruptcy or insolvency proceeding or a liquidation of the Corporation or any Subsidiary) by the Corporation or any Subsidiary in which the Corporation or Subsidiary, as applicable, shall receive aggregate proceeds in excess of $5,000,000, prepay the Debentures, on a first priority basis prior to any
repayment of the Existing Debentures (a Mandatory Prepayment ), to the extent of all such proceeds.
Section 2.6. Payment in US Dollars .
All payments made in cash by the Borrowers shall be made in U.S. Dollars in immediately available funds.
Section 2.7. Taxes
Any and all payments or reimbursements made under the Debentures shall be made free and clear of, and without deduction for, any and all taxes, levies, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, deductions, charges or withholdings and all liabilities with respect thereto, excluding such taxes imposed on net income, Tax Liabilities ), excluding, however, (i) any taxes imposed on income or any franchise tax imposed in lieu of a net income tax; (ii) any taxes imposed on any Lender (or any Person or entity with an interest in Lender), and (iii) any taxes for which any Lender (or any Person or entity with an interest in such Lender) would be entitled to claim a credit against its income tax liability in the country in which the Lender is organized or otherwise subject to taxation. If the Borrowers shall be required by law to deduct any such amounts from or in respect of any sum payable hereunder to a Lender then, the Borrowers shall pay such amounts to the appropriate Governmental Body and provide such Lender with satisfactory documentary evidence of such payment within ten (10) days after such payment and the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, such Lender receives an amount equal to the sum it would have received had no such deductions been made.
ARTICLE 3.
INTERPRETATION
Section 3.1. Defined Terms
As used herein the following expressions shall have the following meanings:
Accounts Receivable means all of the Persons accounts, contract rights, chattel paper, instruments, general intangibles and rights to payment of every kind, now or at any time hereafter arising.
Affiliate means, in respect of any corporation, any Person which, directly or indirectly, controls or is controlled by or is under common control with the Corporation; and for the purpose of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) means the power to direct, or cause to be directed, the management and policies of such Person whether through the ownership of Voting Shares or by contract or otherwise.
Applicable Law means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees of Governmental Bodies.
Business Day means any day other than Saturday, Sunday or a day on which chartered banks are closed for business in New York, New York.
Capital Lease Obligations means, as to any Person, the obligation of such Person to pay rent or other liquidated amounts under a lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under generally accepted accounting principles and, for purposes of this Agreement, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles.
Cash Equivalents means: (i) marketable direct obligations issued or unconditionally guaranteed by the United States or Canadian Government or issued by any agency thereof and backed by the full faith and credit of the United States or Canada, in each case maturing within one (1) year from the date of acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poors Rating Service or at least P-1 from Moodys Investors Service, Inc.; (iii) certificates of deposit or bankers acceptances maturing within one (1) year from the date of issuance thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of Canada or the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $500,000,000; and (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks having membership in the Federal Deposit Insurance Corporation or the Canadian Deposit Insurance Corporation in amounts at any one such institution not exceeding the lesser of $100,000 or the maximum amount of insurance applicable to the aggregate amount of the Corporations deposits at such institution.
Change of Control means any of:
(i) a merger, consolidation, amalgamation or reorganization involving the Corporation, unless such merger, consolidation, amalgamation or reorganization is one in which the shareholders of the Corporation, immediately before such merger, consolidation, amalgamation or reorganization, own, directly or indirectly immediately following such merger, consolidation, amalgamation or reorganization, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, amalgamation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, amalgamation or reorganization,
(ii) the individuals who, as of the date hereof, are members of the Board (the Incumbent Board ), cease for any reason to constitute at least two-thirds of the members of the Board; provided , however , that (i) if the election, or nomination for election by the Corporations common shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board or (ii) if any new director has been designated by the December 2004 Lenders pursuant to the December 2004 Debenture Agreement, such new director shall, for purposes hereof, be considered as a member of the Incumbent Board; provided further , however , that no individual (other than an individual designated pursuant to the rights of
the December 2004 Debenture Holders) shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board (a Proxy Contest ) including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest;
(iii) the Corporation shall cease to own and control all of the economic and voting rights associated with ownership of at least 100% of the outstanding shares of all classes of the Subsidiaries on a fully diluted basis, other than pursuant to the dissolution or winding-up of a Subsidiary pursuant to which all of the assets of such Subsidiary are transferred or conveyed to the Corporation or a Subsidiary; and
(iv) with respect to any of the Corporation or Subsidiaries, the time when the Corporation or such Subsidiary has sold, transferred, conveyed assigned or otherwise disposed of all or substantially all of its assets, other than pursuant to a transaction in which such assets are sold, transferred, conveyed, assigned or disposed of to the Corporation or a Subsidiary.
Closing means the Initial Closing together with each Additional Closing, if any.
Closing Date means the date on which a Closing is consummated.
Commitment shall mean the maximum amount of money such Lender may, in its sole discretion, make available to the Borrowers, as set forth opposite its name on Schedule 1.
Common Shares means the common shares, no par value, of the Corporation.
Contingent Liabilities means, as applied to any Person, any direct or indirect contingent liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings. Contingent Liabilities shall also include (A) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (B) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, other than pursuant to routine agreements entered into in the ordinary course of business, and (C) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefore, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Liabilities shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.
Default means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default.
December 2004 Debenture Holders means those Persons in their capacity as lenders under the December 2004 Agreement.
Encumbrance means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, hypothec, levy, execution, seizure, attachment, garnishment, right of distress or other claim in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back.
Environmental Laws means all applicable federal, provincial, state, municipal or local laws, statutes, regulations or ordinances relating to the environment, occupational safety, health, product liability and transportation.
Environmental Order means any prosecution, order, decision, notice, direction, report, recommendation or request issued, rendered or made by any Governmental Body in connection with Environmental Laws.
Event of Default has the meaning ascribed to such term in Section 8.1.
Existing Debentures means those debentures of the Corporation issued pursuant to (i) that certain Debenture Purchase Agreement, dated November 5, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the November 2002 Debenture Agreement ), (ii) that certain December 2002 Debenture Purchase Agreement, dated December 6, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the December 2002 Debenture Agreement ), (iii) that certain April 2003 Debenture Purchase Agreement, dated April 9, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the April 2003 Debenture Agreement ), (iv) that certain Second April 2003 Debenture Purchase Agreement, dated April 28, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the Second April 2003 Debenture Agreement ), (v) that certain December 2004 Debenture Purchase Agreement, dated December 17, 2004, by and among Xplore Technologies Corp. (as Borrower), Phoenix Venture Fund LLC and the lenders listed on Schedule 1 thereto, as amended ( the December 2004 Debenture Agreement ), and (vi) that certain September 2005 Debenture Purchase Agreement, dated September 15, 2005, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America (as Borrowers), Phoenix Venture Fund LLC and the lenders listed on Schedule 1 thereto ( the September 2005 Debenture Agreement ).
Existing Debenture Agreements means (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement, (iv) the Second April 2003 Debenture Agreement, (v) the December 2004 Debenture Agreement, and (vi) the September 2005 Debenture Agreement.
Existing Debenture Holders means those Persons in their capacity as lenders under (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement, (iv) the Second April 2003 Debenture Agreement, (v) the December 2004 Debenture Agreement, and (vi) the September 2005 Debenture Agreement.
Funded Indebtedness means, with respect to any Person at any particular time, any of the following amounts determined in accordance with generally accepted accounting principles on a consolidated basis at such time:
(i) indebtedness for money borrowed and indebtedness represented by notes payable and drafts accepted representing extensions of credit (including, as regards any note or draft issued at a discount, the face amount of such note or draft) and including the face amount of bankers acceptances and letters of credit;
(ii) all obligations (whether or not with respect to the borrowing of money) which are evidenced by bonds, debentures, notes or other similar instruments or not so evidenced but which would be considered to be indebtedness for borrowed money in accordance with generally accepted accounting principles;
(iii) all indebtedness for borrowed money secured by an Encumbrance on any property of such Person;
(iv) all indebtedness upon which interest charges are customarily paid;
(v) Capital Lease Obligations and all other indebtedness issued or assumed as full or partial payment for property or services or by way of capital contribution; and
(vi) any of the foregoing amounts in respect of any Subsidiary of the Person whose accounts are not required under generally accepted accounting principles to be consolidated with the accounts of such Person, including (without limitation) the aggregate outstanding amount of the Obligations at such time.
Notwithstanding the foregoing, trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms and not overdue for more than 90 days (or which, if overdue for more than 90 days, are being and continue to be actively and diligently contested in good faith or in respect of which no legal proceedings for payment of any such amount have been commenced and are continuing), customer advance payments and deposits received in the ordinary course of business shall not constitute Funded Indebtedness .
Governmental Body means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature (including, without limitation, the Ontario Securities Commission), or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing (including, without limitation, any arbitrator).
Hazardous Substance means any substance or combination of substances which is or may become hazardous, toxic, injurious or dangerous to persons, property, air, land, water, flora, fauna or wildlife, and includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous materials or hazardous substances as defined in or pursuant to any Environmental Laws or Environmental Orders pursuant thereto.
Instrument means this Agreement, the Debenture Certificates and any other agreement or instrument (whether now existing, presently arising or created in future) delivered by or on behalf of the Borrowers to the Lenders.
Intellectual Property means all right, title, interest and benefit of the Corporation and its Subsidiaries in and to any registered or unregistered world wide trade marks, trade or brand names, service marks, copyrights, copyright applications, designs, inventions, patents, patent applications, patent rights, licenses, sub-licenses, franchises, formulas, processes, know-how, technology, computer rights and other intellectual or industrial property of the Corporation or any of its Subsidiaries or pertaining to the Corporations business.
Intercreditor Agreement means that Third Amended and Restated Consent, Amendment and Intercreditor Agreement, dated as of the date hereof, by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix Venture Fund LLC and each of those persons and entities listed on Schedule A attached thereto.
Inventory means any and all goods, merchandise and other personal property located in the United States, including, without limitation, goods representing returns upon any accounts, and whether now owned or hereafter acquired by the Borrowers that is free and clear of all Encumbrances and is not unsellable, damaged, obsolete or otherwise not readily saleable at market value in the ordinary course of business, consistent with past practice.
Material Adverse Effect means any change or effect that is materially adverse to (i) the business, financial condition, or results of operations of such Person and its Subsidiaries, taken as a whole, other than any change or effect relating to general political, financial or economic conditions or the state of financial markets in general or (ii) the rights, remedies and benefits available to, or conferred upon, the Lenders under the Transaction Documents.
Material Authorization means, with respect to any Person, any approval, permit, license or similar authorization (including any trademark, trade name or patent) from, and any filing or registration with, any Governmental Body or other Person required by such Person to own its property and assets or to carry on its business as presently carried on by it or as contemplated hereunder to be carried on by it in each jurisdiction in which it does so or is contemplated to do so or where the failure to have such approval, permit, license, authorization, filing or registration would have a Material Adverse Effect upon such Person or upon its ability to perform its obligations under any of the Instruments.
Maturity Date shall mean June 30, 2006.
Obligations means all monies now or at any time and from time to time hereafter owing or payable by the Borrowers to the Lenders and all obligations (whether now existing,
presently arising or created in the future) of the Borrowers in favor of the Lenders, and whether direct or indirect, absolute or contingent, matured or not, each in connection with or relating to the Debentures, this Agreement or any of the other Transaction Documents, but excluding amounts owing by the Corporation pursuant to any Series A Preferred Shares.
Operating Expenses means, as of any date, the sum of the line items entitled Sales, marketing and support, Research, development and engineering, and General and administrative on the Corporations consolidated statement of loss included in the Corporations Financial Statements, and each such line item shall have the value that such line item has on such statement of loss as of that date.
Overhead Costs means Operating Expenses less (i) sales commissions and (ii) non-cash charges as determined in accordance with GAAP.
Order means any order, notice, direction, report, recommendation or decision rendered by any Governmental Body or other regulatory agency.
Permitted Encumbrances means:
(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 Corporation or any Subsidiary, as applicable, provided reserves reasonably deemed adequate therefor by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or the Subsidiary, as applicable, in accordance with generally accepted accounting principles;
(ii) construction, mechanics, carriers, warehousemens and materialmens 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 and, in the case of construction liens, which have not yet been filed or for which the applicable has not received written notice of an Encumbrance;
(iii) Encumbrances arising from court or arbitral proceedings, provided that the claims secured thereby are being contested in good faith by the Corporation or any Subsidiary, provided reserves reasonably deemed adequate by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or Subsidiary in accordance with generally accepted accounting principles, execution thereon has been stayed and continues to be stayed and such Encumbrances 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 an Encumbrance described in (ii) above;
(vi) deposits of cash or securities in connection with any appeal, review or contestation of any Encumbrance or any matter giving rise to an Encumbrance 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 and any related Security Document nor impair the use of such property by the Corporation or any Subsidiary, in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;
(viii) Encumbrances in favor of (i) each Lender pursuant to this Agreement and (ii) the Existing Debenture Holders pursuant to the Existing Debenture Agreements;
(ix) Encumbrances pursuant to Purchase Money Security Interests;
(x) security given by the Corporation or any Subsidiary to a public utility or any Governmental Body, when required by such utility or Governmental Body in connection with the operations of the Corporation or such Subsidiary, 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 Corporation or such Subsidiary;
(xi) Encumbrances granted to Wistron under the Wistron Intercreditor Agreement;
(xii) Encumbrances granted to SVB under the SVB Loan Agreement;
(xiii) any other Encumbrance which Phoenix approves in writing as a Permitted Encumbrance subsequent to the date hereof; and
(xiv) the Encumbrances listed under the heading Permitted Encumbrances in Schedule 3.1 .
Person means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or governmental entity, and pronouns have a similarly extended meaning.
Premises means any premises owned or occupied by the Corporation or its Subsidiaries from time to time.
Purchase Money Security Interest means an Encumbrance on any asset, other than accounts receivable or inventory, of a Person which is assumed, created, guaranteed or reserved to secure the unpaid purchase price of such asset, provided that any such Encumbrance is limited to the asset so acquired and does not secure in excess of the purchase price thereof, such purchase price not to exceed the fair market value of the purchased asset.
Receiver means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of the undertaking, property and assets of the Corporation appointed by Phoenix pursuant to this Agreement, any of the Security Documents or by or under any judgment or order of a court.
Release includes abandon, add, deposit, discharge, disperse, dispose, dump, emit, empty, escape, leach, leak, migrate, pour, pump, release or spill.
Reserve Pool means those 10 million Common Shares issuable to key management and employees of the Corporation as performance awards pursuant to the Corporations 1995 Share Option Plan.
Secured Property has the meaning assigned to such term in the Security Agreement.
Security Agreement means that Security Agreement, dated the date hereof, between the Borrowers and Phoenix, as agent for the benefit of the Lenders.
Security Documents means, collectively, this Agreement and all other agreements and other instruments (whether now existing or presently arising) for the purpose of establishing, perfecting, preserving or protecting any security for the benefit of any Lender in respect of any Obligations, including, but not limited to, the Security Agreement.
Series A Preferred Shares means Series A Preferred Shares of the Corporation proposed to be created and issued in connection with the Recapitalization, subject to obtaining all necessary regulatory and shareholder approvals.
Shareholders Equity of the Corporation at any particular time means the difference between (i) the aggregate of Total Assets of the Corporation and (ii) the Total Liabilities of the Corporation at such time.
Subsidiary means a corporation controlled by the Corporation, as the term control is defined in the Business Corporations Act (Ontario) as in effect at the date hereof and without reference to any amendments thereto after the date hereof and includes the corporations set out in Schedule 5.1(q) hereto.
SVB Loan Agreement means that Loan and Security Agreement, dated as of September 15, 2005, as amended, between Silicon Valley Bank ( SVB ) and the US Subsidiary.
Taxes means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon.
Total Assets of any Person means the aggregate book value amount of all assets of the Person which would, on a consolidated basis in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person.
Total Liabilities of any Person means the aggregate amount of all indebtedness and liabilities determined on a consolidated basis, which would, in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person including, for greater certainty, deferred taxes, together with, without duplication:
(i) the amount of all Funded Indebtedness and all Contingent Liabilities of the Person, whether or not reflected on a balance sheet;
(ii) the amount for which any shares in the capital of the Person (if it is a corporation) may be redeemed if the holders of such shares are entitled at any time to require the Person to redeem such shares or if the Person has called such shares for redemption; and
(iii) the amount of all Capital Lease Obligations of the Person, provided that if the rights and remedies of the lessor under such Capital Lease Obligations in the event of default are limited to repossession or sale of property, such amount shall be deemed to be equal to the lesser of (A) the amount of the Capital Lease Obligations and (B) the book value of such property.
Transaction Documents means this Agreement, the Share Purchase Warrant Certificates, the Debenture Certificates, the Security Agreement and any other documents, instruments or agreements entered into by the Corporation or the U.S. Subsidiary in connection with any of the foregoing.
Voting Shares means capital stock of any class of a corporation which carries voting rights under any circumstances, provided that shares which carry the right to vote conditionally upon the happening of an event shall not be considered Voting Shares until the occurrence of such event and then only during the continuance of such event.
Wistron Intercreditor Agreement means that Intercreditor, Trade Credit Restructuring and Security Agreement, dated as of November 24, 2004 by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix, the Philip S. Sassower 1996 Charitable Remainder Annuity Trust and Wistron Corporation ( Wistron ).
Section 3.2. Interpretation
(a) This Agreement, hereto , hereby , hereunder , herein , and similar expressions refer to the whole of this Agreement and not to any particular Article, Section, paragraph, clause, subdivision or other portion hereof.
(b) The expression Arms Length has the meaning ascribed to such term in the Income Tax Act (Canada).
(c) All references herein to the Income Tax Act (Canada) shall refer to such act and the regulations thereunder as the same may be amended or replaced from time to time.
(d) Words importing the singular number only include the plural and vice versa and words importing gender shall include all genders.
(e) All financial or accounting determinations, reports and statements provided for in this Agreement shall be made or prepared in accordance with generally accepted accounting principles applied in a consistent manner and shall be made and prepared on a consolidated basis.
(f) The division of this 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 Agreement.
(g) The schedules and exhibits annexed hereto shall, for all purposes, form an integral part of this Agreement.
(h) References to sums of money herein are to US dollars, unless otherwise specified.
(i) Time is of the essence hereof.
(j) Where the word including or includes is used in this Agreement, it means including (or includes) without limitation.
(k) Wherever in this Agreement reference is made to generally accepted accounting principles or GAAP, such reference shall be deemed to mean the generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which a given calculation is made or required to be made in accordance with generally accepted accounting principles.
Section 3.3. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of fees or otherwise payable by the Borrowers to the Lenders hereunder or under the Debenture Certificates exceed the maximum amount recoverable under applicable law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under applicable law.
Section 3.4. Day Not A Business Day
In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day.
Section 3.5. Governing Law
This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereby agrees to the non-exclusive jurisdiction of the courts of the Province of
Ontario. For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have non-exclusive jurisdiction to entertain any action arising under this Agreement.
ARTICLE 4.
SECURITY
Section 4.1. Charge
(a) In consideration of the sum of Ten Dollars ($10.00) now paid to it by each Lender (receipt of which is hereby acknowledged), and to secure the due payment of the Obligations hereunder, the Corporation hereby grants to each Lender a security interest in, and charges with payment to each Lender of, all sums payable hereunder as and by way of a fixed and a floating charge, the whole of the undertaking of the Corporation and all of its property and assets, real and personal, movable and immovable, tangible and intangible, of every nature and kind whatsoever, whosesoever situate, both present and future.
(b) The Corporation and each Lender hereby acknowledge that (i) value has been given to the Corporation by such Lender, (ii) the Corporation has rights in the property and assets of the Corporation subject to the security interest granted under Section 4.1 (other than after-acquired property), and (iii) they have not agreed to postpone the time of attachment of the security granted hereunder.
Section 4.2. Habendum
The Lenders shall have and hold the property and assets of the Corporation subject to the security interest granted under Section 4.1 and all of the rights hereby conferred unto the Lenders, their successors and assigns forever, but subject nevertheless to the provisions and with the powers herein set forth.
Section 4.3. Charge Valid Irrespective of Advance of Money
The charges and security interests hereby created shall have effect and be deemed to be effective whether or not the monies or obligations hereby secured or any part thereof shall be advanced or owing or in existence before or after or upon the date of this Agreement and neither the giving of charges and security interests hereunder nor any advance of funds shall oblige each Lender to advance any funds or any additional funds.
Section 4.4. Supplemental Indentures
The Corporation shall from time to time on demand by each Lender and at the expense of the Corporation execute and deliver such further deeds or indentures supplemental hereto, which shall thereafter form part hereof, for the purpose of charging, or securing in favor of each Lender any property now owned or hereafter acquired by the Corporation, for correcting or amplifying the description of any property hereby charged or secured or intended so to be, or for any other purpose not inconsistent with the terms of this Agreement.
Section 4.5. Continuing Security
Any and all payments made at any time in respect of the Obligations and the proceeds realized from any securities held therefor (including moneys realized from the enforcement of this Agreement) shall be applied in accordance with the Intercreditor Agreement. Each Lender may hold as additional security hereunder any increase or profits or other proceeds realized from the property and assets of the Corporation subject to the security interest granted under Section 4.1 (including money) for such period of time as each Lender sees fit. The Corporation shall be accountable for any deficiency.
Section 4.6. Defeasance
If the Corporation, its successors or assigns or any of them, make or cause to be made due payment or performance of all Obligations, without any reduction or abatement, and all taxes, rates, levies, charges or assessments payable by the Corporation upon the Secured Property or in respect thereof no matter by whom or by what authority imposed which each Lender shall have paid or shall have been rendered liable to pay, then, subject to Article 8 and Sections 9.6 and 9.16 hereof, everything in this Agreement shall be absolutely null and void and each Lender shall on request therefor by the Corporation, and at the expense of the Corporation, at that time surrender the Debenture to the Corporation, but until that time it shall remain in full force and effect despite the repayment or satisfaction from time to time of the whole or any part of the Obligations.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
Section 5.1. General Representations and Warranties of the Borrowers
The Corporation and the US Subsidiary, jointly and severally, represent and warrant to each Lender as follows and shall continue to represent and warrant to each Lender as follows for so long as the Obligations are outstanding:
(a) Incorporation and Status. Each of the Corporation and the US Subsidiary is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the corporate power and capacity to own its properties and assets and to carry on its businesses as presently carried on by it or as contemplated hereunder to be carried on by it and holds all Material Authorizations.
(b) Power and Capacity. Each of the Corporation and the US Subsidiary has the corporate power and capacity to enter into this Agreement and each Instrument to which it is a party and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it.
(c) Due Authorization. Each of the Corporation and the US Subsidiary has taken all necessary corporate action to authorize the execution, delivery and performance of each of this Agreement and each Instrument to which it is a party.
(d) No Contravention. The execution and delivery of this Agreement and the other Instruments to which the Corporation or the US Subsidiary is a party and the performance by each of the Corporation or the US Subsidiary of their respective obligations hereunder or thereunder (i) does not and will not contravene, breach or result in any default under (A) the articles, memorandum of association, by-laws, or other organizational documents of the Corporation or the US Subsidiary, or (B) any mortgage, lease, agreement or other legally binding instrument, license, permit or Applicable Law to which the Corporation or the US Subsidiary is a party or by which any of the Corporation or the US Subsidiary or any of its properties or assets may be bound, (ii) will not oblige the Corporation or the US Subsidiary to grant any Encumbrance to any Person other than each Lender, and (iii) will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation of the Corporation or the US Subsidiary under any mortgage, lease, agreement or other legally binding instrument of or affecting the Corporation or the US Subsidiary.
(e) No Senior or Pari Passu Indebtedness . Other than the Corporations indebtedness to SVB under the SVB Loan Agreement (including all accrued and unpaid interest thereon, but excluding any refinancing or other modification which increases the amount of such indebtedness) and Wistron, the Borrowers do not have, and shall not have, any indebtedness for borrowed money which ranks senior to or pari passu with the Debentures. Except for the Intercreditor Agreement, the SVB Loan Agreement and the Wistron Intercreditor Agreement, nothing herein, including pursuant to Section 6.4(a), shall operate to subordinate the security interest provided for in the Security Documents to or in favor of any Encumbrance or Permitted Encumbrance, or to postpone any of the Obligations to any of the obligations, indebtedness or liabilities owed by the Corporation or its Subsidiaries to the holder of any Permitted Encumbrances or Encumbrance.
(f) No Consents Required. No authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required in connection with the execution, delivery or performance of this Agreement by the Corporation or the US Subsidiary or any other Instrument by the Corporation or the US Subsidiary, as applicable, other than (i) the consent of the Existing Debenture Holders, (ii) the approval of the Toronto Stock Exchange and the satisfaction of any conditions to such approval, (iii) the filings required by applicable securities laws, and (iv) the registration of a financing statement under the UCC, (the consents and approvals in clauses (i) through (iv) collectively, the Required Consents ).
(g) Enforceability. Each of this Agreement and the other Instruments to which it is a party constitutes, or upon execution and delivery will constitute, a valid and binding obligation of the Corporation and the US Subsidiary, as the case may be, enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles.
(h) No Work Orders. As at each Closing Date, no work orders, directions or notices have been issued and remain outstanding pursuant to any Applicable Law relating to the business of the Corporation or any Subsidiary or any part of the Secured Property or any environmental matters affecting the foregoing, except such orders, directions and notices that would not have a Material Adverse Effect. As at each Closing Date, neither the Corporation or
any Subsidiary have received any notification from any Governmental Body, that has not been satisfied, that any work, repairs, construction or capital expenditures are required to be made in respect of the Secured Property or any part thereof as a condition of continued compliance with any Applicable Law or any Material Authorization issued thereunder.
(i) Permits and Compliance with Laws. The Corporation and each Subsidiary has all licenses, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted, except where the failure to have such license, permit approval or franchise would not have a Material Adverse Effect. All such licenses, permits, approvals and franchises are in good standing and no actions, proceedings, investigations or other steps of any kind are in process, pending, or to the knowledge of the Corporation, threatened, or would result in any such license, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation or any Subsidiary for any period of time, except where such termination, revocation, withdrawal, suspension or unavailability would not have a Material Adverse Effect. The Corporation and each Subsidiary is conducting its business in material compliance with all applicable laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on.
(j) Financial Statements. Phoenix, on behalf of the Lenders, has been furnished with a copy of:
(i) the audited consolidated financial statements of the Corporation and its Subsidiaries for its financial year ended March 31, 2005; and
(ii) the unaudited consolidated financial statements of the Corporation and its Subsidiaries for the fiscal quarter ended December 31, 2005.
Such financial statements, including the notes thereto (the Financial Statements ) have been prepared in accordance with generally accepted accounting principles and fairly, completely and accurately present the financial condition of the Corporation (including each Subsidiary) and the financial information presented therein in all material respects for the periods and as at the dates thereof. As at each Closing Date, the Corporation and each of the Subsidiaries has no outstanding liabilities (including Funded Indebtedness, Contingent Liabilities or otherwise) other than those disclosed in the Financial Statements and other than the indebtedness owed by the Corporation to the Existing Debenture Holders, to Wistron, to SVB and trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms. Since March 31, 2005, there has been no development which has had or would reasonably be expected to have a Material Adverse Effect upon the ability of the Corporation or any Subsidiary to perform its obligations under this Agreement or any other Transaction Document to which it is a party.
(k) Non-Arms Length Transactions. During the period from March 31, 2005 through each Closing Date, none of the Corporation or Subsidiaries has entered into any transaction or agreement with any Affiliate other than on commercially reasonable terms and within the limitations of the other provisions hereof, except as disclosed in the Financial
Statements or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available.
(l) No Litigation. As at each Closing Date, there is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal, or criminal), arbitration or other dispute settlement procedure, investigation or enquiry by any Governmental Body, or any similar matter or proceeding (collectively proceedings ) against or involving any of the Corporation or any Subsidiary (whether in progress or threatened) which, if determined adversely to the Corporation or Subsidiary would have or would reasonably be expected to have a Material Adverse Effect or have a material adverse effect upon its ability to perform any of the provisions of this Agreement or any other Transaction Document to which it is a party or which purports to affect the legality, validity and enforceability of this Agreement or any other Transaction Document. As at each Closing Date, no event has occurred which would reasonably be expected to give rise to any proceedings and there is no judgment decree, injunction, rule, award or order of any Governmental Body outstanding against the Corporation or any Subsidiary which has or would reasonably be likely to have a Material Adverse Effect.
(m) No Default. As at each Closing Date, neither the Corporation nor any of the Subsidiaries are in default or breach (other than any breach for which the Corporation has received a written waiver from either Phoenix Venture Fund LLC or Phoenix Enterprises LLC) under any material commitment or obligation (including, without limitation, obligations in relation to Funded Indebtedness) or under the terms and conditions relating to any Material Authorizations, and, to the best knowledge of the Borrowers, as at each Closing Date, there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach; and as at each Closing Date, there are no proceedings in progress, pending or, to the knowledge of the Borrowers, threatened which would result in the revocation, cancellation suspension or any adverse modification of any Material Authorization.
(n) Hazardous Substances. Neither the Corporation nor any of the Subsidiaries are aware of any Hazardous Substances located at, on or under the Secured Property or the Premises, and the Secured Property, the Premises and the operations conducted thereat are not and have not been in breach of any Environmental Law which has resulted or could result in the Secured Property being materially adversely affected. Neither the Corporation nor any Subsidiary has caused or permitted, nor does the Corporation or any Subsidiary have any knowledge of the Release of any Hazardous Substance on, from, under or to the Secured Property or the Premises or of any Release from a facility owned or operated by third parties, including previous owners, for which the Corporation or any Subsidiary may have liability and which has resulted or could result in the Secured Property or the Premises being adversely affected. Neither the Corporation nor any of the Subsidiaries has been charged with or convicted of an offence for non-compliance with any Environmental Law or has been fined or otherwise sentenced or have settled any prosecution short of conviction; and neither the Corporation nor any Subsidiary has received any notice of judgment or commencement of proceedings of any nature or experienced any search and seizure or are under investigation related to a breach or alleged breach of any Environmental Law.
(o) All Material Information Supplied. The Borrowers have provided to Phoenix all information which the Borrowers, acting reasonably, determined was material
relating to the financial condition, business, assets and results of operations (including forecasts and budgets) of the Corporation and the Subsidiaries, taken as a whole, and all such information (including all publicly available documents filed by the Corporation with the Ontario Securities Commission), taken as a whole (other than forecasts and budgets) is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading in light of the circumstances in which such information was made and there has been no change in such information, taken as a whole, that would have or would reasonably be likely to have a Material Adverse Effect. The forecasts and budgets provided to Phoenix, at the time presented, were prepared prudently and upon reasonable assumptions (which assumptions remain reasonable at each Closing Date), the forecasts and budgets are, as at each Closing Date, reasonable and attainable as at the date hereof, such forecasts and budgets have not, as of the date hereof, changed or been amended or updated, and it would, as of the date hereof, be reasonable for Phoenix to rely upon these forecasts and budgets.
(p) Taxes and Claims. The Borrowers have:
(i) delivered or caused to be delivered all required income tax returns, sales, property, franchise and value-added tax returns and other tax returns to the appropriate Governmental Body; and
(ii) withheld and collected all Taxes required to be withheld and collected by them and remitted such Taxes when due to the appropriate Governmental Body,
and no material assessment, appeal or claim is, as far as the Borrowers are aware, being asserted or processed with respect to such claim, Taxes or obligations, except as previously disclosed to Phoenix in writing.
(q) Authorized and Issued Capital. Schedule 5.1(q) accurately describes the authorized and issued share capital of the Corporation and each of the Subsidiaries, as at each Closing Date. As at each Closing Date, the Corporation has no Subsidiaries except as set forth in Schedule 5.1(q) . Except as set out in Schedule 5.1(q) , as at each Closing Date, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares.
(r) Insurance. The Corporation and each of the Subsidiaries insures with reputable insurance companies all of its property and other assets of an insurable nature against fire and other casualties in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property and maintains with reputable insurance corporations adequate insurance against business interruption with respect to any rental properties or properties under construction and liability on account of damage to persons or property, and under all applicable workers compensation laws, in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property.
(s) Funded Indebtedness . Schedule 5.1(s) sets forth a complete and accurate list of all Funded Indebtedness of each of the Corporation and the Subsidiaries at each Closing Date and accurately describes the security therefor and the dollar amount thereof.
(t) Directors and Officers Insurance . The Corporation has a directors and officers insurance policy in place to the same extent as such insurance is carried by prudent public corporations and the premiums on such insurance policy are paid to date.
(u) Solvency. None of the Corporation or any of the Subsidiaries has committed an act of bankruptcy, proposed a compromise or arrangement to its creditors generally, had any petition for a receiving order in bankruptcy filed against it, taken any proceeding to have itself declared bankrupt or wound-up or taken any proceeding to have a Receiver appointed over it or any part of its assets.
(v) Articles, Memorandum, By-Laws, Etc. True and complete copies of the articles of incorporation (including all amendments thereto), memorandum of association and by-laws and all other organizational documents of each of the Borrowers in effect on each Closing Date have been delivered to Phoenix on behalf of the Lenders. On each Closing Date, there are outstanding no applications or filings which would alter in any way the organizational documents or corporate status of any of the said corporations. As in effect on each Closing Date, the respective minute books of the Borrowers contain all by-laws and resolutions of the respective directors and shareholders of the Borrowers currently in effect and the corporate and other records of the Borrowers have been maintained in all material respects in accordance with all Applicable Law.
(w) Location of Business and Assets. As of each Closing Date, the only locations at which the Corporation and the Subsidiaries have any place of business or material assets are as set forth in Schedule 5.1(w) .
(x) Title. Subject only to the Permitted Encumbrances, the Corporation and each Subsidiary has good and marketable title to all of its undertaking, property and assets, free and clear of any Encumbrances and no person has any agreement or right to acquire its interest in any of such properties out of the ordinary course of business.
(y) Employment Matters. As of each Closing Date, except as is disclosed in Schedule 5.1(y) neither the Corporation nor any Subsidiary is a party to or is bound by any:
(i) written or oral contract or commitment for the employment of any senior management employee or officer;
(ii) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of $100,000 or a payment on termination of in excess of six months salary and benefits;
(iii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice;
(iv) contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (collectively called labor representatives ) and the Borrowers have not conducted negotiations with respect to any such future contracts or commitments; no labor representatives hold bargaining rights with respect to any employees of the Corporation or any Subsidiary; no labor representatives have applied to have the Corporation or any Subsidiary declared a related employer pursuant to the applicable labor legislation; and, to the knowledge of either of the Borrowers, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Corporation or any Subsidiary; or
(v) except as is disclosed in Schedule 5.1(y), there is no bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers compensation insurance provided pursuant to statute.
As of each Closing Date, the Corporation and each of the Subsidiaries has paid all sums due to its employees and its independent contractors and has observed in all material respects the provisions of (i) all agreements binding upon it or (ii) any pension, bonus, profit sharing, compensation, retirement, deferred compensation, illness or other plan, agreement, trust, fund or arrangement for the benefit of or with its employees, directors, officers or shareholders and (iii) all applicable laws and regulations respecting employment, including, but not limited to, labor standards legislation and regulations and legislation and regulations prohibiting discrimination; and there is no complaint, civil action or other proceeding in process alleging a violation of any such agreement, plan, trust, fund, arrangement, law or regulation.
As of each Closing Date, none of the Corporation nor any Subsidiary has received any remedial order or notice of offence under any applicable laws and regulations respecting employment, and each of the Corporation and the Subsidiaries has performed all of its financial or monetary obligations under such laws and regulations towards its employees and independent contractors, and there are no facts which may give rise to a claim for which the Corporation or any Subsidiary might be held liable under the provisions of the said laws or regulations.
(z) Intellectual Property. The Corporation and each Subsidiary owns all right title and interest in or to, or have valid and enforceable rights to use all of the Intellectual Property including the trade marks, trade or brand names, corporate names and service marks set out in Schedule 5.1(z) , free and clear of all Encumbrances except Permitted Encumbrances. As of each Closing Date, neither the Corporation nor any Subsidiary uses or owns any trade marks, trade or brand names, corporate names or service marks except as set out in Schedule 5.1(z) . The conduct of the business of, and the use of the Intellectual Property by, the Corporation and the Subsidiaries does not, nor to the Borrowers knowledge, will the proposed conduct of the business and the proposed use of the Intellectual Property, infringe (and neither the Corporation nor any Subsidiary, except as previously disclosed to Phoenix in writing, has received any notice, complaint, threat or claim alleging infringement of) any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. The
Intellectual Property which is not owned by the Corporation or the Subsidiaries is being used with the consent of, and in accordance with, the consent or license from, the rightful owner thereof. The Corporation and each of the Subsidiaries has taken all commercially reasonable steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation or such Subsidiary.
(aa) Disclosure Restricted. Each of the statements contained in Section 5.1 is true and correct except as set forth in the specific disclosure schedule qualifying such statement or in any document filed by the Corporation with the Ontario Securities Commission and that is publicly available. The disclosure in any disclosure schedule shall qualify only the corresponding statement.
Section 5.2. Representations and Warranties of Lenders
Each of the Lenders, severally and not jointly, represents and warrants to the Borrowers as follows:
(a) Authorization . Such Lender is an individual, corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and each Lender has full power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, and has duly authorized, executed and delivered the same. This Agreement, when executed and delivered by a Lender, will constitute valid and legally binding obligations of such Lender, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors rights generally, or (ii) as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies.
(b) Disclosure of Information . Each Lender has had an opportunity to discuss the Borrowers business, management, financial affairs and the terms and conditions of the offering of the Debentures with the Borrowers management and has had an opportunity to review the Borrowers facilities. Each Lender understands that such discussions, as well as any other written information delivered by the Borrowers to such Lender, were intended to describe the aspects of the Borrowers business which it believes to be material. Each Lender has had all of its questions related to the Borrowers and the purchase of Debentures answered by the Borrowers.
(c) Experience; Speculative Nature of Investment. Each Lender has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Borrowers so that it is capable of evaluating the merits and risks of its investment in the Borrowers and has the capacity to protect its own interests. Each Lender acknowledges that its investment in the Borrowers is highly speculative and entails a substantial degree of risk and such Lender is in a position to lose the entire amount of such investment.
(d) Investment. The Lenders are acquiring the Debentures and Warrants (if and when issued) for investment for their own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. By executing this Agreement,
each Lender further represents that it does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Debentures, Warrants or Common Shares.
(e) Restricted Securities . The Lenders understand that the Debentures, Warrants (if and when issued) and Common Shares issuable upon exercise of the Warrants as contemplated hereby have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act ), or qualified for distribution in any province or territory of Canada and are issued pursuant to a specific exemption from the registration provisions of the Securities Act and the registration and prospectus requirements of the Securities Act (Ontario), the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Lenders representations as expressed herein. Each Lender is an accredited investor within the meaning of Section 1.1 of National Instrument 45-106 and each Lender, which is resident in the United States, is also an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission. If any Lender is resident in or otherwise subject to the securities laws of a jurisdiction other than the Province of Ontario or the United States, the issuance by the Corporation, and the acquisition by such Lender, of the Debentures, Warrants (if and when acquired) and Common Shares issuable upon exercise of the Warrants as contemplated by this Agreement is in full compliance with all applicable securities laws, statutes, regulations, policy statements and orders in such jurisdiction and no authorization, consent of, or filing with or notice to, any person is required in connection therewith.
(f) Legends . The Lenders understand that the Debentures, Warrants (if and when issued) and Common Shares issuable upon exercise of the Warrants (each, for purposes of this paragraph, a security) may bear the following legend and any other legends that may be required by applicable securities law and stock exchange rules:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION) IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(g) No Public Market. The Lenders understand that no public market now exists for any of the Debentures or Warrants issued by the Borrowers and that the Borrowers have made no assurances that a public market will ever exist for the Corporations securities.
Section 5.3. Survival of Representations and Warranties
The statements made in any certificate hereafter delivered by the Corporation or any of the Subsidiaries to the Lenders shall be deemed to constitute representations and warranties made by the party delivering the same. The Borrowers covenant that the representations and warranties made by them in this Article 5 shall be true and correct on each day that any of the Obligations remain outstanding, with the same effect as if such representations and warranties had been made and given on and as of such day, notwithstanding any investigation made at any time by or on behalf of each Lender or its counsel and notwithstanding any foreclosure or enforcement pursuant to any Security Documents; except that if any such representation and warranty is specifically given as of the date hereof or in respect of a particular date or particular period of time and relates only to such date or period of time, then such representation and warranty shall continue to be given as at such date or for such period of time.
ARTICLE 6.
COVENANTS OF THE CORPORATION
Section 6.1. General Covenants
So long as the Obligations remain outstanding, the Borrowers covenant and agree as follows:
(a) Securities Compliance. Subject to the representations and warranties of the Lenders in Section 5.2(e) being true and correct on the date of issuance of the Debentures and Warrants (if and when issued), the Borrowers shall take all necessary action and proceedings as may be required and permitted by applicable law, rule and regulation for the legal and valid issuance of the Debentures and the Warrants (if and to the extent issued) to be acquired by the Lenders, hereunder and the issuance of the Common Shares upon exercise of the Warrants.
(b) Books and Reserves. From the date hereof until the payment in full of all Obligations (the Termination Date ), the Corporation shall (i) maintain, and cause its Subsidiaries to maintain, at all times, true and complete books, records and accounts in which true and correct entries shall be made of its transactions in accordance with GAAP consistently applied and consistent with those applied in the preparation of the Financial Statements (to the extent same are consistent with GAAP), and (ii) by means of appropriate quarterly entries, reflect in its accounts and in all financial statements, proper liabilities and reserves for all taxes and proper reserves for depreciation, renewals and replacements, obsolescence and amortization of its properties and bad debts, all in accordance with GAAP consistently applied, as above described, and all subject to normal year end adjustments.
(c) Ordinary Course of Business. The Borrowers shall operate their respective businesses only in the ordinary course and will use commercially reasonable efforts to preserve their respective business, organization, goodwill and relationships with Persons having business dealings with them.
(d) To Use Proceeds. The Borrowers shall use the net proceeds from the sale of the Debentures in accordance with Section 1.5.
(e) To Pay Costs. The Borrowers shall pay all reasonable costs, charges and expenses of or incurred by any Lender in inspecting the Secured Property or in or about taking, recovering or keeping possession of any of the Secured Property or in any other proceedings taken in enforcing the remedies provided herein or otherwise in relation to this Agreement or the Secured Property, or by reason of non-payment of the moneys hereby secured, costs of any sale proceedings hereunder, whether such sale proceedings prove abortive or not, and costs of any Receiver with respect to, and all expenditures made by any Lender or any Receiver in the course of, doing anything hereby permitted to be done by any Lender or such Receiver. All such costs and expenses and other monies payable hereunder, together with interest at the Maximum Legal Rate applicable to such Obligations, shall be payable on demand and shall constitute a charge on the Secured Property. Without limiting the generality of the foregoing, such reasonable costs shall extend to and include any legal costs incurred by or on behalf of each Lender or the Receiver as between attorney and his own client.
(f) To Pay Certain Debts. The Corporation shall and shall cause each of the Subsidiaries to punctually pay and discharge every obligation, the failure to pay or discharge of which would reasonably be likely to result in any Encumbrance or right of distress, forfeiture, termination or sale or any other remedy being enforced against the Secured Property and provide to Phoenix, on behalf of the Lenders, when required by Phoenix, on behalf of the Lenders, acting reasonably, satisfactory evidence of such payment and discharge, but the Borrowers may, on giving the Lenders such security (if any) as Phoenix, on behalf of the Lenders, may require, refrain from paying or discharging any obligation the liability for which is being contested in good faith.
(g) To Comply with Obligations and Maintain Corporate Existence and Security. The Corporation shall and shall cause each Subsidiary to:
(i) pay or cause to be paid all Obligations falling due hereunder on the dates and in the manner specified herein and comply with its obligations hereunder, under the Security Documents and the other Instruments;
(ii) create an annual business plan, approved by the Board of Directors of the Corporation, for each year in which the Debentures remain outstanding (the Annual Business Plan ), and immediately notify Phoenix, on behalf of the Lenders of any material deviation from the Annual Business Plan;
(iii) maintain its corporate existence;
(iv) use commercially reasonable efforts to preserve all its rights, licenses, powers, privileges, franchises and goodwill;
(v) observe and perform all of its obligations and comply with all conditions under leases, licenses and other agreements to which it is a party or upon or under which any of the Secured Property is held;
(vi) carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Secured Property and income therefrom;
(vii) observe and conform to all Applicable Laws and of any Governmental Body having jurisdiction over the Corporation or any Subsidiary;
(viii) repair and keep in repair and good order and condition all property, including the Secured Property, the use of which is necessary or advantageous in connection with its business;
(ix) immediately notify Phoenix, on behalf of the Lenders, in writing of any proposed change of name of the Corporation or any Subsidiary or of chief place of business of any of the foregoing;
(x) keep Phoenix, on behalf of the Lenders, regularly informed in writing as to the location of the Secured Property and the books of account and other records of each of the Corporation and the Subsidiaries to the extent that the Secured Property or such books of account are not located at 14000 Summit Drive, Suite 900, Austin, Texas 78728;
(xi) pay all Taxes levied, assessed or imposed upon it or its property as and when the same become due and payable save and except where it contests in good faith the validity thereof;
(xii) forthwith notify Phoenix, on behalf of the Lenders, of any default (or event, condition or occurrence which with the giving of notice and/or the lapse of time would constitute a default) in connection with any indebtedness, Funded Indebtedness or Contingent Liability in an amount exceeding $300,000;
(xiii) advise Phoenix, on behalf of the Lenders, forthwith upon becoming aware of any Default or Event of Default hereunder with detailed particulars thereof and deliver to Phoenix, on behalf of the Lenders, upon request a certificate in form and substance satisfactory to Phoenix, on behalf of the Lenders, signed by a senior officer of the Corporation certifying that no Default or Event of Default has occurred or, if such is not the case, specifying all Default or Events of Default and their nature and status;
(xiv) use commercially reasonable efforts to collect all accounts receivable in the ordinary course of business;
(xv) promptly cure or cause to be cured any defects in the execution or delivery of any Instrument and any defects in the validity or enforceability of any security hereunder and at its expense duly execute and deliver or cause to be duly executed and delivered all documents as the Lenders may consider necessary or desirable for such purposes;
(xvi) retain auditors approved by the Audit Committee of the Board of Directors of the Corporation;
(xvii) at its cost and expense, upon the request of Phoenix, on behalf of the Lenders, duly execute and deliver, or cause to be duly executed and delivered, to Phoenix, on behalf of the Lenders, such documents and do or cause to be done such acts as may be necessary or desirable in the reasonable opinion of Phoenix, on behalf of the Lenders, to carry out the purposes of this Agreement; and
(xviii) effect such registrations as may be required by Phoenix, on behalf of the Lenders, from time to time to protect the security granted under the Transaction Documents.
(h) To Insure. The Borrowers shall keep the Secured Property insured in such amounts as is carried by prudent corporations carrying on a similar business and owning similar property, and against loss or damage by fire and such other risks as Phoenix, on behalf of the Lenders, may from time to time specify, acting reasonably, with reputable insurers. The Borrowers shall, whenever from time to time requested by Phoenix, on behalf of the Lenders, provide Phoenix, on behalf of the Lenders, satisfactory evidence of such insurance and any renewal thereof which shall at all times be subject to charging clauses in a form approved by Phoenix, on behalf of the Lenders, and shall cause the Lenders to be shown as loss payees under the policy or policies. Evidence satisfactory to Phoenix, on behalf of the Lenders, of the renewal of every policy of insurance shall be left with Phoenix, on behalf of the Lenders, at least seven (7) days before the termination thereof. Each policy of insurance shall be in form and substance acceptable to Phoenix, on behalf of the Lenders, acting reasonably, and shall not be subject to any co-insurance clause.
(i) Notice of Litigation and Damage . The Borrowers will promptly give written notice to Phoenix, on behalf of the Lenders, of (i) all claims or proceedings pending or threatened against any of the Corporation or Subsidiaries which may give rise to uninsured liability in excess of $300,000 or which may have a Material Adverse Effect; and (ii) all damage to or loss or destruction of any property comprising part of the Secured Property which may give rise to an insurance claim in excess of $300,000; and will supply Phoenix, on behalf of the Lenders, with all information reasonably requested in respect of any such claim.
(j) To Furnish Proofs . The Borrowers shall forthwith on the happening of any loss or damage furnish or cause to be furnished at their expense all necessary proofs and do all necessary acts to enable each Lender to obtain payment of the insurance monies, which, in the sole discretion of the Lenders, may be applied in reinstating the insured property or be paid to the Corporation or any Subsidiary or be applied in payment of the monies owing hereunder, whether due or not then due, or paid partly in one way and partly in another.
(k) Financial Statement Presentation . In any press release, or public disclosure document required by securities regulatory authorities, that contains the Corporations quarterly or annual financial statements, subject to compliance with applicable securities law and other regulatory requirements, such financial statements shall be prepared in accordance with Canadian GAAP and, if requested by Phoenix, contain a note reconciliation to U.S. generally accepted accounting principles ( US GAAP ).
Section 6.2. Specific Covenants
So long as the Obligations remain outstanding, the Corporation covenants and agrees as follows:
(a) Cost Maintenance Program. The Corporation shall continue its previously implemented cost-cutting program (the Cost Maintenance Program ) in a manner satisfactory, in its sole discretion, to Phoenix.
Section 6.3. Financial Covenants.
So long as any of the Obligations remain outstanding, the Corporation covenants and agrees as follows:
(a) Budget. The Corporation shall not, and shall cause its Subsidiaries not to, expend any funds nor incur any expenses except as provided for in the budget delivered to Phoenix, on behalf of the Lenders (the Budget ), which shall also included a detailed income statement, balance sheet and statement of cash flows. The Borrowers and Phoenix, on behalf of the Lenders, hereby agree that aggregate expenditures, if any, exceeding the total budgeted amount by 5% or less shall be deemed to be within the Budget.
(b) Financial Statements and Other Reports . The Corporation will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP (it being understood that quarterly financial statements are not required to have footnote disclosures). The Corporation will deliver or cause to be delivered each of the financial statements and other reports described below to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly, in addition to copies of any other financial statements prepared by the Corporation for filing with securities commissions and other regulatory authorities.
(i) Monthly Financials . As soon as available and in any event within forty-five (45) days after the end of each month, the Corporation will deliver or cause to be delivered its consolidated balance sheet, as at the end of such month, and the related consolidated statements of loss and deficit and cash flows for such month, and for the period from the beginning of the then current fiscal year of the Corporation to the end of such month.
(ii) Quarterly Financials; Other Quarterly Reports. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such fiscal quarter, and the related consolidated statements of income, shareholders equity, loss and deficit (or income) and cash flows for such fiscal quarter and for the period from the beginning of the then current fiscal year of the Corporation to the end of such quarter, along with a comparison to the operating budget for such quarter, (B) a copy of its consolidating financial statements for such fiscal quarter, but only if material to an understanding of the Corporations operations and financial condition, and (C) a schedule of investments made by the Corporation or any of its Subsidiaries since the date such information was last provided to Lenders.
(iii) Year-End Financials. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Corporation, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such year, and the related consolidated statements of loss and deficit (or income), cash flows, and shareholders
equity for such fiscal year, (B) a copy of its consolidating financial statements for such fiscal year, but only if material to an understanding of the Corporations operations and financial condition, and (C) a report with respect to the financial statements received pursuant to this Subsection from certified public accountants nationally recognized in the United States or Canada, selected by the Corporation.
(iv) Other Weekly/Monthly Reports . As soon as available, and in any event within four (4) Business Days after the end of each week, the Corporation will deliver or cause to be delivered a report of sales booked by the Corporation during such week and any such other weekly/monthly reports as Phoenix may reasonably request.
(c) Compliance Certificates. Together with each delivery of financial statements of the Corporation or its Subsidiaries (other than those financial statements delivered pursuant to Section 6.3(c)(iv)), the Corporation or the Subsidiary, as the case may be, will deliver or cause to be delivered to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly a fully and properly completed compliance certificate substantially in the form attached hereto as Exhibit C (each, a Compliance Certificate ) signed by the chief executive officer, chief operating officer or chief financial officer of the Corporation or such Subsidiary.
Section 6.4. Negative Covenants
At all times, the Borrowers hereby covenant and agree that for so long as any portion of the Obligations remains unpaid, unfulfilled and/or unsatisfied, the Borrowers shall not, nor shall the Corporation permit any Subsidiary to:
(a) Encumbrances. Create, grant, assume or suffer to exist any Encumbrance upon any of their properties or assets other than Permitted Encumbrances or enter into or assume any agreement (other than the other Transaction Documents) prohibiting the creation or assumption of any Encumbrance upon its or their respective properties or assets, whether now owned or hereafter acquired.
(b) Capital Expenditures. Incur or commit or agree to incur capital expenditures in any fiscal year, including Capital Lease Obligations and Purchase Money Security Interests, involving aggregate payments in any twelve (12) month period in excess of 5% over the amount of capital expenditures provided for in the Budget.
(c) Sell. Remove, destroy, lease, transfer, assign, sell or otherwise dispose of any of the Secured Property, except for sales in the ordinary course of business.
(d) Funded Indebtedness. Incur or become liable for any Funded Indebtedness, other than the Obligations hereunder and those obligations existing on the date hereof; provided such obligations do not exceed the amount outstanding as of the date hereof.
(e) Indebtedness. Incur or repay any debts, liabilities or obligations (including Funded Indebtedness and Contingent Liabilities) whether direct or indirect, actual or contingent, material or not, other than those specifically permitted hereunder (including indebtedness to the Existing Debenture Holders, Wistron and SVB in the aggregate amounts
existing as of the date hereof) or under the Security Documents, except for normal trade debts, liabilities or obligations to Persons dealing at Arms Length with the Borrowers arising in the ordinary course of business and with customary payment terms; provided , however , that in the event any indebtedness consists of trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms which are overdue for more than 180 days (the Qualified Indebtedness ), the aggregate amount of such Qualified Indebtedness shall not exceed $1,500,000.
(f) Executive Officers . Appoint, hire, remove or change any executive officer without the prior written consent of Phoenix, which consent will not be unreasonably withheld or delayed.
(g) Make Certain Changes .
(i) change their financial year end;
(ii) purchase, establish or acquire in any manner any new business entity;
(iii) change the nature of their business as presently carried on;
(iv) amalgamate, consolidate or merge or enter into a partnership, joint venture (other than joint business arrangements with the third parties for the sale of goods and services in the ordinary course of business) or syndicate with any other Person, except an amalgamation, consolidation or merger involving only the Corporation and the US Subsidiary, unless otherwise consented to by Phoenix;
(v) sell, transfer, convey, assign or otherwise dispose of all or substantially all of its assets;
(vi) dissolve or wind-up the Corporation or any Subsidiary, other than pursuant to the dissolution or winding-up of a Subsidiary (other than the US Subsidiary) pursuant to which all of the assets of such Subsidiary are transferred or conveyed to the Corporation or the US Subsidiary;
(vii) except for the Recapitalization, enter into any transaction outside the ordinary course of business;
(viii) acquire or invest in any securities or investments, other than Cash Equivalents;
(ix) make any loans in any other Person other than the giving of trade credit or consistent with the Business Plan;
(x) except for the Recapitalization, engage in any commercial transactions with Persons not dealing at Arms Length with the Corporation or any Subsidiary, other than transactions relating to the compensation of any employee or director of the Corporation or a Subsidiary in the ordinary course of business, including the grant of stock under
the Reserve Pool or the grant of options pursuant to the Corporations stock option plan, as in effect on the date hereof, approved by a majority of the Board of Directors (including a majority of the non-participating directors);
(xi) engage in any sale-leaseback or similar transactions;
(xii) remove any of the Secured Property or any of the books of account or other records of the Corporation or any Subsidiary from the jurisdiction where same are presently located, except for inventory sold in the ordinary course of business;
(xiii) make or commit to any form of distribution or reduction of the profits of the Corporation or any Subsidiary or of its capital including any (i) declaration or payment of any dividend (including stock dividends) on any present or future shares; (ii) except for the Recapitalization, payment to purchase, redeem, retire or acquire any of its shares, or any option, warrant or other right to acquire any such shares, or apply or set apart any of its assets therefor; (iii) bonuses to shareholders; (iv) payment on account of loans made to shareholders of the Corporation or any of its Subsidiaries; or (v) payment of any bonuses or management fees (other than bonuses paid to employees in the ordinary course of business);
(xiv) other than pursuant to any agreement, option, right, instrument or privilege set forth on Schedule 5.1(q) or otherwise in connection with the Recapitalization, create, allot or issue any shares in its capital, or enter into any agreement, or grant any option, right or privilege, whether pre-emptive, contractual or otherwise for the purchase of shares or securities convertible into shares of the Corporation or any Subsidiary, amend the articles, memorandum or association or by-laws, change the capital structure, enter into any agreement, or make any offer, to do so; or
(xv) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms of any material contracts, except to the extent such change, amendment, modification or consent is not materially adverse to Lenders and would not otherwise have a Material Adverse Effect, or except to the extent that any Existing Debenture Agreement is amended, modified or changed solely in connection with the Recapitalization or the Debenture Exchange.
Section 6.5. Warrants.
In the event that any Debenture has not been paid in full or exchanged for Series A Preferred Shares prior to the Maturity Date pursuant to Section 1.6, including all outstanding principal and interest accrued thereon and all fees related thereto, on or before the Maturity Date (each a Past Due Debenture ), the Corporation shall promptly (but in no event more than ten (10) days thereafter) issue share purchase warrants (each a Warrant ), substantially in the form attached hereto as Exhibit B , to each holder of a Past Due Debenture entitling the holder thereof to purchase that number of Common Shares equal to the number of dollars representing the aggregate Obligations due on such Past Due Debenture (including accrued interest and expenses related thereto). Prior to, and as a condition of, the issuance of such Warrants, the Corporation shall be entitled to receive a certificate from such applicable Lender for a Past Due Debenture confirming that the representations and warranties in Section 5.2(e) hereof are true and correct
on such date. The exercise price of the Warrants shall be the volume weighted average trading price of the Common Shares, as reported on the Toronto Stock Exchange, for the 5 trading days immediately prior to the Maturity Date.
ARTICLE 7.
CONDITIONS TO CLOSING
Section 7.1. Conditions to Initial Closing
The obligation of the Lenders (and in the case of Section 7.1(a), the Borrowers) to effect the Initial Closing are subject to the satisfaction or waiver in writing in whole or in part by Phoenix, on behalf of the Lenders (and in the case of Section 7.1(a), the Borrowers) of each of the following conditions:
(a) Receipt of Consent of Existing Debenture Holders . Phoenix, on behalf of the Lenders, shall have obtained and delivered to the Borrowers the consent of the Existing Debenture Holders, to the issuance of the Debentures and security granted in respect thereof and waiver of certain rights under the Existing Debentures.
(b) Regulatory Approval . The Borrowers shall have obtained and delivered to Phoenix, on behalf of the Lenders, the approval of the Toronto Stock Exchange and all other applicable regulatory authorities with respect to the transactions contemplated hereby, each in form and substance satisfactory to Phoenix.
(c) Consent of the Board . The Borrowers shall have obtained and delivered to Phoenix, on behalf of the Lenders, board resolutions or unanimous written consents of their respective Boards of Directors authorizing and approving the Corporations issuance of the Debentures, the Warrants and the Warrant Shares.
(d) Security Agreement. Phoenix, on behalf of the Lenders, shall have received originally executed copies of the Security Agreement duly executed by the Borrowers.
(e) Legal Opinion . The Lenders shall have received a legal opinion of McCarthy Tétrault LLP substantially in the form attached hereto as Exhibit D regarding the validity and enforceability of this Agreement and the Transaction Documents (other than those relating to the US Subsidiary) and such other matters as Phoenix may reasonably require.
(f) September 2005 Debenture Agreement . The warrants required to be issued pursuant to Section 6.5 of the September 2005 Debenture Agreement shall have been issued and the maturity date of the Debentures issued pursuant to the September 2005 Debenture Agreement shall have been extended to June 30, 2006.
(g) Intercreditor Agreement . The Lenders, the Existing Debenture Holders and the Borrowers shall have entered into the Intercreditor Agreement.
Section 7.2. Conditions to each Closing
Notwithstanding anything herein contained, the obligation of each Lender to consummate the purchase of the Debentures at the Initial Closing and each Additional Closing, if any, and to pay the Purchase Price will be subject to the fulfillment of the following conditions at or prior to each Closing Date, and the Borrowers covenant to use their respective commercially reasonable efforts to ensure that such conditions are fulfilled.
(a) Accuracy of Representations and Warranties and Performance of Covenants. The representations and warranties of the Borrowers contained herein or in any other Security Document shall be true and accurate at each Closing Date. In addition, the Borrowers shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it at or prior to each Closing Date. At each Closing Date, the Borrowers shall have delivered to Phoenix, on behalf of the Lenders, a certificate, substantially in the form attached hereto as Exhibit F , confirming the facts with respect to each of the representations and warranties, confirming that all such covenants and agreements have been performed and confirming that all conditions set forth in this Sections 7.1 and 7.2 have been satisfied or waived.
(b) Cost Maintenance Program . The Corporation shall have provided to Phoenix, on behalf of the Lenders, evidence satisfactory to Phoenix, acting reasonably, that the Cost Maintenance Program is continuing.
(c) Default or Event of Default . No Default or Event of Default shall have occurred and be continuing nor shall there be any Default or Event of Default which will or will likely occur as a result of the transactions contemplated by this Agreement, the Debenture Certificates or the Instruments.
(d) Consents. All consents, permits, agreements, confirmations and acknowledgements, determined by the Phoenix on behalf of Lenders, as required or necessary to be obtained in order to effectively complete the transactions contemplated herein, including without limitation, the Required Consents, shall have been obtained.
(e) Payment of Fees. The Borrowers shall have paid, by way of a deduction from the Purchase Price in accordance with Section 1.3, all fees and expenses referred to in Section 1.4, and shall have unconditionally waived and released, in form and content satisfactory to Phoenix, on behalf of the Lenders, any right to contest the reasonableness of such agreement, fees and expenses or otherwise challenge the entitlement of the Lenders thereto. Notwithstanding such payment, the Borrowers will remain liable for any other fees and expenses referred to in Section 1.4 hereof which relate to the transactions hereunder.
(f) Perfection of Security. All steps necessary or desirable (including without limitation, the registration of the security interests created by the Security Documents in all public registries where such registration is necessary or desirable to perfect the security interest granted in favor of the Lenders) shall have been taken to constitute the Encumbrances under the Security Documents as valid, enforceable and prior ranking to all other Encumbrances, claims and interests in the Secured Property, subject only to Permitted Encumbrances.
(g) Receipt of Closing Documentation. All documentation relating to the due authorization and completion of the issuance of the Debentures provided for herein and the due execution and delivery of all the Security Documents and other Instruments, and all actions and proceedings taken on or prior to each Closing Date in connection with the performance by the Borrowers of their respective obligations hereunder shall be satisfactory to Phoenix, on behalf of the Lenders, and Phoenix, on behalf of the Lenders, shall have received copies of all such documentation or other evidence as it may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form and substance satisfactory to Phoenix, on behalf of the Lenders.
(h) Deliveries.
(i) The Borrowers shall have executed and delivered to the Lenders, such other undertakings as they may reasonably request regarding the taking of actions and delivery of documents following each Closing Date necessary or desirable to give effect to the terms and conditions of this Agreement and the other Transaction Documents; and
(ii) The Borrowers shall have executed and delivered to the Lenders the Debenture Certificates.
(i) No Material Adverse Change . There shall have been no material adverse change with respect to the Corporation and the Subsidiaries taken as a whole.
Section 7.3. Waiver or Termination by the Lenders
Each of the conditions contained in Sections 7.1 and 7.2 hereof are inserted for the benefit of the Lenders and may be waived in whole or in part by Phoenix, on behalf of the Lenders, at any time. The Borrowers acknowledge that the waiver by Phoenix, on behalf of the Lenders, of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Borrowers herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Sections 7.1 and 7.2 hereof are not fulfilled or complied with as herein provided, the Lenders may, at or prior to any Closing Date at their option, be released from any and all of their respective obligations, covenants, agreements and liabilities pursuant to this Agreement by notice in writing to the Borrowers and in such event each Lender shall be released from all of its obligations, covenants, agreements and liabilities hereunder.
ARTICLE 8.
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default
The occurrence of any of the following events shall constitute an Event of Default under this Agreement:
(a) If default occurs in payment when due of any principal payable under this Agreement.
(b) If default occurs in payment when due of any interest, fees or other amounts payable under this Agreement and remains unremedied for a period of 10 days after the receipt by the Borrowers of notice of such default.
(c) If default occurs in payment or performance of any other Obligation (whether arising herein or otherwise) and such default remains unremedied for a period of 10 days after receipt by the Borrowers of notice of such default.
(d) If default occurs in performance by any of the Borrowers of any covenant in favor of any of the Lenders under this Agreement (excluding any of the covenants set forth in Section 6.4) and remains unremedied for a period of 15 days after the receipt by the Borrowers of notice of such default.
(e) If default occurs in performance by any of the Borrowers of any covenant in favor of the Lenders set forth in Section 6.4 of this Agreement.
(f) If an event of default occurs in payment or performance of any obligation in favor of any Existing Debenture Holder or any person from whom the Corporation or any Subsidiary has borrowed money aggregating in excess of $300,000 which would entitle the holder to accelerate repayment of the borrowed money, and such default is not waived in writing within 10 days of the occurrence of such default.
(g) Either the Corporation or the US Subsidiary institutes proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, provincial or state law relating to bankruptcy, insolvency, reorganization or relief of debtors, or the consent by it to the filing of any such petition or to the appointment under any such law of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Borrower or of substantially all of its property, or the making by it of a general assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due.
(h) If there is the entry of a decree or order by a court having jurisdiction in the premises adjudging either the Corporation or the US Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement or adjustment of or in respect of such Borrowers under any applicable law relating to bankruptcy, insolvency, reorganization or relief of debtors, or appointing under any such law a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Borrower or of substantially all of its property, or ordering pursuant to any such law the winding-up or liquidation of its affairs, and the continuance of any such decree, petition, appointment or order unstayed and in effect for a period of 45 consecutive days.
(i) If any act, matter or thing is done to, or any action or proceeding is launched or taken to, terminate the corporate existence of the Corporation or any Subsidiary, whether by winding-up, surrender of charter or otherwise.
(j) If the Corporation or any Subsidiary ceases to carry on its business or makes or proposes to make any sale of its assets in bulk or any sale of its assets out of the usual course of its business.
(k) If any receiver, administrator or manager of the property, assets or undertaking of the Corporation or any Subsidiary or a substantial part thereof is appointed pursuant to the terms of any trust deed, trust indenture, debenture or similar instrument or by or under any judgment or order of any court.
(l) If any balance sheet or other financial statement provided by the Corporation to the Lenders after the date hereof pursuant to the provisions hereof is false or misleading in any material respect.
(m) If any proceedings are taken to enforce any Encumbrance affecting any of the Secured Property or if a distress or any similar process is levied or enforced against any of the Secured Property.
(n) If any judgment or order for the payment of money in excess of $200,000 shall be rendered against the Corporation or any Subsidiary and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.
(o) If any action is taken or power or right be exercised by any Governmental Body which has a Material Adverse Effect on the Corporation or any Subsidiary.
(p) If any representation or warranty made by any Borrower herein or in any other Instrument or in any certificate, statement or report furnished in connection herewith is found to be false or incorrect in any way so as to make it materially misleading when made or when deemed to have been made.
(q) If any event occurs with respect to any Subsidiary which, if a like event had occurred with respect to the Corporation, would have constituted an Event of Default.
(r) If a Change of Control (other than in connection with the Recapitalization) occurs with respect to the Corporation or any Subsidiary.
(s) If there shall occur or arise any change (or any condition, event or development involving a prospective change) in the business, operations, affairs, assets, liabilities (including any contingent liabilities that may arise through outstanding pending or threatened litigation or otherwise), capitalization, financial condition, licenses, permits, rights or privileges, whether contractual or otherwise, or prospects of the Corporation or any Subsidiary which, in the judgment of Phoenix, on behalf of the Lenders, acting reasonably, has or may have a Material Adverse Effect on any Borrower or on its ability to perform its obligations hereunder or under the Security Documents.
(t) The termination of employment of the then current Chief Operating Officer or Chief Financial Officer by the Corporation (other than a termination by the Corporation for cause), without the prior consent of Phoenix, on behalf of the Lenders.
(u) If either Borrower commits an event of default pursuant to any other Transaction Document and such default continues beyond any cure period provided for in such Transaction Document.
Section 8.2. Consequences of an Event of Default
Upon the occurrence of any Event of Default, at the option of Phoenix on behalf of the Lenders, all Obligations and all monies secured hereby shall become forthwith due and payable, all of the rights and remedies hereby conferred in respect of the Secured Property shall become immediately enforceable and any and all additional and collateral security for payment of this Agreement shall become immediately enforceable.
Section 8.3. Enforcement
(a) Upon the happening of any Event of Default, Phoenix on behalf of the Lenders, may by instrument in writing declare that the security hereof has become enforceable and the Lenders shall have the following rights and powers:
(i) to enter into possession of all or any part of the Secured Property;
(ii) to preserve and maintain the Secured Property and make such replacements thereof and additions thereto as it deems advisable;
(iii) to collect any proceeds arising in respect of the Secured Property;
(iv) to collect, realize upon or sell or otherwise deal with accounts;
(v) to institute proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Secured Property;
(vi) to institute proceedings in any court of competent jurisdiction for the sale or foreclosure of the Secured Property;
(vii) to file proofs of claim and other documents to establish claims in any proceeding relating to the Corporation or any Subsidiary;
(viii) to undertake any other remedy or proceeding authorized or permitted by law or equity;
(ix) to pay or otherwise satisfy in whole or in part any Encumbrances which, in the opinion of Phoenix, may rank in priority to the security hereof;
(x) after entry by its officers or agents or without entry, to sell, lease or otherwise dispose in any way whatsoever of all or any part of the Secured Property either en bloc
or separately at public auction or by tender or by private agreement and at such time or times and on such terms and conditions as the Lenders in their absolute discretion may determine and without any notice to or concurrence of the Borrowers except as may be required by applicable law; and
(xi) by instrument in writing, to appoint any person or persons (whether an officer or officers of the Lenders or not) as a Receiver (as defined herein to include a receiver and manager) of the Secured Property and to remove any Receiver so appointed and appoint another or others in its stead.
(b) The security of this Agreement may be realized and the rights enforced by any remedy or in any manner permitted by this Agreement or by law or equity and no remedy for the realization of the security hereof shall be exclusive of or dependent upon any other remedy and all or any remedies may from time to time be exercised independently or in any combination.
(c) In addition to the remedies of the Lenders set forth above, Phoenix on behalf of the Lenders, may, whenever an Event of Default has occurred:
(i) require the Borrowers, at their expense, to assemble the Secured Property at a place or places designated by notice in writing given by the Lenders to the Borrowers;
(ii) require the Borrowers, by notice in writing given by Phoenix on behalf of the Lenders to the Borrowers, to disclose to the Lenders the location or locations of the Secured Property;
(iii) repair, process, modify, complete or otherwise deal with the Secured Property and prepare for the disposition of the Secured Property, whether on the premises of the Borrowers or otherwise;
(iv) carry on all or any part of the business or businesses of the Borrowers and, to the exclusion of all others including the Borrowers, enter upon, occupy and use all or any of the premises, buildings, plant, undertaking and other property of or used by the Borrowers for such time as the Lenders see fit, free of charge, and the Lenders shall not be liable to the Borrowers for any act, omission or negligence in so doing or for any rent, charges, depreciation or damages incurred in connection therewith or resulting therefrom;
(v) borrow for the purpose of carrying on the business of the Borrowers or for the maintenance, preservation or protection of the Secured Property and mortgage, charge, pledge or grant a security interest in the Secured Property, whether or not in priority to the Security Documents, to secure repayment;
(vi) advance the Lenders own money to the Borrowers, in any case upon such terms as the Lenders may deem reasonable and upon the security hereof; and
(vii) demand, commence, continue or defend any judicial or administrative proceedings for the purpose of protecting, seizing, collecting, realizing or
obtaining possession or payment of the Secured Property, and give valid and effectual receipts and discharges therefor and compromise or give time for the payment or performance of all or any part of the accounts or any other obligation of any third party to either of the Borrowers.
Section 8.4. Disposition
(a) Without limiting the generality of the foregoing in connection with the exercise of remedies under this Article 8, it shall be lawful for the Lenders:
(i) to make any sale, lease or other disposition of the Secured Property either for cash or upon credit or partly for one and partly for the other upon such conditions as to terms of payment as it in its absolute discretion may deem proper;
(ii) to rescind or vary any contract for sale, lease or other disposition that the Lenders may have entered into pursuant hereto and resell, release or redispose of the Secured Property with or under any of the powers conferred herein; and
(iii) to stop, suspend or adjourn any sale, lease or other disposition from time to time and to hold the same adjourned without further notice.
(b) Upon any such sale, lease or other disposition the Lenders shall be accountable only for money actually received by them. The Borrowers shall be accountable for any deficiency and the Lenders shall be accountable for any surplus. The Lenders may deliver to the purchaser or purchasers of the Secured Property or any part thereof good and sufficient conveyances or deeds for the same free and clear of any claim by the Borrowers. The purchaser or lessee receiving any disposition of the Secured Property or any part thereof need not inquire whether default under this Agreement has actually occurred but may as to this and all other matters rely upon a statutory declaration of an officer of Phoenix on behalf of the Lenders, which declaration shall be conclusive evidence as between the Borrowers and any such purchaser or lessee, and the purchaser or lessee need not look to the application of the purchase money, rent or other consideration given upon such sale, lease or other disposition, which shall not be affected by any irregularity of any nature or kind relating to the crystallizing or enforcing of the security hereof or the taking of possession of the Secured Property or the sale, lease or other disposition thereof.
Section 8.5. Powers of Receiver
(a) Any Receiver appointed pursuant to Section 8.3(a)(xi) shall have the power without legal process:
(i) to take possession of the Secured Property or any part thereof wherever the same may be found;
(ii) to carry on the business of the Borrowers or any part thereof in the name of the Borrowers or of the Receiver; and
(iii) to exercise on behalf of each Lender all of the rights and remedies herein granted to the Lenders,
and without in any way limiting the foregoing, the Receiver shall have all the powers of a receiver appointed by a court of competent jurisdiction. Any Receiver appointed by Phoenix shall act as agent for the Lenders for the purposes of taking possession of the Secured Property, but otherwise and for all other purposes (except as provided below), as agent for the Borrowers.
(b) The Receiver may sell, lease, or otherwise dispose of Secured Property as agent for the Borrowers or as agent for the Lenders, as Phoenix may determine in its discretion. The Borrowers agree to ratify and confirm all actions of the Receiver acting as agent for the Borrowers, and to release and indemnify the Receiver in respect of all such actions. The Lenders, in appointing or refraining from appointing any Receiver, shall not incur liability to the Receiver, the Borrowers or otherwise and shall not be responsible for any misconduct or negligence of such Receiver or for any loss resulting therefrom.
Section 8.6. Application of Moneys
All moneys and non-cash proceeds actually received by the Lenders or by the Receiver in enforcing the security of this Agreement shall be initially held in trust by such person and promptly thereafter shall be applied, subject to the proper claims of any other person:
(a) first, to pay or reimburse each Lender and any Receiver the costs, charges, expenses and advances payable by the Borrowers in accordance herewith;
(b) second, in or toward the payment to each Lender of all Obligations or amounts secured hereby which payment shall be made and applied to the Lenders pro rata based on the ratio that such Lenders Debentures bears to the total number of Debentures issued to the Lenders hereunder; and
(c) third, any surplus shall be paid to the Borrowers or their assigns or as a court of competent jurisdiction may direct.
Section 8.7. Care and Custody of Secured Property
No Lender shall be bound to collect, dispose of, realize, protect or enforce any of a Borrowers right, title and interest in and to the Secured Property or to institute proceedings for the purpose thereof and, without limiting the generality of the foregoing, no Lender shall be required to take any steps necessary to preserve rights against prior parties in respect of any negotiable Secured Property. No Lender shall have any obligation to keep Secured Property in its possession identifiable. Phoenix on behalf of the Lenders may, after an Event of Default: (i) notify any person obligated on an account or on chattel paper or any obligor on an instrument to make payment thereunder to such Lender whether or not the Borrowers were theretofore making collections thereon; and (ii) assume control of any proceeds arising from the Secured Property.
Section 8.8. Dealing with the Secured Property
No Lender shall be obliged to exhaust its recourse against the Borrowers or any other person or persons or against any other security it may hold in respect of the Obligations before realizing upon or otherwise dealing with the Secured Property in such manner as such Lender may consider desirable. Phoenix on behalf of the Lenders may grant extensions or other
indulgences, take and give up securities, accept compositions, grant releases and discharges and otherwise deal with the Borrowers and with other parties, sureties or securities as Phoenix may see fit without prejudice to the Obligations or the rights of any Lender in respect of the Secured Property. No Lender shall be (i) liable or accountable for any failure to collect, realize or obtain payment in respect of the Secured Property; (ii) bound to institute proceedings for the purpose of collecting, enforcing, realizing or obtaining payment of the Secured Property or for the purpose of preserving any rights of such Lender, the Borrowers or any other parties in respect thereof; (iii) responsible for any loss occasioned by any sale or other dealing with the Secured Property or by the retention of or failure to sell or otherwise deal therewith; or (iv) bound to protect the Secured Property from depreciating in value or becoming worthless.
Section 8.9. Standards of Sale
Without prejudice to the ability of the Lenders to dispose of the Secured Property in any manner which is commercially reasonable, the Borrowers acknowledge that, subject to the terms of any Permitted Encumbrance, the rights of Wistron and the rights of SVB, a disposition of Secured Property by the Lenders which takes place substantially in accordance with the following provisions shall be deemed to be commercially reasonable:
(a) Secured Property may be disposed of in whole or in part;
(b) Secured Property may be disposed of by public auction, public tender or private contract, with or without advertising and without any other formality;
(c) Any purchaser or lessee of such Secured Property may be a customer of the Lenders;
(d) A disposition of Secured Property may be on such terms and conditions as to credit or otherwise as Phoenix on behalf of the Lenders, in its sole discretion, may deem advantageous;
(e) Any Lender or any other Person may be the purchaser of all or any portion of the Secured Property and thereafter hold the same absolutely, free from any claim or right of whatever kind; and
(f) Any Lender may establish an upset or reserve bid or price in respect of Secured Property.
ARTICLE 9.
GENERAL
Section 9.1. Waiver
No act or omission by any Lender in any manner whatsoever shall extend to or be taken to affect any provision hereof or any subsequent breach or default or the rights resulting therefrom save only an express waiver in writing. A waiver of default shall not extend to, or be taken in any manner whatsoever to affect the rights of any Lender with respect to, any
subsequent default, whether similar or not. The Borrowers waive every defense based upon any or all indulgences that may be granted by the Lenders.
Section 9.2. Other Security
The rights of each Lender hereunder shall not be prejudiced nor shall the liabilities of the Borrowers or of any other Person be reduced in any way by the taking of any other security of any nature or kind whatsoever either at the time of execution of this Agreement or at any time hereafter.
Section 9.3. No Merger or Novation
Neither the taking of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the liability of the Corporation to pay the moneys hereby secured nor shall the same operate as a merger of any covenant herein contained or of any other Obligation, nor shall the acceptance of any payment or other security constitute or create any novation.
Section 9.4. Power of Attorney
Each of the Borrowers, for valuable consideration for and after the occurrence of an Event of Default, irrevocably appoints Phoenix, on behalf of the Lenders, and its officers from time to time or any of them to be the attorneys of such Borrower in the name of and on behalf of such Borrower to execute such deeds, transfers, conveyances, assignments, assurances and things which such Borrower ought to execute and do under the covenants and provisions herein contained and generally to use the name of such Borrower in the exercise of all or any of the powers hereby conferred on the Lenders.
Section 9.5. License
Each Borrower hereby grants to Phoenix, on behalf of the Lenders, and its employees and agents an irrevocable and non-exclusive license, subject to the rights of tenants, to enter any of the Premises, during regular business hours and acting in a reasonable manner, to conduct audits, testing and monitoring with respect to Hazardous Substances and to remove and analyze any Hazardous Substance at the cost and expense of the Borrowers (which cost and expense shall be secured hereby).
Section 9.6. Environmental Indemnity
The Borrowers shall jointly and severally indemnify each Lender and hold each Lender harmless against and from all losses, costs, damages and expenses which each Lender may sustain, incur or be or become liable at any time whatsoever for by reason of or arising from the past, present or future existence, clean-up, removal or disposal of any Hazardous Substance referred to in this Agreement or compliance with Environmental Laws or Environmental Orders relating thereto, including any clean-up, decommissioning, restoration or remediation of the Premises and other affected lands or property (and this indemnification shall survive the satisfaction, release or extinguishment of the indebtedness secured hereby).
Section 9.7. Amalgamation
(a) The Corporation acknowledges that if it amalgamates with any other corporation or corporations (i) the Secured Property and the lien created hereby shall extend to and include all the property and assets of each of the amalgamating corporations and the amalgamated corporation and to any property or assets of the amalgamated corporation thereafter owned or acquired, (ii) the term, Corporation , where used herein shall extend to and include each of the amalgamating corporations and the amalgamated corporation, and (iii) the term, Obligations , where used herein shall extend to and include the Obligations of each of the amalgamating corporations and the amalgamated corporation. Nothing is this Section 9.7(a) shall permit or authorize an amalgamation that is otherwise prohibited by the provisions of this Agreement. For purposes solely of this Section 9.7(a), the Corporate Migration shall be deemed to constitute an amalgamation.
(b) The US Subsidiary acknowledges that if it merges with any other corporation or corporations (i) the Secured Property and the lien created hereby shall extend to and include all the property and assets of each of the merging corporations and the surviving corporation and to any property or assets of the surviving corporation thereafter owned or acquired, (ii) the term, US Subsidiary , where used herein shall extend to and include each of the merging corporations and the surviving corporation, and (iii) the term, Obligations , where used herein shall extend to and include the Obligations of each of the merging corporations and the surviving corporation. Nothing is this Section 9.7(b) shall permit or authorize a merger that is otherwise prohibited by the provisions of this Agreement. For purposes solely of this Section 9.7(b), the Corporate Migration shall be deemed to constitute a merger.
Section 9.8. Holder May Remedy Default
If the Borrowers fail to do anything hereby required to be done by it each Lender may, but shall not be obliged to, do such thing and all reasonable sums thereby expended by such Lender shall be payable forthwith by the Borrowers, shall be secured hereby and shall have the benefit of the Encumbrances hereby created, but no such performance by such Lender shall be deemed to relieve the Borrowers from any default hereunder.
Section 9.9. Notices
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., (Austin, Texas time), on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., (Austin, Texas time), on any date and earlier than 11:59 p.m., (Austin, Texas time), on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be addressed:
(a) to the Lenders at:
c/o Phoenix Venture Fund LLC
110 East 59 th Street, Suite 1901
New York, NY 10022
Attention: Philip S. Sassower
Facsimile: (212) 319-4970
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, NY 10022
Attention: Jonathan J. Russo, Esq.
Facsimile: (212) 895-2900
(b) to the Borrowers at:
Xplore Technologies Corp.
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention: Mr. Michael J. Rapisand
Facsimile: (512) 336-7791
Xplore Technologies Corporation of America
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention: Mr. Michael J. Rapisand
Facsimile: (512) 336-7791
with a copy to:
McCarthy Tétrault LLP
Suite 4700
Toronto Dominion Bank Tower
Toronto, ON M5K 1E6
Attention: Jonathan Grant, Esq.
Fax: (416) 868-0673
Section 9.10. Further Assurances
Each of the Borrowers and the Lenders hereby covenant and agree that at any time and from time to time after any Closing Date it will, upon the request of the other, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required for the better carrying out and performance of all the terms of this Agreement including, without limitation, such further and other security interests as the Lenders may reasonably request.
Section 9.11. Remedies Cumulative
The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach.
Section 9.12. Announcements
No announcement with respect to this Agreement, including any disclosure of the identity of the Lender, will be made by any party hereto without the prior approval of the other party. The foregoing will not apply to any announcement by any party required in order to comply with laws pertaining to timely disclosure, provided that such party consults with the other parties before making any such announcement.
Section 9.13. Time of the Essence
Time shall be of the essence of this Agreement.
Section 9.14. Entire Agreement
This Agreement, the schedules referred to herein, and the other documents referenced herein constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter thereof. Neither party hereto shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or the schedules or such other documents. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules and such other documents, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically referenced or set forth in this Agreement or in such schedules or such other documents.
Section 9.15. Invalidity of any Provisions
Any provision of this Agreement or any provisions of the security contemplated hereunder which is prohibited by the laws of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining terms and provisions hereof or thereof and no such invalidity shall affect the obligation of the Borrowers to repay the Obligations.
Section 9.16. Indemnification
The Borrowers agree to jointly and severally indemnify each Lender from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (except by reason of the gross negligence or willful misconduct or breach of applicable laws of such Lender or any of its employees) which may be imposed on, incurred by, or asserted against such Lender and arising by reason of any action (including any action referred to herein) or inaction or omission to do any act legally required of the Borrowers.
Section 9.17. Successors, Assigns and Participation, etc.
(a) The Corporation shall not assign or transfer all or any part of its rights or obligations hereunder or under any other Instrument, or permit or cause any Subsidiary to assign or transfer all or any part of its rights or obligations under any Instrument without the prior written consent of Phoenix on behalf of the Lenders.
(b) Each Lender may assign or grant participations in its Debentures or in all or part of its rights in respect of this Agreement, the Obligations and the Instruments and have its corresponding obligations hereunder assumed by any other Person without the consent of the Borrowers, on a private sale basis to other accredited investors within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission and within the meaning of Section 1.1 of National Instrument 45-106. An assignment under this Section 9.17 shall become effective when the Borrowers have been notified thereof by the applicable Lender and has received from the assignee an undertaking to be bound by this Agreement and the other Security Documents and to perform the obligations, if any, assumed by it. Any such assignee shall be treated as a party to this Agreement for all purposes of this Agreement and the other Security Documents and shall be entitled to the full benefit hereof and thereof and shall be subject to the obligations of the applicable Lender to the same extent as if it were an original party in respect of the rights assigned to it and obligations assumed by it and such Lender shall be released and discharged accordingly. Any Person to whom a Lender grants participations in all or part of its rights and obligations under this Agreement and the Instruments shall not have any rights under this Agreement and the Instruments in respect of its participation interest, and shall only have, as against such Lender, as grantor, those rights and obligations in respect of such participation interest as are set forth in the agreement or agreements made between such Lender and such participant.
Section 9.18. Amendments
This Agreement may only be amended by a written agreement signed by the Borrowers and Phoenix, on behalf of the Lenders. Notwithstanding anything to the contrary contained herein, any action to impose additional obligations on the Lenders, or to amend Section 8.6 hereof or any other provision hereof or in any of the Security Documents which would affect the pro rata repayment, as among the Lenders, of the Obligations or the pro rata disbursement, as among the Lenders, of moneys or other proceeds received in the enforcement of the security interests created hereby, shall require the consent of each Lender whose interests are adversely affected by such action.
Section 9.19. Consent of Phoenix Enterprises LLC and Phoenix as Agent for the Existing Debenture Holders;
(a) Phoenix Enterprises LLC, for itself and as agent for the Existing Debenture Holders (other than the December 2004 and September 2005 Debenture Holders) under (i) Section 9.20 of the November 2002 Debenture Agreement, (ii) Section 9.21 of the December 2002 Debenture Agreement, (iii) Section 9.21 of the April 2003 Debenture Agreement, and (iv) Section 9.21 of the Second April 2003 Debenture Agreement, hereby acknowledges, agrees and gives its consent to the Borrowers entering into and performing their obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the Security Documents and, if applicable, the issue and sale of the Warrants to the Lenders.
(b) Phoenix for itself and as agent for the December 2004 and September 2005 Debenture Holders under Section 9.21 of the December 2004 Debenture Agreement and Section 9.20 of the September 2005 Debenture Agreement, hereby acknowledges, agrees and gives its consent to the Borrowers entering into and performing their obligations under this Agreement under the terms and conditions contained herein and the execution, delivery and performance of the Security Documents and, if applicable, the issue and sale of the Warrants to the Lenders.
Section 9.20. Appointment and Authorization of Phoenix as Agent
(a) Each Lender hereby irrevocably appoints and authorizes Phoenix to (A) hold the Secured Property for its own benefit and the pro rata benefit of the Lenders, and (B) be its attorney in its name and on its behalf to exercise such rights or powers granted to Phoenix or the Lenders under this Agreement and the other Transaction Documents to the extent and on the terms specifically provided herein and therein, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement, Phoenix shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the holders of 51% of the aggregate principal amount of Debentures outstanding (the Requisite Lenders ), and such instructions shall be binding upon all Lenders; provided , however , that Phoenix shall not be required to take any action which exposes Phoenix to liability in such capacity, which could result in Phoenix incurring any costs and expenses or which is contrary to this Agreement or applicable law. For the avoidance of doubt, Phoenix and its members, officers, agents, and employees shall in no event be liable to the Lenders or to any of them for any action taken or omitted to be taken by Phoenix pursuant to instructions received by it from the Requisite Lenders or in reliance upon the advice of counsel. Notwithstanding anything to the contrary contained herein, any action to impose additional obligations on the Lenders, or to amend Section 8.6 hereof or any other provision hereof or in any of the Security Documents which would affect the pro rata repayment, as among the Lenders, of the Obligations or the pro rata disbursement, as among the Lenders, of moneys or other proceeds received in the enforcement of the security interests created hereby, shall require the consent of each Lender whose interests are adversely affected by such action.
(b) The Borrowers shall be entitled to rely upon any certificate, notice or other document or other advice, statement or instruction provided to it by Phoenix pursuant to this Agreement, and the Borrowers shall generally be entitled to deal with Phoenix with respect to matters under this Agreement which Phoenix is authorized to deal with without any obligation whatsoever to satisfy itself as to the authority of Phoenix to act on behalf of the Lenders and without any liability whatsoever to the Lenders for relying upon any certificate, notice or other document or other advice, statement or instruction provided to it by Phoenix, notwithstanding any lack of authority of Phoenix to provide the same.
Section 9.21. Counterparts
This Agreement may be executed in separate counterparts (including by facsimile), each of which when so executed and delivered shall be deemed to be an original and all of such counterparts shall together constitute one and the same instrument. Any party may execute this Agreement by facsimile signature.
IN WITNESS WHEREOF the parties have executed this Agreement.
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XPLORE TECHNOLOGIES CORPORATION OF AMERICA |
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Name: Michael J. Rapisand |
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Title: Chief Financial Officer |
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PHOENIX VENTURE FUND LLC |
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By: SG PHOENIX VENTURES LLC , its |
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Managing Member |
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By: |
/s/ Andrea Goren |
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Name: Andrea Goren |
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Title: Member |
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PHOENIX ENTERPRISES LLC , solely for purposes of Section 9.19 hereof, in its capacity as Agent under (i) the Debenture Purchase Agreement, dated November 5, 2002, (ii) the December 2002 Debenture Purchase Agreement, dated December 6, 2002, (iii) the April 2003 Debenture Purchase Agreement, dated April 9, 2003, and (iv) the Second April 2003 Debenture Purchase Agreement, dated April 28, 2003 |
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By: |
/s/ Philip S. Sassower |
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Name: Philip S. Sassower |
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Title: Chief Executive Officer |
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Exhibit 10.7
XPLORE TECHNOLOGIES CORP.,
XPLORE TECHNOLOGIES CORPORATION OF AMERICA,
PHOENIX ENTERPRISES LLC,
PHOENIX VENTURE FUND LLC
AND
EACH OF THE LENDERS LISTED
ON SCHEDULE 1 ATTACHED HERETO
EXCHANGE AND PURCHASE AGREEMENT
April 21, 2006
EXCHANGE AND PURCHASE AGREEMENT
THIS EXCHANGE AND PURCHASE AGREEMENT (this Agreement ) is made as of the 21st day of April, 2006, by and among Xplore Technologies Corp. , a corporation incorporated under the laws of Canada (the Corporation ), Xplore Technologies Corporation of America , a corporation incorporated under the laws of Delaware and a wholly-owned subsidiary of the Corporation (the Xplore America and together with the Corporation, the Borrowers ), Phoenix Enterprises LLC , a limited liability company organized under the laws of the State of New York ( Phoenix Enterprises ), Phoenix Venture Fund LLC , a limited liability company organized under the laws of the State of Delaware ( Phoenix Fund and together with Phoenix Enterprises, Phoenix ) and each of the other lenders listed on Schedule 1 attached to this Agreement (each such lender, a Lender and collectively, the Lenders ).
WHEREAS, pursuant to the terms of a debenture purchase agreement dated November 5, 2002, as amended (the November 2002 Agreement ), between the Corporation, Phoenix Enterprises, Phoenix Enterprises Family Fund, LLC (the Family Fund ), The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the Trust and together with Phoenix Enterprises and the Family Fund, the Phoenix Group ) and each of the other lenders listed on Schedule 1 thereto (the Phoenix Group and each such lender collectively, the November 2002 Lenders ), the November 2002 Lenders purchased from the Company, and the Company issued to the November 2002 Lenders, secured debentures in the aggregate principal amount of $5,000,000 (the November 2002 Debentures );
WHEREAS, pursuant to the terms of a debenture purchase agreement dated December 6, 2002, as amended (the December 2002 Agreement ), between the Corporation, Phoenix Enterprises and each of the other lenders listed on Schedule 1 thereto (Phoenix Enterprises and each such lender collectively, the December 2002 Lenders ), the December 2002 Lenders purchased from the Company, and the Company issued to the December 2002 Lenders, secured debentures in the aggregate principal amount of $1,000,000 (the December 2002 Debentures );
WHEREAS, pursuant to the terms of a debenture purchase agreement dated as of April 9, 2003, as amended (the April 2003 Agreement ), between the Corporation, Phoenix Enterprises and each of the other lenders listed on Schedule 1 thereto (Phoenix and each such lender collectively, the April 2003 Lenders ), the April 2003 Lenders purchased from the Company, and the Company issued to the April 2003 Lenders, secured debentures in the aggregate principal amount of $1,000,000 (the April 2003 Debentures );
WHEREAS, pursuant to the terms of a debenture purchase agreement dated as of April 28, 2003, as amended (the Second April 2003 Agreement ), between the Corporation, Phoenix Enterprises and each of the other lenders listed on Schedule 1 thereto (Phoenix Enterprises and each such lender collectively, the Second April 2003 Lenders ), the Second April 2003 Lenders purchased from the Company, and the Company issued to the Second April 2003 Lenders, secured debentures in the aggregate principal amount of $1,000,000 (the Second April 2003 Debentures );
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WHEREAS, pursuant to the terms of a debenture purchase agreement dated as of December 17, 2004, as amended (the December 2004 Agreement ), between the Corporation, Phoenix Fund and each of the other lenders listed on Schedule 1 thereto (Phoenix Fund and each such lender collectively, the December 2004 Lenders ), the December 2004 Lenders purchased from the Company, and the Company issued to the December 2004 Lenders, secured debentures in the aggregate principal amount of $5,000,000 (the December 2004 Debentures );
WHEREAS, pursuant to the terms of a debenture purchase agreement dated as of September 15, 2005 (the September 2005 Agreement ), between the Corporation, Xplore America, Phoenix Fund and each of the other lenders listed on Schedule 1 thereto (Phoenix Fund and each such lender collectively, the September 2005 Lenders ), the September 2005 Lenders purchased from the Company and Xplore America, and the Company and Xplore America issued to the September 2005 Lenders, secured debentures in the aggregate principal amount of $5,000,000 (the September 2005 Debentures );
WHEREAS, pursuant to the terms and conditions of a debenture purchase agreement dated as of April 20, 2006 (the April 2006 Agreement ), between the Corporation, Xplore America, Phoenix Fund and each of the other lenders listed on Schedule 1 thereto (Phoenix Fund and each such lender collectively, the April 2006 Lenders ), the April 2006 Lenders have agreed to purchase from the Company and Xplore America in their sole discretion, and the Company and Xplore America have agreed to issue to the April 2006 Lenders, secured debentures up to the aggregate principal amount of $5,000,000 (the April 2006 Debentures ); and
WHEREAS, the Board of Directors of the Corporation has approved a recapitalization of the Corporation pursuant to which approximately $19.1 million of indebtedness (which includes all of the outstanding principal and accrued and unpaid interest under the Existing Debentures assuming $1 million of outstanding principal amount of April 2006 Debentures) will be exchanged for approximately 56.2 million Preferred Shares of the Corporation at the rate of one (1) Preferred Share for each USD$0.34 of principal of Existing Debentures and accrued but unpaid interest (net of applicable withholding taxes, if any) outstanding on such Debentures as of the Closing Date (the Recapitalization ).
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE 1.
RECAPITALIZATION
Section 1.1. The Recapitalization
(a) Subject to the terms and conditions of this Agreement, on the Initial Closing Date, the Corporation, Xplore America and the Lenders shall consummate the Recapitalization pursuant to which each issued and outstanding Existing Debenture held by a Lender shall be exchanged for such number of Series A Convertible Preferred Shares of the Corporation (the Preferred Shares ) as determined by dividing the outstanding principal and accrued but unpaid interest (net of applicable withholding taxes, if any,) owing on such
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Debenture by US$0.34 (the Exchange Rate ). By way of example, Schedule 1 attached hereto sets forth the number of Preferred Shares to be issued to each Lender in exchange for such Lenders outstanding Debentures assuming the Initial Closing Date is May 24, 2006. The rights and preferences of the Preferred Shares are set out in the Articles of Amendment annexed hereto as Exhibit A . The Borrowers and Lenders acknowledge and agree that Exchange Rate represents the fair market value of such security.
(b) Each of the Lenders acknowledges and agrees that (i) the Existing Debentures exchanged pursuant to the terms and conditions this Agreement shall be cancelled as of the Initial Closing Date and that the Borrowers shall have no further obligation to the Lenders to make any payments of principal or interest under such Existing Debentures or the Existing Debenture Agreements; and (ii) the Lenders will, at the Borrowers written request and expense, execute and deliver to the Borrowers such documents and instruments and take such other action as the Borrowers may reasonably request, at the Borrowers expense, to evidence or effect the release of any liens arising out of or made in connection with the Existing Debentures.
Section 1.2. Closing
Subject to the terms and conditions of this Agreement, the closing of the Recapitalization (the Initial Closing ) shall occur on the date when all of the conditions set forth in Sections 5.1 have been satisfied in full (or waived in writing) or at such later time and place as may be mutually agreed upon by the Corporation and Phoenix (the Initial Closing Date ).
Section 1.3. Effect on Existing Debentures
As of the Initial Closing Date, by virtue of the Recapitalization and without any action of the part of the Lenders each issued and outstanding Existing Debenture held by the Lenders immediately prior to the Initial Closing Date shall be exchanged for such number of fully paid and nonassessable Preferred Shares as determined by dividing (A) the outstanding principal amount and accrued but unpaid interest (net of applicable withholding taxes, if any) owing on such Existing Debenture as of the Closing Date by (B) the Exchange Rate, and each such Existing Debenture the Debentures shall then be deemed to be paid in full.
Section 1.4. Exchange of Preferred Shares for Existing Debentures
At or prior to the Initial Closing Date, the Corporation shall deposit with Equity Transfer Services Inc. certificates representing the Preferred Shares to be issued pursuant to Section 1.3 in exchange for the Existing Debentures as described in Section 1.3.
Section 1.5. Fees and Expenses
(a) The Borrowers acknowledge and agree that they will be, jointly and severally, responsible for and will promptly pay or reimburse each Lender on demand for all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by such Lender, its representatives and consultants relating to the negotiation, preparation and review of this Agreement and the other Instruments and related agreements and all other matters pertaining to the transactions hereby contemplated, including, without limitation, all reasonable fees, expenses
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and other out-of-pocket expenses paid or incurred by such Lender for legal advice and services in connection with such transactions.
(b) The Borrowers acknowledge and agree that they will be responsible for and will promptly pay all such reasonable fees (including, but not limited to, legal fees), expenses and other out-of-pocket expenses whether or not the transactions hereunder are completed and even if it is the Lenders who terminate this Agreement pursuant to Section 5.2.
Section 1.6. Bridge Financing .
In the event that the Borrowers have not drawn the full $5,000,000 made available by the April 2006 Lenders pursuant to the terms of the April 2006 Agreement prior to the Initial Closing Date, the Corporation may issue to Phoenix and/or its assignee(s), and Phoenix and/or its assignee(s) may purchase from the Corporation, in Phoenixs sole discretion, Preferred Shares equal to the difference of $5,000,000 and the aggregate principal amount of debentures issued under the April 2006 Agreement at the purchase price of $0.34 per Preferred Share. Such purchases shall be made in increments of at least $500,000 and shall occur (each a Subsequent Closing ) on such date (each a Subsequent Closing Date ), at such time and place, as may be mutually agreed upon by the Corporation and Phoenix; provided , that all of such closings shall take place prior to June 30, 2006.
ARTICLE 2.
INTERPRETATION
Section 2.1. Defined Terms
As used herein the following expressions shall have the following meanings:
Affiliate means, in respect of any corporation, any Person which, directly or indirectly, controls or is controlled by or is under common control with the Corporation; and for the purpose of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) means the power to direct, or cause to be directed, the management and policies of such Person whether through the ownership of Voting Shares or by contract or otherwise.
Applicable Law means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees of Governmental Bodies.
Articles of Amendment means the Articles of Amendment to the Corporations Articles of Incorporation establishing the rights and preferences of preferred shares of the Corporation issuable in series and the Preferred Shares.
Business Day means any day other than Saturday, Sunday or a day on which chartered banks are closed for business in New York, New York.
Capital Lease Obligations means, as to any Person, the obligation of such Person to pay rent or other liquidated amounts under a lease of (or other agreement conveying the right to
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use) real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under generally accepted accounting principles and, for purposes of this Agreement, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles.
Closing means either the Initial Closing or a Subsequent Closing, as the context requires.
Closing Date means the Initial Closing date or a Subsequent Closing Date, as the context requires.
Common Shares means the common shares, no par value, of the Corporation.
Contingent Liabilities means, as applied to any Person, any direct or indirect contingent liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings. Contingent Liabilities shall also include (A) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (B) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, other than pursuant to routine agreements entered into in the ordinary course of business, and (C) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefore, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Liabilities shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.
Encumbrance means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, hypothec, levy, execution, seizure, attachment, garnishment, right of distress or other claim in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back.
Environmental Laws means all applicable federal, provincial, state, municipal or local laws, statutes, regulations or ordinances relating to the environment, occupational safety, health, product liability and transportation.
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Environmental Order means any prosecution, order, decision, notice, direction, report, recommendation or request issued, rendered or made by any Governmental Body in connection with Environmental Laws.
Exchange Rate has the meaning ascribed to such term in Section 1.1.
Existing Debenture Agreements means (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Purchase Agreement, (iii) the April 2003 Debenture Purchase Agreement, (iv) the Second April 2003 Debenture Purchase Agreement, (v) the December 2004 Debenture Purchase Agreement, (vi) the September 2005 Debenture Purchase Agreement; and (vii) the April 2006 Debenture Purchase Agreement.
Existing Debentures means (i) the November 2002 Debentures, (ii) the December 2002 Debentures, (iii) the April 2003 Debentures, (iv) the Second April 2003 Debentures, (v) the December 2004 Debentures, (vi) the September 2005 Debentures and (vii) the April 2006 Debentures.
Existing Debenture Holders means those Persons in their capacity as lenders under (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement, (iv) the Second April 2003 Debenture Agreement, (v) the December 2004 Debenture Agreement, (vi) the September 2005 Debenture Agreement and (vii) the April 2006 Debenture Agreement.
Funded Indebtedness means, with respect to any Person at any particular time, any of the following amounts determined in accordance with generally accepted accounting principles on a consolidated basis at such time:
(i) indebtedness for money borrowed and indebtedness represented by notes payable and drafts accepted representing extensions of credit (including, as regards any note or draft issued at a discount, the face amount of such note or draft) and including the face amount of bankers acceptances and letters of credit;
(ii) all obligations (whether or not with respect to the borrowing of money) which are evidenced by bonds, debentures, notes or other similar instruments or not so evidenced but which would be considered to be indebtedness for borrowed money in accordance with generally accepted accounting principles;
(iii) all indebtedness for borrowed money secured by an Encumbrance on any property of such Person;
(iv) all indebtedness upon which interest charges are customarily paid;
(v) Capital Lease Obligations and all other indebtedness issued or assumed as full or partial payment for property or services or by way of capital contribution; and
(vi) any of the foregoing amounts in respect of any Subsidiary of the Person whose accounts are not required under generally accepted accounting principles to be
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consolidated with the accounts of such Person, including (without limitation) the aggregate outstanding amount of the obligations at such time.
Notwithstanding the foregoing, trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms and not overdue for more than 90 days (or which, if overdue for more than 90 days, are being and continue to be actively and diligently contested in good faith or in respect of which no legal proceedings for payment of any such amount have been commenced and are continuing), customer advance payments and deposits received in the ordinary course of business shall not constitute Funded Indebtedness .
Governmental Body means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature (including, without limitation, the Ontario Securities Commission), or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing (including, without limitation, any arbitrator).
Hazardous Substance means any substance or combination of substances which is or may become hazardous, toxic, injurious or dangerous to persons, property, air, land, water, flora, fauna or wildlife, and includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous materials or hazardous substances as defined in or pursuant to any Environmental Laws or Environmental Orders pursuant thereto.
Instrument means this Agreement, the Articles of Amendment and any other agreement or instrument (whether now existing, presently arising or created in future) executed and delivered in connection with transactions contemplated by this Agreement.
Intellectual Property means all right, title, interest and benefit of the Corporation and its Subsidiaries in and to any registered or unregistered world wide trade marks, trade or brand names, service marks, copyrights, copyright applications, designs, inventions, patents, patent applications, patent rights, licenses, sub-licenses, franchises, formulas, processes, know-how, technology, computer rights and other intellectual or industrial property of the Corporation or any of its Subsidiaries or pertaining to the Corporations business.
Initial Closing has the meaning ascribed to as such term in Section 1.2.
Initial Closing Date has the meaning ascribed to as such term in Section 1.2.
Material Adverse Effect means any change or effect that is materially adverse to the business, financial condition, or results of operations of such Person and its Subsidiaries, taken as a whole, other than any change or effect relating to general political, financial or economic conditions or the state of financial markets in general.
Material Authorization means, with respect to any Person, any approval, permit, license or similar authorization (including any trademark, trade name or patent) from, and any filing or registration with, any Governmental Body or other Person required by such Person to
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own its property and assets or to carry on its business as presently carried on by it or as contemplated hereunder to be carried on by it in each jurisdiction in which it does so or is contemplated to do so or where the failure to have such approval, permit, license, authorization, filing or registration would have a Material Adverse Effect upon such Person or upon its ability to perform its obligations under any of the Instruments.
Order means any order, notice, direction, report, recommendation or decision rendered by any Governmental Body or other regulatory agency.
Permitted Encumbrances means:
(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 Corporation or any Subsidiary, as applicable, provided reserves reasonably deemed adequate therefor by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or the Subsidiary, as applicable, in accordance with generally accepted accounting principles;
(ii) construction, mechanics, carriers, warehousemens and materialmens 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 and, in the case of construction liens, which have not yet been filed or for which the applicable has not received written notice of an Encumbrance;
(iii) Encumbrances arising from court or arbitral proceedings, provided that the claims secured thereby are being contested in good faith by the Corporation or any Subsidiary, provided reserves reasonably deemed adequate by the Corporation or Subsidiary, as applicable, with respect thereto are maintained on the books of the Corporation or Subsidiary in accordance with generally accepted accounting principles, execution thereon has been stayed and continues to be stayed;
(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;
(i) deposits to secure statutory obligations or in connection with any matter giving rise to an Encumbrance described in (ii) above;
(ii) deposits of cash or securities in connection with any appeal, review or contestation of any Encumbrance or any matter giving rise to an Encumbrance described in (i) or (iii) above;
(iii) 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 and any related Security Document nor impair the use of such property by the Corporation or any Subsidiary, in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;
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(iv) Encumbrances in favor of the Existing Debenture Holders pursuant to the Existing Debenture Agreements;
(v) Encumbrances pursuant to Purchase Money Security Interests;
(vi) security given by the Corporation or any Subsidiary to a public utility or any Governmental Body, when required by such utility or Governmental Body in connection with the operations of the Corporation or such Subsidiary, 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 Corporation or such Subsidiary;
(vii) Encumbrances granted to Wistron under to the Wistron Intercreditor Agreement;
(viii) Encumbrances granted to SVB under the SVB Loan Agreement;
(ix) any other Encumbrance which Phoenix approves in writing as a Permitted Encumbrance subsequent to the date hereof; and
(x) the Encumbrances listed under the heading Permitted Encumbrances in Schedule 2.1 .
Person means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or governmental entity, and pronouns have a similarly extended meaning.
Preferred Shares has the meaning ascribed to such term in Section 1.1.
Premises means any premises owned or occupied by the Corporation or its Subsidiaries from time to time.
Purchase Money Security Interest means an Encumbrance on any asset, other than accounts receivable or inventory, of a Person which is assumed, created, guaranteed or reserved to secure the unpaid purchase price of such asset, provided that any such Encumbrance is limited to the asset so acquired and does not secure in excess of the purchase price thereof, such purchase price not to exceed the fair market value of the purchased asset.
Receiver means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of the undertaking, property and assets of the Corporation appointed by Phoenix pursuant to this Agreement or by or under any judgment or order of a court.
Release includes abandon, add, deposit, discharge, disperse, dispose, dump, emit, empty, escape, leach, leak, migrate, pour, pump, release or spill.
Subsequent Closing has the meaning ascribed to as such term in Section 1.6.
Subsequent Closing Date has the meaning ascribed to as such term in Section 1.6.
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Subsidiary means a corporation controlled by the Corporation, as the term control is defined in the Business Corporations Act (Ontario) as in effect at the date hereof and without reference to any amendments thereto after the date hereof and includes the corporations set out in Schedule 3.1(p) hereto.
SVB Loan Agreement means that Loan and Security Agreement, dated as of September 15, 2005, as amended, between Silicon Valley Bank ( SVB ) and Xplore America.
Taxes means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon.
Voting Shares means capital stock of any class of a corporation which carries voting rights under any circumstances, provided that shares which carry the right to vote conditionally upon the happening of an event shall not be considered Voting Shares until the occurrence of such event and then only during the continuance of such event.
Wistron Intercreditor Agreement means that Intercreditor, Trade Credit Restructuring and Security Agreement, dated as of November 24, 2004 by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix, the Philip S. Sassower 1996 Charitable Remainder Annuity Trust and Wistron Corporation ( Wistron ).
Section 2.2. Interpretation
(a) This Agreement, hereto , hereby , hereunder , herein , and similar expressions refer to the whole of this Agreement and not to any particular Article, Section, paragraph, clause, subdivision or other portion hereof.
(b) Words importing the singular number only include the plural and vice versa and words importing gender shall include all genders.
(c) All financial or accounting determinations, reports and statements provided for in this Agreement shall be made or prepared in accordance with generally accepted accounting principles applied in a consistent manner and shall be made and prepared on a consolidated basis.
(d) The division of this 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 Agreement.
(e) The schedules and exhibits annexed hereto shall, for all purposes, form an integral part of this Agreement.
(f) References to sums of money herein are to US dollars, unless otherwise specified.
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(g) Time is of the essence hereof.
(h) Where the word including or includes is used in this Agreement, it means including (or includes) without limitation.
(i) Wherever in this Agreement reference is made to generally accepted accounting principles or GAAP, such reference shall be deemed to mean the generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which a given calculation is made or required to be made in accordance with generally accepted accounting principles.
Section 2.3. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof.
Section 2.4. Day Not A Business Day
In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day.
Section 2.5. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, excluding that body of law relating to conflicts of law. Any suit, action, proceeding or litigation arising out of or relating to this Agreement shall be brought and prosecuted in such federal or state court or courts located within the State of New York as provided by law. The parties hereby irrevocably and unconditionally consent to the jurisdiction of each such court or courts located within the State of New York and to service of process by registered or certified mail, return receipt requested, or by any other manner provided by applicable law, and hereby irrevocably and unconditionally waive any right to claim that any suit, action, proceeding or litigation so commenced has been commenced in an inconvenient forum.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
Section 3.1. General Representations and Warranties of the Borrowers
The Corporation and Xplore America, jointly and severally, represent and warrant to each Lender as follows:
(a) Incorporation and Status. Each of the Corporation and Xplore America is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the corporate power and capacity to own its properties and assets and to carry on its
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businesses as presently carried on by it or as contemplated hereunder to be carried on by it and holds all Material Authorizations.
(b) Power and Capacity. Subject to receipt of all Required Consents and the filing of the Articles of Amendment, each of the Corporation and Xplore America has the corporate power and capacity to enter into this Agreement and each Instrument to which it is a party and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it.
(c) Due Authorization. Subject to receipt of all Required Consents and the filing of the Articles of Amendment, each of the Corporation and Xplore America has taken all necessary corporate action to authorize the execution, delivery and performance of each of this Agreement and each Instrument to which it is a party.
(d) No Contravention. The execution and delivery of this Agreement and the other Instruments to which the Corporation or Xplore America is a party and the performance by each of the Corporation or Xplore America of their respective obligations hereunder or thereunder (i) subject to receipt of all Required Consents and the filing of the Articles of Amendment, does not and will not contravene, breach or result in any default under (A) the articles, memorandum of association, by-laws, or other organizational documents of the Corporation or Xplore America, or (B) any mortgage, lease, agreement or other legally binding instrument, license, permit or Applicable Law to which the Corporation or Xplore America is a party or by which any of the Corporation or Xplore America or any of its properties or assets may be bound, (ii) will not oblige the Corporation or Xplore America to grant any Encumbrance to any Person, and (iii) will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation of the Corporation or Xplore America under any mortgage, lease, agreement or other legally binding instrument of or affecting the Corporation or Xplore America.
(e) No Consents Required. No authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required in connection with the execution, delivery or performance of this Agreement by the Corporation or Xplore America or any other Instrument by the Corporation or Xplore America, as applicable, other than (i) the consent of the Corporations shareholders entitled to vote on the Recapitalization and related transactions, (ii) the approval of the Toronto Stock Exchange and the satisfaction of any conditions to such approval, (iii) the filing of the Articles of Amendment and any other filings required by applicable securities laws, and (iv) any other consents or approvals set forth on Schedule 3.1(e) (the consents and approvals in clauses (i) through (iv) collectively, the Required Consents ).
(f) Enforceability. Each of this Agreement and the other Instruments to which it is a party constitutes, or upon execution and delivery (and, with respect to the Articles of Amendment, filing) will constitute, a valid and binding obligation of each of the Corporation and Xplore America (except with respect to the Articles of Amendment), as the case may be, enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles.
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(g) No Work Orders. No work orders, directions or notices have been issued and remain outstanding pursuant to any Applicable Law relating to the business of the Corporation or any Subsidiary or any environmental matters affecting the foregoing, except such orders, directions and notices that would not have a Material Adverse Effect. Neither the Corporation or any Subsidiary have received any notification from any Governmental Body, that has not been satisfied, that any work, repairs, construction or capital expenditures are required to be made as a condition of continued compliance with any Applicable Law or any Material Authorization issued thereunder.
(h) Permits and Compliance with Laws. The Corporation and each Subsidiary has all licenses, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted, except where the failure to have such license, permit approval or franchise would not have a Material Adverse Effect. All such licenses, permits, approvals and franchises are in good standing and no actions, proceedings, investigations or other steps of any kind are in process, pending, or to the knowledge of the Corporation, threatened, or would result in any such license, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation or any Subsidiary for any period of time, except where such termination, revocation, withdrawal, suspension or unavailability would not have a Material Adverse Effect. The Corporation and each Subsidiary is conducting its business in material compliance with all Applicable Laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on.
(i) Financial Statements. Phoenix, on behalf of the Lenders, has been furnished with a copy of:
(i) the audited consolidated financial statements of the Corporation and its Subsidiaries for its financial year ended March 31, 2005; and
(ii) the unaudited consolidated financial statements of the Corporation and its Subsidiaries for the fiscal quarter ended December 31, 2005.
Such financial statements, including the notes thereto (the Financial Statements ) have been prepared in accordance with generally accepted accounting principles and fairly, completely and accurately present the financial condition of the Corporation (including each Subsidiary) and the financial information presented therein in all material respects for the periods and as at the dates thereof. The Corporation and each of the Subsidiaries has no outstanding liabilities (including Funded Indebtedness, Contingent Liabilities or otherwise) other than those disclosed in the Financial Statements and other than the indebtedness owed by the Corporation to the Existing Debenture Holders, to Wistron, to SVB and trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms. Since December 31, 2005 Financial Statements, there has been no development which has had or would reasonably be expected to have a Material Adverse Effect upon the Corporation or any Subsidiary that has not been publicly disclosed in any document filed by the Corporation with the Ontario Securities Commission that is publicly available.
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(j) Non-Arms Length Transactions. During the period from March 31, 2005 through the date hereof, none of the Corporation or Subsidiaries has entered into any transaction or agreement with any Affiliate other than on commercially reasonable terms and within the limitations of the other provisions hereof, except as disclosed in the Financial Statements or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available.
(k) No Litigation. There is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal, or criminal), arbitration or other dispute settlement procedure, investigation or enquiry by any Governmental Body, or any similar matter or proceeding (collectively proceedings ) against or involving any of the Corporation or any Subsidiary (whether in progress or threatened) which, if determined adversely to the Corporation or Subsidiary would have or would reasonably be expected to have a Material Adverse Effect or have a material adverse effect upon its ability to perform any of the provisions of this Agreement or any other Instrument which purports to affect the legality, validity and enforceability of this Agreement or any other Instrument. No event has occurred which would reasonably be expected to give rise to any proceedings and there is no judgment decree, injunction, rule, award or order of any Governmental Body outstanding against the Corporation or any Subsidiary which has or would reasonably be likely to have a Material Adverse Effect.
(l) No Default. Neither the Corporation nor any of the Subsidiaries are in default or breach (other than any breach for which the Corporation has received a written waiver from Phoenix) under any material commitment or obligation (including, without limitation, obligations in relation to Funded Indebtedness) or, under the terms and conditions relating to any Material Authorizations, and, to the best knowledge of the Borrowers, there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach; and there are no proceedings in progress, pending or, to the knowledge of the Borrowers, threatened which would result in the revocation, cancellation suspension or any adverse modification of any Material Authorization.
(m) Hazardous Substances. Neither the Corporation nor any of the Subsidiaries are aware of any Hazardous Substances located at, on or under the Premises, and the Premises and the operations conducted thereat are not and have not been in breach of any Environmental Law which has resulted or could result in a Material Adverse Effect. Neither the Corporation nor any Subsidiary has caused or permitted, nor does the Corporation or any Subsidiary have any knowledge of the Release of any Hazardous Substance on, from, under or to the Premises or of any Release from a facility owned or operated by third parties, including previous owners, for which the Corporation or any Subsidiary may have liability and which has resulted or could result in the Premises being adversely affected. Neither the Corporation nor any of the Subsidiaries has been charged with or convicted of an offence for non-compliance with any Environmental Law or has been fined or otherwise sentenced or have settled any prosecution short of conviction; and neither the Corporation nor any Subsidiary has received any notice of judgment or commencement of proceedings of any nature or experienced any search and seizure or are under investigation related to a breach or alleged breach of any Environmental Law.
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(n) All Material Information Supplied. The Borrowers have provided to Phoenix all information which the Borrowers, acting reasonably, determined was material relating to the financial condition, business, assets and results of operations (including forecasts and budgets) of the Corporation and the Subsidiaries, taken as a whole, and all such information (including all publicly available documents filed by the Corporation with the Ontario Securities Commission), taken as a whole (other than forecasts and budgets) is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading in light of the circumstances in which such information was made and there has been no change in such information, taken as a whole, that would have or would reasonably be likely to have a Material Adverse Effect. The forecasts and budgets provided to Phoenix, at the time presented, were prepared prudently and upon reasonable assumptions (which assumptions remain reasonable at the date hereof), the forecasts and budgets were, as at the date presented, reasonable and attainable as at such date, such forecasts and budgets have not, as of the date hereof, changed or been amended or updated, except for such changes, amendments or updates which have been provided to Phoenix in writing.
(o) Taxes and Claims. The Borrowers have:
(i) delivered or caused to be delivered all required income tax returns, sales, property, franchise and value-added tax returns and other tax returns to the appropriate Governmental Body; and
(ii) withheld and collected all Taxes required to be withheld and collected by them and remitted such Taxes when due to the appropriate Governmental Body,
and no material assessment, appeal or claim is, as far as the Borrowers are aware, being asserted or processed with respect to such claim, Taxes or obligations, except as previously disclosed to Phoenix in writing.
(p) Authorized and Issued Capital.
(i) Schedule 3.1(p) accurately describes the authorized and issued share capital of the Corporation and each of the Subsidiaries. The Corporation has no Subsidiaries except as set forth in Schedule 3.1(p) . Except as contemplated by the Recapitalization or as otherwise set out in Schedule 3.1(p) , there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares.
(ii) The Preferred Shares, when issued and delivered in accordance with the terms set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of restrictions on transfer (other than restrictions on transfer under applicable securities laws) and free and clear of all Encumbrances, other than Encumbrances created or imposed as a result of any action or inaction by a Lender. The Common Shares issuable upon conversion of the Preferred Shares have been duly reserved for issuance, and upon issuance in accordance with the terms of the Articles of Amendment, will be validly issued, fully paid and nonassessable and free of restrictions on transfer (other than restrictions on transfer under applicable securities
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laws) and free and clear of all Encumbrances, other than Encumbrances created or imposed as a result of any action or inaction by a Lender.
(q) Insurance. The Corporation and each of the Subsidiaries insures with reputable insurance companies all of its property and other assets of an insurable nature against fire and other casualties in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property and maintains with reputable insurance corporations adequate insurance against business interruption with respect to any rental properties or properties under construction and liability on account of damage to persons or property, and under all applicable workers compensation laws, in the same manner and to the same extent as such insurance is carried by prudent corporations carrying on a similar business and owning similar property.
(r) Funded Indebtedness . Schedule 3.1(r) sets forth a complete and accurate list of all Funded Indebtedness of each of the Corporation and the Subsidiaries on the date hereof and accurately describes the security therefor and the dollar amount thereof.
(s) Directors and Officers Insurance . The Corporation has a directors and officers insurance policy in place to the same extent as such insurance is carried by prudent public corporations and the premiums on such insurance policy are paid to date.
(t) Solvency. None of the Corporation or any of the Subsidiaries has committed an act of bankruptcy, proposed a compromise or arrangement to its creditors generally, had any petition for a receiving order in bankruptcy filed against it, taken any proceeding to have itself declared bankrupt or wound-up or taken any proceeding to have a Receiver appointed over it or any part of its assets.
(u) Articles, Memorandum, By-Laws, Etc. True and complete copies of the articles of incorporation (including all amendments thereto), memorandum of association and by-laws and all other organizational documents of each of the Borrowers in effect on the date hereof have been delivered to Phoenix on behalf of the Lenders on or prior to the date hereof. Other than the Articles of Amendment, there are outstanding no applications or filings which would alter in any way the organizational documents or corporate status of any of the said corporations. The respective minute books of the Borrowers contain all by-laws and resolutions of the respective directors and shareholders of the Borrowers currently in effect and the corporate and other records of the Borrowers have been maintained in all material respects in accordance with all Applicable Law.
(v) Location of Business and Assets. The only locations at which the Corporation and the Subsidiaries have any place of business or material assets are as set forth in Schedule 3.1(v) .
(w) Title. Subject only to the Permitted Encumbrances, the Corporation and each Subsidiary has good and marketable title to all of its undertaking, property and assets, free and clear of any Encumbrances and no person has any agreement or right to acquire its interest in any of such properties out of the ordinary course of business.
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(x) Employment Matters. Except as is disclosed in Schedule 3.1(x) , neither the Corporation nor any Subsidiary is a party to or is bound by any:
(i) written or oral contract or commitment for the employment of any senior management employee or officer;
(ii) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of $100,000 or a payment on termination of in excess of six months salary and benefits.
(iii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice;
(iv) contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (collectively called labor representatives ) and the Borrowers have not conducted negotiations with respect to any such future contracts or commitments; no labor representatives hold bargaining rights with respect to any employees of the Corporation or any Subsidiary; no labor representatives have applied to have the Corporation or any Subsidiary declared a related employer pursuant to the applicable labor legislation; and, to the knowledge of either of the Borrowers, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Corporation or any Subsidiary; or
(v) there is no bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers compensation insurance provided pursuant to statute.
The Corporation and each of the Subsidiaries has paid all sums due to its employees and its independent contractors and has observed in all material respects the provisions of (i) all agreements binding upon it or (ii) any pension, bonus, profit sharing, compensation, retirement, deferred compensation, illness or other plan, agreement, trust, fund or arrangement for the benefit of or with its employees, directors, officers or shareholders and (iii) all Applicable Laws and regulations respecting employment, including, but not limited to, labor standards legislation and regulations and legislation and regulations prohibiting discrimination; and there is no complaint, civil action or other proceeding in process alleging a violation of any such agreement, plan, trust, fund, arrangement, law or regulation.
None of the Corporation nor any Subsidiary has received any remedial order or notice of offence under any Applicable Laws and regulations respecting employment, and each of the Corporation and the Subsidiaries has performed all of its financial or monetary obligations under such laws and regulations towards its employees and independent contractors, and there are no facts which may give rise to a claim for which the Corporation or any Subsidiary might be held liable under the provisions of the said laws or regulations.
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(y) Intellectual Property. The Corporation and each Subsidiary owns all right title and interest in or to, or have valid and enforceable rights to use all of the Intellectual Property including the trade marks, trade or brand names, corporate names and service marks set out in Schedule 3.1(y) , free and clear of all Encumbrances except Permitted Encumbrances. Neither the Corporation nor any Subsidiary uses or owns any trade marks, trade or brand names, corporate names or service marks except as set out in Schedule 3.1(y) . The conduct of the business of, and the use of the Intellectual Property by, the Corporation and the Subsidiaries does not, nor to the Borrowers knowledge, will the proposed conduct of the business and the proposed use of the Intellectual Property, infringe (and neither the Corporation nor any Subsidiary, except as previously disclosed to Phoenix in writing, has received any notice, complaint, threat or claim alleging infringement of) any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. The Intellectual Property which is not owned by the Corporation or the Subsidiaries is being used with the consent of, and in accordance with, the consent or license from, the rightful owner thereof. The Corporation and each of the Subsidiaries has taken all commercially reasonable steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation or such Subsidiary.
(z) Disclosure Restricted. Each of the statements contained in Section 5.1 is true and correct except as set forth in the specific disclosure schedule qualifying such statement or in any document filed by the Corporation with the Ontario Securities Commission and that is publicly available. The disclosure in any disclosure schedule shall qualify only the corresponding statement.
Section 3.2. Representations and Warranties of Lenders
Each Lender, severally and not jointly, represents and warrants to the Borrowers as follows:
(a) Authorization . Such Lender is an individual, corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and each Lender has full power and authority to enter into this Agreement and has duly authorized, executed and delivered the same. This Agreement, when executed and delivered by a Lender, will constitute valid and legally binding obligations of such Lender, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors rights generally, or (ii) as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies.
(b) Disclosure of Information . Such Lender has had an opportunity to discuss the Borrowers business, management, financial affairs and the terms and conditions of the Exchange with the Borrowers management and has had an opportunity to review the Borrowers facilities. Such Lender understands that such discussions, as well as any other written information delivered by the Borrowers to such Lender, were intended to describe the aspects of the Borrowers business which it believes to be material. Such Lender has had all of its questions related to the Borrowers and the Recapitalization answered by the Borrowers.
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(c) Experience; Speculative Nature of Investment. Such Lender has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Corporation so that it is capable of evaluating the merits and risks of its investment in the Corporation and has the capacity to protect its own interests. Such Lender acknowledges that its investment in the Corporation is highly speculative and entails a substantial degree of risk and such Lender is in a position to lose the entire amount of such investment.
(d) Investment. Such Lender is acquiring the Preferred Shares for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. By executing this Agreement, such Lender further represents that it does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Preferred Shares.
(e) Restricted Securities . Such Lender understands that the Preferred Shares and Common Shares issuable upon conversion of the Preferred Shares have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act ), or qualified for distribution in any province or territory of Canada and are issued pursuant to a specific exemption from the registration provisions of the Securities Act and the registration and prospectus requirements of the Securities Act (Ontario), the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Lenders representations as expressed herein. Such Lender is an accredited investor within the meaning of Section 1.1 of Natural Instrument 45-106 and such Lender, which is resident in the United States, is also an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission. If such Lender is resident in or otherwise subject to the securities laws of a jurisdiction other than the Province of Ontario or the United States, the issuance by the Corporation, and the acquisition by such Lender, of the Preferred Shares and Common Shares issuable upon conversion of the Preferred Shares is in full compliance with all applicable securities laws, statutes, regulations, policy statements and orders in such jurisdiction and no authorization, consent of, or filing with or notice to, any person is required in connection therewith.
(f) Legends . Such Lender understands that the Preferred Shares and Common Shares issuable upon conversion of the Preferred Shares (each, for purposes of this paragraph, a security) may bear the following legend and any other legends that may be required by applicable securities law and stock exchange rules:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION) IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE
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REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY SHALL NOT TRADE THIS SECURITY BEFORE [INSERT DATE THAT IS FOUR MONTHS AND ONE DAY AFTER DATE OF ISSUANCE].
(g) No Public Market. Such Lender understands that no public market now exists for any of the Preferred Shares issued by the Corporation and that the Corporation has made no assurances that a public market will ever exist for the Preferred Shares.
(h) Additional Representations .
(i) Such Lender is the beneficial and registered owner of the Existing Debentures held by it free and clear of all Encumbrances;
(ii) Such Lender has good and sufficient power, authority and right to transfer the legal and beneficial title and ownership of the Existing Debentures held by it to the Corporation free and clear of all Encumbrances;
(iii) There is no contract, option or any other right binding upon such Lender requiring it to sell, transfer, assign, pledge, charge, mortgage or in any other way dispose of or encumber any of the Existing Debentures held by it other than pursuant to the provisions of this Agreement;
(iv) The execution and delivery of this Agreement and the other Instruments to which such Lender is a party and the performance by such Lender of its respective obligations hereunder or thereunder does not and will not, in a material way, contravene, breach or result in any default under (A) if such Lender is not a natural person, the articles, memorandum of association, by-laws, or other organizational documents of such Lender, or (B) any mortgage, lease, agreement or other legally binding instrument, license, permit to which such Lender is a party or by which such Lender or any of its properties or assets may be bound, or (C) any Applicable Law; and
(v) No authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required by the Lenders in connection with the execution, delivery or performance of this Agreement or any other Instrument by such Lender, other than those which shall be obtained on or prior to the Closing Date.
Section 3.3. Survival of Representations and Warranties
The representations and warranties made by the Borrowers in this Article 3 and the covenants of the Borrowers made under this Agreement shall survive the Initial Closing and any Subsequent Closing. The statements made in any certificate hereafter delivered by the Corporation or any of the Subsidiaries to the Lenders shall be deemed to constitute representations and warranties made by the party delivering the same.
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ARTICLE 4.
COVENANTS OF THE CORPORATION
Section 4.1. General Covenants
So long as 10% of the Preferred Shares issued pursuant to this Agreement remain outstanding, the Corporation covenants and agrees as follows:
(a) Securities Compliance. Subject to the representations and warranties of the Lenders in Section 3.2(e) being true and correct on the date of issuance of the Preferred Shares, the Corporation shall take all necessary action and proceedings as may be required and permitted by Applicable Law, rule and regulation for the legal and valid issuance of the Preferred Shares to be acquired by the Lenders hereunder and the issuance of the Common Shares upon conversion of the Preferred Shares.
(b) Books and Reserves. The Corporation shall (i) maintain, and cause its Subsidiaries to maintain, at all times, true and complete books, records and accounts in which true and correct entries shall be made of its transactions in accordance with GAAP consistently applied and consistent with those applied in the preparation of the Financial Statements (to the extent same are consistent with GAAP), and (ii) by means of appropriate quarterly entries, reflect in its accounts and in all financial statements, proper liabilities and reserves for all taxes and proper reserves for depreciation, renewals and replacements, obsolescence and amortization of its properties and bad debts, all in accordance with GAAP consistently applied, as above described, and all subject to normal year end adjustments.
(c) Ordinary Course of Business. The Corporation shall and shall cause each of the Subsidiaries to operate its businesses only in the ordinary course and will use and cause the Subsidiaries to use commercially reasonable efforts to preserve its business, organization, goodwill and relationships with Persons having business dealings with them.
(d) To Pay Certain Debts. The Corporation shall and shall cause each of the Subsidiaries to punctually pay and discharge every obligation, the failure to pay or discharge of which would reasonably be likely to result in any Encumbrance or right of distress, forfeiture, termination or sale and provide to Phoenix, on behalf of the Lenders, when required by Phoenix, on behalf of the Lenders, acting reasonably, satisfactory evidence of such payment and discharge, but the Corporation may, on giving the Lenders such security (if any) as Phoenix, on behalf of the Lenders, may require, refrain from paying or discharging any obligation the liability for which is being contested in good faith.
(e) To Maintain Corporate Existence. The Corporation shall and shall cause each Subsidiary to:
(i) create an annual business plan, approved by the Board of Directors of the Corporation (the Annual Business Plan ), and immediately notify Phoenix, on behalf of the Lenders of any material deviation from the Annual Business Plan;
(ii) maintain its corporate existence;
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(iii) use commercially reasonable efforts to preserve all its rights, licenses, powers, privileges, franchises and goodwill;
(iv) observe and perform all of its obligations and comply with all conditions under leases, licenses and other agreements to which it is a party;
(v) carry on and conduct its business in a proper and efficient manner so as to preserve and protect its assets and properties and income therefrom;
(vi) observe and conform to all Applicable Laws and of any Governmental Body having jurisdiction over the Corporation or any Subsidiary;
(vii) repair and keep in repair and good order and condition all property the use of which is necessary or advantageous in connection with its business;
(viii) pay all Taxes levied, assessed or imposed upon it or its property as and when the same become due and payable save and except where it contests in good faith the validity thereof;
(ix) forthwith notify Phoenix, on behalf of the Lenders, of any default (or event, condition or occurrence which with the giving of notice and/or the lapse of time would constitute a default) in connection with any indebtedness, Funded Indebtedness or Contingent Liability in an amount exceeding $300,000;
(x) use commercially reasonable efforts to collect all accounts receivable in the ordinary course of business;
(xi) retain auditors approved by the Audit Committee of the Board of Directors of the Corporation; and
(xii) at its cost and expense, upon the request of Phoenix, on behalf of the Lenders, duly execute and deliver, or cause to be duly executed and delivered, to Phoenix, on behalf of the Lenders, such documents and do or cause to be done such acts as may be necessary or desirable in the reasonable opinion of Phoenix, on behalf of the Lenders, to carry out the purposes of this Agreement.
(f) To Insure. The Corporation shall keep and maintain insurance in such amounts as is carried by prudent corporations carrying on a similar business and owning similar property, and against loss or damage by fire and such other risks as Phoenix, on behalf of the Lenders, may from time to time specify, acting reasonably, with reputable insurers. The Corporation shall, whenever from time to time requested by Phoenix, on behalf of the Lenders, provide Phoenix, on behalf of the Lenders, satisfactory evidence of such insurance and any renewal thereof which shall at all times be subject to charging clauses in a form approved by Phoenix, on behalf of the Lenders, and shall cause the Lenders to be shown as loss payees under the policy or policies. Evidence satisfactory to Phoenix, on behalf of the Lenders, of the renewal of every policy of insurance shall be left with Phoenix, on behalf of the Lenders, at least seven (7) days before the termination thereof. Each policy of insurance shall be in form and substance
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acceptable to Phoenix, on behalf of the Lenders, acting reasonably, and shall not be subject to any co-insurance clause.
(g) Notice of Litigation and Damage . The Corporation will promptly give written notice to Phoenix, on behalf of the Lenders, of all claims or proceedings pending or threatened against any of the Corporation or Subsidiaries which may give rise to uninsured liability in excess of $300,000 or which may have a material adverse effect on the business or operations of the Corporation or Subsidiaries and will supply Phoenix, on behalf of the Lenders, with all information reasonably requested in respect of any such claim.
(h) To Furnish Proofs . The Corporation shall forthwith on the happening of any loss or damage furnish or cause to be furnished at their expense all necessary proofs and do all necessary acts to enable each Lender to obtain payment of the insurance monies, which, in the sole discretion of the Lenders, may be applied in reinstating the insured property or be paid to the Corporation or any Subsidiary or be applied in payment of the monies owing hereunder, whether due or not then due, or paid partly in one way and partly in another.
(i) Financial Statement Presentation . In any press release, or public disclosure document required by securities regulatory authorities, that contains the Corporations quarterly or annual financial statements, subject to compliance with applicable securities law and other regulatory requirements, such financial statements shall be prepared in accordance with Canadian GAAP and, if requested by Phoenix, contain a note reconciliation to U.S. generally accepted accounting principles ( US GAAP ).
(j) Preferred Shares . The Corporation shall not issue any additional Preferred Shares (other than Preferred Shares issued as dividends or issued pursuant to Section 1.6) without the prior written consent of Phoenix on behalf of the Lenders.
Section 4.2. Financial Covenants.
So long as 10% of the Preferred Shares issued pursuant to this Agreement remain outstanding, the Corporation covenants and agrees as follows:
(a) Budget. The Corporation shall not, and shall cause its Subsidiaries not to, expend any funds nor incur any expenses except as provided for in the budget delivered to Phoenix, on behalf of the Lenders (the Budget ), which shall also included a detailed income statement, balance sheet and statement of cash flows. The Borrowers and Phoenix, on behalf of the Lenders, hereby agree that aggregate expenditures, if any, exceeding the total budgeted amount by 5% or less shall be deemed to be within the Budget.
(b) Financial Statements and Other Reports . The Corporation will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP (it being understood that quarterly financial statements are not required to have footnote disclosures). The Corporation will deliver or cause to be delivered each of the financial statements and other reports described below to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly, in addition to copies
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of any other financial statements prepared by the Corporation for filing with securities commissions and other regulatory authorities.
(i) Monthly Financials . As soon as available and in any event within forty-five (45) days after the end of each month, the Corporation will deliver or cause to be delivered its consolidated balance sheet, as at the end of such month, and the related consolidated statements of loss and deficit and cash flows for such month, and for the period from the beginning of the then current fiscal year of the Corporation to the end of such month, along with a comparison to the operating budget for such quarter.
(ii) Quarterly Financials; Other Quarterly Reports. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such fiscal quarter, and the related consolidated statements of income, shareholders equity, loss and deficit (or income) and cash flows for such fiscal quarter and for the period from the beginning of the then current fiscal year of the Corporation to the end of such quarter, along with a comparison to the operating budget for such quarter, (B) a copy of its consolidating financial statements for such fiscal quarter, but only if material to an understanding of the Corporations operations and financial condition, and (C) a schedule of investments made by the Corporation or any of its Subsidiaries since the date such information was last provided to Lenders.
(iii) Year-End Financials. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Corporation, the Corporation will deliver or cause to be delivered (A) its consolidated balance sheet, as at the end of such year, and the related consolidated statements of loss and deficit (or income), cash flows, and shareholders equity for such fiscal year, (B) a copy of its consolidating financial statements for such fiscal year, but only if material to an understanding of the Corporations operations and financial condition, and (C) a report with respect to the financial statements received pursuant to this Subsection from certified public accountants nationally recognized in the United States or Canada, selected by the Corporation.
(iv) Other Weekly/Monthly Reports . As soon as available, and in any event within four (4) Business Days after the end of each week, the Corporation will deliver or cause to be delivered (A) a report of sales booked by the Corporation during such week, (B) a report of pending and projected order activity as of the end of such week, and (C) a report providing detailed accounts receivable as of the end of such week. As soon as available, and in any event within ten (10) days after the end of each month, the Corporation will deliver or cause to be delivered a report providing detailed accounts payable aging information as of the end of such month.
(c) Compliance Certificates. Together with each delivery of financial statements of the Corporation or its Subsidiaries (other than those financial statements delivered pursuant to Section 4.2(b)(iv)), the Corporation or the Subsidiary, as the case may be, will deliver or cause to be delivered to Phoenix, on behalf of the Lenders and, if requested by a Lender or Phoenix, to each Lender directly a fully and properly completed compliance certificate substantially in the form attached hereto as Exhibit C (each, a Compliance Certificate ) signed
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by the chief executive officer, chief operating officer or chief financial officer of the Corporation or such Subsidiary.
Section 4.3. Registration Rights.
The Corporation intends to complete a corporation migration to the United States. If a migration of the Corporation to the U.S. is consummated and the Companys equity securities are subsequently listed or quoted for trading in the United States under the Securities and Exchange Act of 1934, as amended, the Corporation shall enter into a registration rights agreement, in form and substance reasonably satisfactorily to Phoenix, on behalf of the Lenders, with respect to the Common Shares issuable upon conversion of the Preferred Shares. Such registration rights agreement shall provide, along with other customary terms and conditions, that (i) holders of more than 50% of the Preferred Shares then outstanding may request two demand and unlimited S-3 registrations with respect to the Common Shares issuable upon conversion of the Preferred Shares, subject to minimum proceeds limitations and other standard conditions; (ii) the holders of Preferred Shares shall be entitled to piggy-back registration rights on registrations of the Corporation, subject to pro rata underwriters cutback along with other participating stockholders prior to any cutback of Corporation shares; and (iii) the Corporation will pay registration expenses other than stock transfer taxes, underwriters discounts and commissions.
Section 4.4. Survival of Covenants.
The covenants made by the Borrowers in Articles 4 and 6 of this Agreement shall survive the Initial Closing and any Subsequent Closing, and subject to the terms hereof, shall continue until the expiration of the applicable statute of limitations; provided , that the covenants made by the Borrowers in Sections 4.1 and 4.2 shall survive so long as 10% of the Preferred Shares issued pursuant to this Agreement remain outstanding.
ARTICLE 5.
CONDITIONS TO CLOSING
Section 5.1. Conditions to Lenders Obligations at Closing
The obligation of the Lenders to effect the Initial Closing and any Subsequent Closing are subject to the satisfaction or waiver in writing in whole or in part by Phoenix, on behalf of the Lenders of each of the following conditions:
(a) Regulatory Approval . The Corporation shall have obtained and delivered to Phoenix, on behalf of the Lenders, the approval of the Toronto Stock Exchange and all other applicable regulatory authorities with respect to the transactions contemplated hereby, each in form and substance satisfactory to Phoenix.
(b) Consent of the Board . The Corporation shall have obtained and delivered to Phoenix, on behalf of the Lenders, unanimous written consents or resolutions of the Board of Directors authorizing and approving the Corporations issuance of the Preferred Shares and the Common Shares issuable upon conversion of the Preferred Shares.
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(c) Approval of Shareholders . The Corporations shareholders shall have approved the Articles of Amendment and filing thereof in accordance with Applicable Law and authorized the Corporation to consummate the Recapitalization.
(d) Articles of Amendment . The Articles of Amendment have been filed with the Director appointed under the Canada Business Corporations Act.
(e) Legal Opinion . The Lenders shall have received a legal opinion of McCarthy Tétrault LLP, regarding the validity and enforceability of this Agreement, the issuance of the Preferred Shares and such other matters as Phoenix may reasonably require, in form and substance reasonably satisfactory to the Lenders.
(f) Accuracy of Representations and Warranties and Performance of Covenants. The representations and warranties of the Borrowers contained herein shall be true and correct in all material respects as of the Initial Closing Date and any Subsequent Closing Date except that to the extent such representations and warranties are qualified by materiality, such representations and warranties shall be true and correct in all respects. In addition, the Borrowers shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it at or prior to the Initial Closing Date and any Subsequent Closing Date. At the Initial Closing Date and any Subsequent Closing Date, the Borrowers shall have delivered to Phoenix, on behalf of the Lenders, a certificate, substantially in the form attached hereto as Exhibit D , confirming the facts with respect to each of the representations and warranties, confirming that all such covenants and agreements have been performed and confirming that all conditions set forth in this Section 5.1 have been satisfied or waived.
(g) Consents. All consents, permits, agreements, confirmations and acknowledgements, as required or necessary to be obtained in order to effectively complete the transactions contemplated herein, including without limitation, the Required Consents, shall have been obtained.
(h) Payment of Fees. The Borrowers shall have paid to Phoenix all fees and expenses referred to in Section 1.5.
(i) Receipt of Closing Documentation. All documentation relating to the due authorization and completion of the issuance of the Preferred Shares provided for herein and the due execution and delivery of all other Instruments, and all actions and proceedings taken on or prior to the Closing Date in connection with the performance by the Borrowers of their respective obligations hereunder shall be satisfactory to Phoenix, on behalf of the Lenders, and Phoenix, on behalf of the Lenders, shall have received copies of all such documentation or other evidence as it may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form and substance satisfactory to Phoenix, on behalf of the Lenders.
(j) Deliveries.
(i) The Corporation shall have and caused the Subsidiaries to have executed and delivered to the Lenders, such other undertakings as they may reasonably request
26
regarding the taking of actions and delivery of documents following the Initial Closing Date or any Subsequent Closing Date necessary or desirable to give effect to the terms and conditions of this Agreement; and
(ii) The Corporation shall have executed and delivered to each Lender certificates representing the Preferred Shares being received by such Lender in connection with this Agreement.
(k) No Litigation . There shall not be any litigation challenging or seeking damages in connection with the transaction contemplated by this Agreement.
(l) No Statute, etc . There shall not be any statute, rule, regulation, injunction, order or decree, enacted, enforced, promulgated, entered, issued or deemed applicable to this Agreement or the transactions contemplated hereby by any Governmental Body prohibiting or enjoining the transactions contemplated by this Agreement.
(m) No Material Adverse Change . There shall have been no change with respect to the Corporation and the Subsidiaries taken as a whole that has had a Material Averse Effect.
(n) Trust Agreements . The Trust Agreements executed and delivered by the Lenders pursuant to Section 5.2(e) shall be in form and substance reasonably acceptable to the Lenders.
Section 5.2. Conditions to Borrowers Obligations at Closing
The obligation of the Borrowers to effect the Initial Closing or any Subsequent Closing are subject to the satisfaction or waiver in writing in whole or in part by the Borrowers of each of the following conditions:
(a) Regulatory Approval . The Corporation shall have obtained the approval of the Toronto Stock Exchange and all other applicable regulatory authorities with respect to the transactions contemplated hereby.
(b) Approval of Shareholders . The Corporations shareholders shall have approved the Articles of Amendment and filing thereof in accordance with Applicable Law and authorized the Corporation to consummate the Recapitalization.
(c) Articles of Amendment . The Articles of Amendment have been filed with the Director appointed under the Canada Business Corporations Act.
(d) Accredited Investor Questionnaires . Each Lender shall have delivered to the Borrowers, or McCarthy Tétrault LLP on behalf of the Borrowers, an Accredited Investor Questionnaire substantially in the form attached hereby as Exhibit G .
(e) Trust Agreements . Each Lender shall have delivered to the Borrowers, or McCarthy Tétrault LLP on behalf of the Borrowers, a duly executed Trust Agreement, in form and substance reasonably acceptable to the TSX.
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Section 5.3. Waiver or Termination by the Lenders
Each of the conditions contained in Section 5.1 are inserted for the exclusive benefit of the Lenders and may be waived in whole or in part by Phoenix, on behalf of the Lenders, at any time. The Borrowers acknowledge that the waiver by Phoenix, on behalf of the Lenders, of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Borrowers herein that corresponds or is related to such condition or such part of such condition, as the case may be. If the Initial Closing does not occur by June 30, 2006, the Lenders may terminate this Agreement by notice in writing to the Borrowers, and in such event, each Lender shall be released from all of its obligations, covenants, agreements and liabilities hereunder.
ARTICLE 6.
GENERAL
Section 6.1. Amalgamation
The Corporation acknowledges that if it amalgamates with any other corporation or corporations the term, Corporation , where used herein shall extend to and include each of the amalgamating corporations and the amalgamated corporation. Nothing is this Section 6.1 shall permit or authorize an amalgamation that is otherwise prohibited by the provisions of this Agreement.
Section 6.2. Notices
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., (Austin, Texas time), on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., (Austin, Texas time), on any date and earlier than 11:59 p.m., (Austin, Texas time), on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be addressed:
(a) to the Lenders at:
c/o Phoenix Venture Fund LLC
110 East 59 th Street, Suite 1901
New York, NY 10022
Attention: Philip S. Sassower
Facsimile: (212) 319-4970
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
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New York, NY 10022
Attention: Jonathan J. Russo, Esq.
Facsimile: (212) 895-2900
(b) to the Borrowers at:
Xplore Technologies Corp.
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention: Mr. Michael
J. Rapisand
Facsimile: (512) 336-7791
Xplore Technologies Corporation of America
14000 Summit Drive, Suite 900
Austin, Texas 78728
Attention: Mr. Michael
J. Rapisand
Facsimile: (512) 336-7791
with a copy to:
McCarthy Tétrault LLP
Suite 4700
Toronto Dominion Bank Tower
Toronto, ON M5K 1E6
Attention: Jonathan Grant, Esq.
Fax: (416) 868-0673
Section 6.3. Further Assurances
Each of the Borrowers and the Lenders hereby covenant and agree that at any time and from time to time after any Closing Date it will, upon the request of the other, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required for the better carrying out and performance of all the terms of this Agreement including, without limitation, such further and other security interests as the Lenders may reasonably request.
Section 6.4. Remedies Cumulative
The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach.
Section 6.5. Announcements
No announcement with respect to this Agreement, including any disclosure of the identity of the Lender, will be made by any party hereto without the prior approval of the other party. The foregoing will not apply to any announcement by any party required in order to comply with
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laws pertaining to timely disclosure, provided that such party consults with the other parties before making any such announcement.
Section 6.6. Time of the Essence
Time shall be of the essence of this Agreement.
Section 6.7. Entire Agreement
This Agreement, the schedules referred to herein, and the other documents referenced herein constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter thereof. Neither party hereto shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or the schedules or such other documents. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules and such other documents, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically referenced or set forth in this Agreement or in such schedules or such other documents.
Section 6.8. Invalidity of any Provisions
Any provision of this Agreement or any provisions of the security contemplated hereunder which is prohibited by the laws of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining terms and provisions hereof or thereof.
Section 6.9. Indemnification
The Borrowers agree to jointly and severally indemnify, defend and hold each Lender harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (except by reason of the gross negligence or willful misconduct or breach of Applicable Laws of such Lender or any of its employees), which may be imposed on, incurred by, or asserted against such Lender and arising from the untruth, inaccuracy or breach (or any facts or circumstances constituting such untruth, inaccuracy or breach) of any representations, warranties, covenants or agreements of the Corporation or any Subsidiary.
Section 6.10. Successors and Assigns
Neither the Corporation nor Xplore America may assign or transfer all or any part of their respective rights or obligations under this Agreement without the prior written consent of Phoenix on behalf of the Lenders. The terms and conditions of this Agreement shall inure to the benefit and be binding upon the respective successors and assignees of the parties.
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Section 6.11. Amendments
This Agreement may only be amended by a written agreement signed by the Borrowers, Phoenix and holders of a majority of the Preferred Shares then outstanding.
Section 6.12. Aggregation of Preferred Shares
All Preferred Shares held or acquired by Affiliated Persons will be aggregated together to the purpose of determining the availability of any right hereunder.
Section 6.13. Counterparts
This Agreement may be executed in separate counterparts (including by facsimile), each of which when so executed and delivered shall be deemed to be an original and all of such counterparts shall together constitute one and the same instrument. Any party may execute this Agreement by facsimile signature.
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IN WITNESS WHEREOF the parties have executed this Agreement.
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XPLORE TECHNOLOGIES CORP. |
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/s/ Michael J. Rapisand |
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Name: Michael J. Rapisand |
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Title: Chief Financial Officer |
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XPLORE
TECHNOLOGIES CORPORATION
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/s/ Michael J. Rapisand |
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Name: Michael J. Rapisand |
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Title: Chief Financial Officer |
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PHOENIX ENTERPRISES LLC |
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/s/ Philip S. Sassower |
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Name: Philip S. Sassower |
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Title: Managing Member |
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PHOENIX VENTURE FUND LLC |
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SG PHOENIX VENTURES LLC , its |
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Managing Member |
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/s/ Andrea Goren |
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Name: Andrea Goren |
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Title: Member |
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PHOENIX ENTERPRISES FAMILY FUND, LLC |
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/s/ Philip S. Sassower |
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Name: Philip S. Sassower |
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Title: Managing Member |
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THE PHILIP S. SASSOWER 1996
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/s/ Philip S. Sassower |
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Name: Philip S. Sassower |
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Title: Trustee |
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/s/ Philip S. Sassower |
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Philip S. Sassower |
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AGF MANAGEMENT LIMITED |
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AFG CANADIAN GROWTH EQUITY FUND |
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/s/ Charles Oliver |
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Name: Charles Oliver |
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Title: Vice President |
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AGF MANAGEMENT LIMITED |
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GREAT WEST LIFE GROWTH EQUITY FUND |
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Title: Vice President |
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AGF MANAGEMENT LIMITED |
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IG AFG CANADIAN DIVERSIFIED FUND |
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Title: Vice President |
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AGF MANAGEMENT LIMITED |
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LONDON LIFE GROWTH EQUITY FUND |
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DARYL LEE SCOT, LLC |
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AENIGMA LLC |
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ETABLISSEMENT HANSEN |
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JAG MULTI INVESTMENTS LLC |
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MIKMIK LLC |
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JAM CAPITAL ASSOC., LLC |
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795233 ONTARIO LTD. |
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Exhibit 10.8
September 6, 2005
PERSONAL AND CONFIDENTIAL
Brian Groh
11201 Native Texan Trail
Austin, TX 78735
Re: Relocation Agreement
Dear Mr. Groh:
In consideration of your relocation to Austin, Texas, from Toronto, Canada, this document, when signed by you, will represent a relocation agreement between yourself and Xplore Technologies Corporation of America (Xplore or the Company). By signing this letter, you agree to its terms as outlined below.
1. Relocation Agreement
This relocation agreement is being offered by Xplore to provide you with a reasonable amount of time to re-settle in Austin. Once the term of this agreement expires, you will revert to being an employee at will, like all other executive officers of the Company. This agreement supersedes any and all other written and/or oral agreements and understandings between you, the Company and any of its affiliates, and is the only agreement that shall govern the terms of your employment with Xplore.
2. Position
Subject to Sections 7, 8 and 9 of this agreement, you will continue to serve as President and Chief Executive Officer of Xplore and or any oilier position or title to which you are appointed by the Board of Directors of the Company.
3. Term
Subject to Sections 7, 8 and 9 of this agreement, this agreement will expire on August 27, 2006.
4. Base Compensation
Xplore will pay you US$200,000 per annum during the term of this agreement. Of this amount, for the year ended August 27, 2005, US$150,000 is to be paid in cash and US$50,000 is to be paid in the form of stock, and, for the year ended August 27, 2006. US$175,000 is to be paid in cash and US$25,000 is to be paid in the form of stock. The stock compensation will be equivalent to the issuance of 113,636 common shares in respect of the year ended August 27, 2005 promptly after receipt of all necessary approvals and another 56,818 common shares in respect of the year ended August 27, 2006. This
1
stock compensation is earned on a weekly basis. This is subject to the terms indicated by the Toronto Stock Exchange in Exhibit B.
5. Bonus
You will be eligible to participate in any applicable bonus plan established by Xplores Board of Directors, in accordance with the terms of such plan(s).
6. Relocation Expenses
You hereby confirm that Xplore has reimbursed you for all your reasonable moving expenses in regard to your relocation from Mississauga, Ontario, to Austin, Texas.
7. Termination for Cause by Xplore
If Xplore terminates your employment for cause, all of its obligations under this Agreement will automatically cease effective the date of the termination of your employment for cause. All compensation earned up until the date of actual notice of termination shall be paid within seven (7) days. The definition of cause shall mean the following;
i. Your willful failure, intentional disregard or repeated refusal to perform your duties hereunder after receipt of a written notice from the Companys Board of Directors stating the deficient areas of your performance, the precise steps needed to cure the performance and a 30 days period of time to cure;
ii. Your willful, intentional or grossly negligent act, having the effect of injuring, in a material way (whether financial or otherwise and as determined in good-faith by a majority of the Board of Directors of the Company), the business or reputation of the Company or any of its affiliates, including but not limited to, any officer, director, executive or shareholder of the Company or any of its affiliates, which is not in the good faith opinion of the Company cured by you within thirty (30) days after written notice thereof is given to you by Xplore;
iii. Your willful misconduct in respect of your duties or obligations under this Agreement, including, without limitation, gross insubordination with respect to written directions received by you from the Board of Directors of the Company, which is not in the good faith opinion of the Company cured by you within thirty (30) days after written notice thereof is given to you by Xplore;
iv. Your indictment on any felony or a misdemeanor charge involving moral turpitude (including entry of a nolo contendere plea in response to same);
v. Any material, willful and intentional misappropriation or embezzlement of the property of the Company or its affiliates (whether or not a misdemeanor or felony);
vi. Your breach of any of the provisions of Sections 12 or 13 of this agreement; and
2
vii. Your breach of any provision of this agreement, other than those contained in Sections 12, 13 or this Section 7(iv and v) which is not in the good faith opinion of the Company cured by you within thirty (30) days after written notice thereof is given to you by Xplore.
8. Termination Without Cause by Xplore
If Xplore terminates your employment without cause prior to August 27, 2006, subject to your execution of a general release of all claims satisfactory in form to Xplore, Xplore will pay to you the greater of: (i) an amount equal to (A divided by 12) x B, where A is your annual salary on the date of termination and B is 24 months minus the number of months elapsed since August 27, 2004 (the Resettlement Period); or (ii) a minimum of one month base salary for every year and pro-rated month for a partial year of your employment, (as applicable, the severance period). Any such amount, regardless of how calculated, will be paid out in monthly installments of US$16,666.67. In addition, upon termination without cause, you shall be entitled to exercise your rights to continuation insurance, if any, as set forth under Part 6 of Title I of the Employment Retirement Income Security Act of 1974, as amended (COBRA)
If you agree to return to Ontario within six (6) months of your termination without cause, Xplore will pay for your moving expenses as described generally in Exhibit A, on the condition that you complete your move within one (1) year from the date of your termination. Such payment will not exceed the actual cost of relocation as long as the Company selects the service providers. These costs will include:
1. Sales commission, title insurance, recording and miscellaneous fees not to exceed $41,400, the actual amount upon purchase of your current Austin home
2. Moving cost for household goods and the same number of cars moved from Toronto to Austin
3. Closing costs related to the purchase of home in Ontario, such amounts must be reasonable and ordinary and only include title search fees, transfer tax and related legal costs. Amounts which not be reimbursed include payments for property taxes, insurance and mortgage related fees.
4. Temporary housing of one week
5. Travel costs for family for one-way trip to Ontario
Upon request in advance of any move, you will provide up to three quotes for moving expenses and the Company shall be free to choose the service providers. Reimbursement of expenses will be subject to the Company receiving actual receipts.
Subject to the rules and regulations of the Toronto Stock Exchange or any other stock exchange the Companys shares are listed on, as well as those of any applicable regulatory authority, and subject to Shareholder approval, the exercise period of your vested options as of the date you are terminated will be extended beyond their current expiration dates, if
3
necessary, to the earlier of: (a) the expiry date of those options or (b) the end of the Resettlement Period. Xplore agrees to present and recommend this extended exercise period to the Board of Directors for approval.
9. Other Termination
A. Upon death : Your employment hereunder shall be terminated upon your death.
B. Upon disability : Your employment hereunder may be terminated by the Company upon your becoming disabled. For purposes of this agreement, a termination for disability shall occur (i) when Xplores Board of Directors has provided you with a written termination notice supported by a written statement from a reputable independent physician to the effect that you have become so physically or mentally incapacitated as to be unable to resume, within the ensuing six months, your employment hereunder by reason of physical or mental illness or injury, or (ii) upon rendering of a written termination notice by the Board of Directors of the Company after you have been unable to substantially perform your duties hereunder for 90 or more consecutive days, or more than 180 days in any consecutive twelve month period, by reason of any physical or mental illness or injury. For purposes of this section 9, you agree to make yourself available and to cooperate in any reasonable examination by a reputable independent physician retained by the Company.
C. Upon Change of Control : Your employment hereunder may be terminated by Xplore (or its successor) upon the occurrence of a Change of Control. For purposes of this agreement, Change of Control means (i) the acquisition, directly or indirectly, following the date hereof by any person (as such term is defined in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), in one transaction or a series of related transactions, of securities of the Company representing in excess of fifty percent (50%) or more of the combined voting power of the Companys then outstanding securities if such person or his or its affiliate(s) do not own in excess of 50% of such voting power on the date of this Agreement, or (ii) the future disposition by the Company (whether direct or indirect, by sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of its business and/or assets in one transaction or series of related transactions (other than a merger effected exclusively for the purpose of changing the domicile of the Company).
10. Taxes, Duties, Fees
You will be personally responsible for compliance with all applicable tax laws and regulations and for the payment of all income taxes, property taxes, custom duties, fees, licenses and other taxes imposed on you by any authorities either in Texas, Canada or elsewhere. The Company will continue to make appropriate withholding of related taxes as required by law and be responsible for remittance of such withholdings to the related taxing authority.
4
11. Deductions
All payments to be made to you or on your behalf under this agreement will be subject to applicable statutory deductions.
12. Non-Solicitation
For a period of 12 months after your employment is terminated, you shall not, directly or indirectly, without the prior written consent of the Company:
i. solicit or induce any employee of the Company or any of its affiliates to leave the employ of the Company or any such affiliate; or hire for any purpose any employee of the Company or any affiliate or any employee who has left the employment of the Company or any affiliate within twelve months of the termination of such employees employment with the Company or any such affiliate;
ii. solicit or accept employment or be retained by any person who, at any time during the term of this Agreement, was an agent, client or customer of the Company or any of its affiliates where your position will be related to the business of the Company or any such affiliate; or
iii. solicit or accept the business of any agent, client or customer of the Company or any of its affiliates with respect to products, services or investments similar to those provided or supplied by the Company or any of its affiliates.
13. Confidentiality
You recognize and acknowledge that in the course of your duties you have, and are likely to in the future, receive confidential or proprietary information owned by the Company, its affiliates or third parties. Accordingly, during and after the term or this agreement, you agree to keep confidential and not disclose or make accessible to any other person or use for any other purpose other than in connection with the fulfillment of your duties hereunder, any Confidential and Proprietary Information owned by, or received by or on behalf of, the Company or any of its affiliates. For the purpose of this agreement, Confidential and Proprietary Information shall include, but shall not be limited to, confidential or proprietary technical information, data, engineering designs, business plans (both current and under development), client lists, promotion and marketing programs, trade secrets, or any other confidential or proprietary business information relating to development programs, costs, revenues, marketing, design, engineering, investments, sales activities, promotions, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of the Company or of any affiliate or client of the Company.
14. Governing Law
This agreement will be governed by and construed in accordance with the laws of Texas. Any dispute arising out of, or relating to, this agreement or the breach thereof, or regarding the interpretation thereof, shall be finally settled by arbitration conducted in Austin, Texas
5
in accordance with the rules, but not the auspices of the American Arbitration Association before a single arbitrator appointed in accordance with such rules. Judgment upon any award rendered therein may be entered and enforcement obtained thereon in any court having jurisdiction. The arbitrator shall have authority to grant any form of appropriate relief, whether legal or equitable in nature, including specific performance, legal fees and costs. For the purpose of any judicial proceeding to enforce such award or incidental to such arbitration or to compel arbitration, the parties hereby submit to the non-exclusive jurisdiction of the Judicial District Court of Travis County, Texas or the United States District Court for the Western District of Texas, and agree that service of process in such arbitration or court proceedings shall be satisfactorily made upon it if sent by registered mail addressed to your and the Companys address listed above. The costs of such arbitration shall be borne proportionate to the finding of fault as determined by the arbitrator.
If you are in agreement with the contents of this letter, please sign in the space provided below and return to my attention.
Sincerely,
Xplore Technologies Corporation of America
By: |
/s/ Michael J. Rapisand |
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Michael J. Rapisand |
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Chief Financial Officer |
I have read, understand and, having had the opportunity to seek legal advice, hereby voluntarily agree with the terms of this temporary employment agreement for good and valuable consideration.
Date: September 6, 2005
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Witnessed by: |
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/s/ Brian Groh |
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/s/ Krystal Graves |
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Brian Groh |
Name: |
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6
Exhibit 10.9
AGREEMENT
This Agreement ( Agreement) is made and entered as of January 3, 2006 (the Effective Date) by and among Brian Groh (Groh), Xplore Technologies Corp., a corporation organized under the laws of Canada (Xplore), and Xplore Technologies Corporation of America, a Delaware corporation (Xplore USA and together with the Xplore, the Company).
WHEREAS, the parties are entering into this Agreement to resolve all differences related to Grohs departure from the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed by and among the parties as follows:
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[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, this Agreement is executed and sworn as follows:
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/s/ Brian Groh |
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BRIAN GROH |
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STATE OF TEXAS |
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):ss. |
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COUNTY OF TRAVIS |
) |
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I, Krystal Graves, a Notary Public, do hereby certify that BRIAN GROH, residing at 11201 Native Texan Trail, Austin, Texas, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth.
Given under my hand and official seal the 3 rd day of January 2006.
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/s/ Krystal Graves |
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NOTARY PUBLIC |
My Commission Expires:
4-26-2009
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XPLORE TECHNOLOGIES CORP. |
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By: |
/s/ Michael J. Rapisand |
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Name: Michael J. Rapisand |
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Title: Chief Financial Officer |
STATE OF TEXAS |
) |
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):ss. |
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COUNTY OF TRAVIS |
) |
I, Krystal Graves, a Notary Public, do hereby certify that before me personally came Michael J. Rapisand to me known, who, by me duly sworn, did depose and say he maintains an office at 14000 Summit Drive, Suite 900, Austin, TX 78728, that deponent is the Chief Financial Officer of Xplore Technologies Corp., that deponent has the authority to execute this Agreement on behalf of said company.
Given under my hand and official seal the 3rd day of January 2006.
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/s/ Krystal Graves |
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NOTARY PUBLIC |
My Commission Expires:
4-26-2009
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XPLORE TECHNOLOGIES CORPORATION |
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OF AMERICA |
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By: |
/s/ Michael J. Rapisand |
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Name: Michael J. Rapisand |
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Title: Chief Financial Officer |
STATE OF TEXAS |
) |
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):ss. |
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COUNTY OF TRAVIS |
) |
I, Krystal Graves, a Notary Public, do hereby certify that before me personally came Michael J. Rapisand to me known, who, by me duly sworn, did depose and say he maintains an office at 14000 Summit Drive, Suite 900, Austin, TX 78728, that deponent is the Chief Financial Officer of Xplore Technologies Corporation of America, that deponent has the authority to execute this Agreement on behalf of said company.
Given under my hand and official seal the 3rd day of January 2006.
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/s/ Krystal Graves |
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NOTARY PUBLIC |
My Commission Expires:
04-26-2009
11
Exhibit 10.10
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the Agreement) is made effective as of the 30th day of June, 2006 (the Effective Date), by and between Xplore Technologies Corp. (the Corporation), and Mark Holleran (the Executive).
In consideration of the mutual covenants and premises contained herein, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT
1
Revenue |
|
40.0 |
% |
Hiring New Employees |
|
7.5 |
% |
Product Development |
|
15.0 |
% |
Retention of Staff |
|
7.5 |
% |
EBITDA Performance |
|
20.0 |
% |
Additional Successful Financing |
|
10.0 |
% |
Upon the Effective Date of this Agreement and at the beginning of each calendar year thereafter, the Board of Directors or its designee and Executive shall establish specific written objectives, and, as applicable, deadlines, within each of the enumerated categories upon which his eligibility for a Performance Bonus will be based. The categories and the weighting are subject to change in subsequent years during the Term based upon the business priorities and initiatives of the Corporation. If, despite good faith discussions, they cannot reach mutual agreement, the Board of Directors will make the final decision regarding the specific objectives and, in so doing, shall
2
give good faith consideration to Executives recommendations. The Board of Directors or its designee will review Executives performance against the objectives in each of the six (6) categories following the completion of the applicable calendar year and shall determine the amount of Performance Bonus, if any, for which Executive is eligible. Notwithstanding the foregoing, to the extent Executive achieves one or more objectives prior to the end of the calendar year, he may notify the Board of Directors or its designee, which shall review such achievement and, if objectives are fully achieved within any applicable deadline, shall award Executive the applicable portion of the Performance Bonus, provided, however, that such reviews shall not occur more frequently than quarterly during the calendar year. The Corporation may, in its sole discretion, award Executive additional performance bonuses in recognition of exceptional performance, provided , however , that nothing contained herein shall guarantee such additional bonuses.
3
ARTICLE II
TERMINATION OF EMPLOYMENT
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ARTICLE III
COVENANTS OF THE EXECUTIVE
7
8
9
The provisions of this Article III shall survive the termination of this Agreement and Executives Term of employment.
ARTICLE IV
MISCELLANEOUS
To the Company :
Philip Sassower
Phoenix Group, 19 th Floor
110 E. 59 th Street
New York, NY 10022
with a copy to :
Michael Rapisand
Chief Financial Officer
XPLORE Technologies
14000 Summit Drive, Suite 900
Austin, TX 78728
To Executive :
Mark Holleran
3213 Rustic River Cove
Austin, Texas 78746
or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year first above written.
EXECUTIVE |
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/s/ Philip S. Sassower |
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/s/ Mark Holleran |
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By : Philip S. Sassower |
Mark Holleran |
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Title : Chief Executive Officer |
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12
Exhibit 10.11
Sealy Properties
Standard Lease
Multi-Tenant
Net August 2002
(Summit Tech)
LEASE AGREEMENT
PARTIES
This Lease Agreement (Lease), is entered into on the date of the last execution by the parties hereto, between Sealy Summit Tech L.P., a Georgia limited partnership (LESSOR); and Xplore Technologies Corporation, a corporation organized under the laws of Canada (LESSEE), and includes all pages and exhibits attached hereto and incorporated by reference herein, and all amendments, modifications, renewals, extensions, restatements, additions and deletions subsequently effected pursuant to Article 35 herein.
1. LEASED PREMISES
LESSOR hereby leases to LESSEE, and LESSEE hereby leases from LESSOR, on the terms, conditions and covenants in this Lease, the space described, outlined and/or set forth on Exhibit A, consisting of 16,485 rentable square feet, and all fixtures, systems and equipment located thereon (the Leased Premises). The municipal address of the Leased Premises is 14000 Summit Drive, Suite 900, Austin, Texas 78728 and is located on the land more particularly described on Exhibit B (the Land). The term Building in this Lease shall mean the physical structure(s) and all other improvements located on the Land in which the Leased Premises is located, known as Sealy Tech Center @ Summit, 14000 Summit Drive, Austin, Texas 78728. Following Substantial Completion of the improvements, LESSOR will measure the rentable square footage in accordance with the standards promulgated by the Building Owners and Managers Association (BOMA). If it is determined that the actual rentable square footage varies from the rentable square footage stated herein by more than a three percent (3%) variance, then in that event the Monthly Base Rent (and any other provisions of this Lease based upon a specific rentable square footage) shall be adjusted at the applicable square foot rental figure and an Amendment of Lease will be executed by the parties memorializing same.
2. TERM
TO HAVE AND TO HOLD said Leased Premises for a period of Forty-eight (48) months, commencing on June 1, 2003 or on such earlier date as LESSEE may take actual possession of the Leased Premises (the Commencement Date), and ending on the later to occur of May 31, 2007 or the last day of the month that is Forty-eight (48) full calendar months following the Commencement Date (the Expiration Date), unless sooner terminated, renewed or extended as provided for herein (such period as renewed, extended or terminated hereinafter referred to as the Term). If there is work to be performed by LESSOR pursuant to Exhibit C, the Commencement Date shall be subject to adjustment as provided in Article 3.
3. ACCEPTANCE OF LEASED PREMISES; CONDITION AND SUITABILITY
A. Except for work required to be performed by LESSOR as provided for pursuant to Exhibit C, LESSEE acknowledges that: (i) it has fully inspected the Leased Premises; (ii) it is fully aware of the physical condition of the Leased Premises; (iii) it hereby accepts the Leased Premises in its present AS IS condition with no express warranties nor promises to repair, replace or maintain (except as expressly set forth in this Lease) and no implied warranties; (iv) the Leased Premises is fully suitable for LESSEES uses, purposes and occupancy; (v) the Leased Premises is in good and satisfactory condition.
B. If the Leased Premises or any part thereof is to be constructed or modified by LESSOR prior to the Commencement Date, in accordance with Exhibit C, the Lease Commencement Date shall be the date which the improvements required to be performed by LESSOR pursuant to Exhibit C have been substantially completed in accordance with the terms of Section 5 of the Work Agreement attached hereto and made a part hereof as Exhibit C.
4. BASE RENT, SECURITY DEPOSIT AND ESCROW
A. As rental for the Leased Premises, LESSEE agrees to pay as rent to LESSOR, without notice, reduction, deduction or offset, at LESSORs office at P.O. Box 1634, Shreveport, Louisiana 71105, or at such other place as LESSOR may from time to time designate in writing in advance, the Base Monthly Rent as set forth in Article 4.E. herein on or before the first day of each calendar month through the Term.
B. LESSEE has deposited with LESSOR upon delivery of this Lease, $26,376.00 to be applied as follows: $14,836.50 as the first Total Monthly Payment as defined herein and $11,539.50 as a Security Deposit. Any amount designated herein as Security Deposit shall not bear interest, may be commingled with LESSORS general funds, and shall not be considered an advance payment of rent or a measure of LESSORs damages. In the event of a Default (as defined in Article 20), including but in no way limited to the non-payment of rent, LESSOR may, from time to time without forfeiting, compromising, releasing, novating or waiving any right or remedy, use the Security Deposit to the extent necessary to pay past due rent and other amounts due LESSOR. Following any such application of the Security Deposit, LESSEE shall pay to LESSOR the amount so applied in order to restore the Security Deposit to its original amount within five (5) days after written request.
C. If LESSEE is not in Default, the balance of the Security Deposit shall be returned by LESSOR (or, in the event of an assignment of LESSORs interest in the Leased Premises and the Security Deposit during the Term, by LESSORs assignee) within sixty (60) days after the later of: (i) the end of the Term or (ii) delivery of possession of the Leased Premises to LESSOR in accordance with this Lease.
D. In addition to the Base Monthly Rent, LESSEE agrees to pay to LESSOR as additional rent its Proportionate Share (as defined in Article 30) of expenses with respect to the Building and/or project of which the Leased Premises are a part, including: (i) taxes pursuant to Article 13; (ii) insurance costs pursuant to Article 8; (iii) utility costs pursuant to Article 12; (iv) Common Area costs pursuant to Article 11.D.; and (v) the operating expenses set forth in
2
Articles 4.D.6. and 4.D.7., (all of the foregoing expenses being collectively referred to herein as the Operating Expense or Operating Expenses). During each month of the Term, on the same day that rent is due hereunder and without notice or demand, LESSEE shall pay to LESSOR an amount equal to 1/12 of the estimated annual cost of LESSEES Proportionate Share of the Operating Expenses as reasonably determined by LESSOR. The initial monthly payments are based upon the estimated amounts for the first calendar year of the Lease, and subject to the First Year Cap and the Cap on Controllable Expenses described in Paragraph 4.F. below, may be increased or decreased by LESSOR to reflect the projected actual cost of all such items during each calendar year. Subject to the First Year Cap and the Cap on Controllable Expenses described in Paragraph 4.F. below, if LESSEES total Operating Expense payments applicable to a calendar year are less than LESSEEs Proportionate Share of all such items, LESSEE shall pay the difference to LESSOR within thirty (30) days after written request. If after such adjustment, the payments for Operating Expenses by LESSEE applicable to a calendar year are more than LESSEES actual Proportionate Share of all such items, LESSOR shall retain such excess and credit such excess payment against LESSEEs future Operating Expense payments due. So long as LESSEE is not in default under this Lease at the termination of said Lease, then any excess payment, not already credited to payments for Operating Expenses due during the lease term, shall be refunded to LESSEE within sixty (60) days after the later of: (i) the termination of the Term or (ii) delivery of possession of the Leased Premises to LESSOR. LESSOR shall maintain reasonably detailed books and records accurately documenting Operating Expenses. Upon written request by LESSEE, LESSOR shall provide LESSEE with a statement of the actual Operating Expenses incurred by LESSOR during the preceding calendar year. Within ninety (90) days of LESSEE=s receipt of the statement and upon reasonable notice from LESSEE, LESSOR shall make available for LESSEE=s (or by an independent certified accountant) inspection (which inspection shall be at LESSEE=s sole cost and expense) at LESSOR=s office, during normal office hours, LESSOR=s records relating to LESSOR=s Operating Expenses for the preceding calendar year. If LESSEE=s inspection proves that LESSOR=s calculation of LESSEE=s share of Operating Expenses for the inspected calendar year was incorrect, then any determined increase or decrease shall be treated as provided in this Article 4.D.
The following shall not be considered Operating Expenses:
1. Cost incurred in connection with the original construction of the Building, unless required under any governmental law that was not applicable to the Leased Premises as of the Commencement Date;
2. Costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements for lessees in the Building (including the original tenant improvements for the Leased Premises), or incurred in renovating or otherwise improving, decorating, painting, or redecorating space for lessees or other occupants of the Building, including space planning and interior design costs and fees, unless required under any governmental law that was not applicable to the Leased Premises as of the Commencement Date;
3. Costs arising from LESSORs charitable contributions or political donations;
4. Depreciation, interest and principal payments on mortgages;
3
5. Costs of correcting defects in or inadequacy of the initial design or construction of the Building and/or Leased Premises, unless required under any governmental law that was not applicable to the Leased Premises as of the Commencement Date;
6. Costs of repairs, alterations, additions, improvements or replacements to the leased premises of other tenants (specifically excluded by this paragraph 4.D.6. is the cost of repairs, alterations, additions, improvements or replacements to any portion of the Common Area or any portion of the Building which serves and/or services more than one tenant in the Building);
7. Any capital expenditure according to generally accepted accounting principles, unless required under any governmental law that was not applicable to the Leased Premises as of the Commencement Date;
8. Related to the original development or original leasing of the Building, or related to disputes that involve the Building generally or disputes which involve other tenants of the Building (other than LESSEE) or are associated with the enforcement of leases of other tenants, legal fees, planners fees, real estate brokers- leasing commissions and advertising expenses;
9. Costs for which LESSOR is reimbursed by its insurance carrier or any tenants insurance carrier;
10. Any uncollectible debt, rent toss, or reserves for bad debts or rent loss;
11. The expense of extraordinary services provided to other lessees in the Building;
12. Costs associated with the operation of the business of the partnership or entity which constitutes LESSOR, as the same are distinguished from the cost of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of LESSEE may be the issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of LESSORs interest in the Building, costs of any disputes between LESSOR and its employees (if any) not engaged in Building operation or otherwise not related to Building operation either directly or indirectly, or outside fees paid in connection with disputes with other lessees;
13. Fines, penalties and interest assessed as a result of LESSORs commercially unreasonable actions or inactions;
14. Amounts paid as ground rental by LESSOR;
15. Any recalculation of or any additional Operating Costs actually incurred more than two (2) years prior to the year in which LESSOR proposed that such costs be included;
16. Costs of complying with laws, codes, regulations or ordinances relating to Hazardous Materials in building materials or otherwise in the Building or Hazardous Materials in the soil or groundwater under the Building which exist in violation of laws, codes, regulations or ordinances on the date the Leased Premises are delivered to LESSEE;
4
17. Insurance deductible amounts in excess of reasonable and customary deductible amounts; and
18. Cost of services or benefits provided for the exclusive benefit of a particular tenant.
Notwithstanding anything contained in the Lease to the contrary, in no event shall LESSOR collect greater than one hundred percent (100%) of the actual Operating Expenses and Operating Expenses shall be net of all rebates, discounts and credits.
E. The amount of the Base Monthly Rent and the monthly Operating Expense payments are as follows:
|
|
Months |
|
|||||
|
|
1-2 |
|
3-12 |
|
13-48 |
|
|
(1) Base Monthly Rent |
|
$ |
0.00 |
|
11,539.50 |
|
11,539.50 |
|
(2) Taxes |
|
$ |
0.00 |
|
2,143.05 |
|
TBD |
|
(3) Insurance |
|
$ |
0.00 |
|
82.43 |
|
TBD |
|
(4) Utilities |
|
$ |
0.00 |
|
329.70 |
|
TBD |
|
(5) Common Area Maintenance (CAM) |
|
$ |
0.00 |
|
280.24 |
|
TBD |
|
(6) Management |
|
$ |
0.00 |
|
461.58 |
|
TBD |
|
Total Monthly Payment |
|
$ |
0.00 |
|
14,836.50 |
|
TBD |
|
F. Monthly Operating Expenses for the first twelve (12) months of the Lease Term will not exceed those sums which equal the amounts shown on the table in Paragraph E. above (the First Year Cap). The CAM charges and the Management fee will not increase more than five percent (5%) on a cumulative basis from the prior calendar years actual cost for same (Cap on Controllable Expenses).
G. As used herein, the term Total Monthly Payment shall include all subsequent adjustments pursuant to this Article 4. If this Lease shall commence on any date other than on the first day of a calendar month, or end on any date other than the last day of a calendar month, rent for such month shall be prorated on a daily basis. In the event of a partial calendar year LESSEEs Proportionate Share of the Operating Expenses shall be proportionately adjusted based on the number of days comprising such partial calendar year.
5. LATE CHARGES
Time is of the essence regarding all amounts payable to LESSOR. All amounts due under this Lease shall be paid on or before the date due. LESSEE acknowledges that the late payment of Base Monthly Rent or any other amounts payable by LESSEE to LESSOR hereunder (all of which shall constitute additional rent to the same extent as the Base Monthly Rent) will cause LESSOR to incur administrative costs and other damages, the exact amount of which would be impracticable or extremely difficult to ascertain. LESSEE AND LESSOR agree that on the third (3 rd )
5
instance in each calendar year that LESSOR does not receive any payment on or before five (5) business days after the date payment is due, LESSEE shall pay to LESSOR, as additional rental, a late charge equal to five percent (5%) of the overdue amount to cover such additional administrative costs On other words, LESSEE can be late on making payment under this Lease two (2) times each 12 months before the late charge described in this Paragraph is assessed). This provision for a late charge shall be in addition to all of LESSORs other rights and remedies hereunder or at law or equity, and shall not be construed as liquidated damages.
6. PURPOSE, USE AND OCCUPANCY; COMPLIANCE WITH LAWS
A. The Leased Premises are leased for the purpose of, and shall be used and occupied for Office/Warehouse and for no other purpose. The Leased Premises shall not be used for any unlawful purpose nor in any manner creating a public or private nuisance or trespass. Neither sidewalks nor loading docks nor any other area outside the Leased Premises shall be used for sale, storage or display in any manner whatsoever.
B. LESSEE shall, at its sole cost and expense, obtain all licenses, certificates, permits and all other approvals necessary for LESSEEs use and occupancy of the Leased Premises, and shall provide LESSOR with copies of same with thirty (30) days of LESSEEs occupancy and additional copies as may be reasonably requested within five (5) days after written request. LESSEE shall comply with all governmental statutes, laws, ordinances, orders, decrees, decisions, rules and regulations applicable to LESSEEs use and occupancy of the Leased Premises, including but in no way limited to the correction, prevention and abatement of public or private nuisances or Hazardous Substances (as defined in Article 28.A.), in, upon, or connected with the Leased Premises as a result of the actions or inactions of LESSEE, its employees, agents, contractors, patrons, invitees, licensees or others under LESSEEs control, all at LESSEEs sole expense. LESSEE will not permit the Leased Premises to be used for any purpose or in any manner, or take or allow any action or inaction, which would not be covered by the insurance described in Articles 8 or 9 or which would render the insurance thereon void or voidable or the insurance risk more hazardous or the premium therefor more expensive. If there is any increase in the cost of any such insurance described in Article 8 or 9 because of LESSEEs proposed or actual actions or inactions, LESSEE shall pay the full amount of such increase within thirty (30) days after written request.
C. LESSEE and LESSEEs agents, employees, contractors and invitees will comply fully with all requirements of the rules and regulations of the Building and/or project and related facilities which are attached hereto as Exhibit D, and made a part hereof as though fully set out herein. LESSOR shall at all times have the right to reasonably change such rules and regulations or to promulgate other rules and regulations in such manner as may be deemed advisable for safety, care, or cleanliness of the Building and/or project and related facilities or premises, and for preservation of good order therein, all of which rules and regulations, changes and amendments will be forwarded to LESSEE in writing and shall be carried out and observed by LESSEE, provided same do not abrogate any of LESSEEs rights under this Lease and are applicable to all tenants of the Building. LESSEE shall further be responsible for the compliance with such rules and regulations by the employees, servants, agents, visitors and invitees of LESSEE.
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7. RELEASE AND INDEMNITY AND WAIVER OF SUBROGATION
A. LESSEE assumes full responsibility to LESSOR and all third parties for the condition and security of the Leased Premises, and agrees to keep the Leased Premises in a safe condition and to defend, indemnify and hold LESSOR, its employees, representatives, agents, contractors, patrons, invitees, and licensees harmless from any and all liability for and against any injury or damage relating to, arising from or connected with: (i) the condition of and the use and occupancy of the Leased Premises, including but not limited to any injury or damage caused by, relating to, connected with, or arising from the condition of the Leased Premises or the actions or inactions of LESSEE, its employees, agents, contractors, patrons, invitees, licensees or others under its control, or by fire, explosion, falling plaster, or other materials, Hazardous Substances, steam, gas, electricity, water, rain, sleet, snow, hail, or from leaks from any parts of the Leased Premises, or from pipes, appliances, or plumbing works, from the roof, street, or subsurface or from any other place, or by dampness, or from any damage caused by operations in connection with any construction or demolition by LESSEE; (ii) all actions or inactions of LESSEE, its employees, agents, contractors, patrons, invitees, licensees or others under its control, in or about the Leased Premises; (iii) all costs, attorneys fees, expenses and liability incurred by LESSOR in connection with any suit, claim or action or proceeding brought on account of the events and transactions described in Articles 7.A.(i) and (ii); provided, however, LESSEE shall not be required to indemnify and hold LESSOR harmless from or against any such injury or damage caused by the negligence of LESSOR, its agents, employees or contractors. LESSOR shall not be liable or responsible for any loss of or damage to the property of LESSEE or others by theft, all of which property shall be insured or self-insured by LESSEE, at LESSEEs sole cost and expense.
B. LESSOR and LESSEE each hereby release each other from all loss or damage caused by perils required by this Lease to be insured through, by or under them by way of subrogation or otherwise, even if such loss or damage shall have been caused by the actions or inactions of the other party or anyone for whom such party may be responsible; provided, however, that this release shall be applicable and in effect only with respect to loss or damage occurring during such times as the releasors policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releaser to recover thereunder and then only to the extent of the insurance proceeds paid under such policies. LESSOR and LESSEE agree that they will request their respective insurance carriers to include in their policies such a clause or endorsement and shall notify in writing each other if they are unable to obtain same or if same is cancelled subsequent to issuance.
C. The provisions of Articles 7.A. and 7.B. shall survive the lease Term with respect to all events, occurrences, series of events or occurrences, transactions, suits, claims or actions occurring during the Term of this Lease.
8. LESSORS INSURANCE
LESSOR shall procure insurance policies and charge a Proportionate Share of the premium cost to the LESSEE pursuant to Articles 4.D. and 4.E. of, casualty, liability and other insurance coverage for the Leased Premises, Land, Building and/or project of which the Leased Premises are a part, as is commercially practicable. Such insurance shall include, but in no way
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be limited to, casualty insurance covering the Building in an amount of not less than one hundred percent (100%) of the replacement cost thereof, excluding foundation and excavation costs as reasonably determined by Landlord.
9. LESSEES INSURANCE
LESSEE, at its sole expense, shall obtain and maintain in full force and effect at all times during the Term the following insurance coverage: (a) workers compensation insurance; (b) All Risk fire and extended coverage insurance covering all contents, fixtures and improvements in the leased Premises in an amount not less than 100% of their full replacement cost; (c) public general liability insurance against liability for property damage and personal injury suffered by anyone by reason of the use or occupancy of the Leased Premises with minimum limits of $1,000,000 on account of bodily injury to or death of one person, $1,000,000 on account of any one occurrence affecting more than one person and $500,000 on account of damage to property; and (d) insurance covering the releases and indemnities of LESSEE set forth in this Lease. All of such insurance shall be provided by an insurance company or companies with A.M. Best ratings of A-VII or better and licensed to do business in the state in which the property is located, shall include LESSOR as an additional insured, and shall be non-cancelable except upon thirty (30) days written notice to LESSOR and any designees of LESSOR. Within ten (10) days after the date of this Lease, and thereafter within ten (10) days after written request, LESSEE shall provide copies of certificates of insurance evidencing the aforementioned coverage, or other such evidence acceptable to LESSOR in its sole discretion.
10. MAINTENANCE AND REPAIR BY LESSOR
A. LESSOR, at its own cost and expense, shall maintain the Buildings roof, foundation, the exterior walls, structure and mechanical and electrical systems and the Common Areas (as defined in Article 11.D. in a manner generally consistent with the maintenance and repair of comparable properties in the submarket in which the City of Pflugerville is contained, reasonable wear and tear excepted. The term exterior walls as used herein shall not include windows, glass or plate glass, doors, special storefronts, or office entries.
B. LESSEE shall repair and pay for any damage caused by the actions or inactions of LESSEE, and LESSEEs employees, agents, contractors, invitees, licensees, patrons and others under its control, or caused by LESSEEs Default or failure to discharge its obligations and duties to repair and maintain the Leased Premises as provided in this Lease.
C. LESSEE shall promptly give LESSOR written notice of any defect or need for repairs after which LESSOR shall have reasonable opportunity to repair same or cure such defect LESSORs liability with respect to any defects, repairs or maintenance for which LESSOR is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance or the curing of such defect. LESSOR shall be allowed reasonable access following reasonable oral notice at all times to the Leased Premises by LESSEE for the purpose of fulfilling or attempting to fulfill its obligations under this Article 10.
D. Notwithstanding anything to the contrary contained herein, if any action taken by LESSOR, its agents, employees or contractors (specifically not included in this Paragraph 10.D.
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is any action, whether direct or indirect, of any municipality, utility, other tenant in the Building or any other third party which results in LESSEEs inability to operate its business) prohibits LESSEE from operating its business in the Leased Premises for a period in excess of two (2) consecutive days after notice from LESSEE to LESSOR that LESSEE is unable to operate as a result of such action, then, rent in the proportion which the area of the Leased Premises which is not usable by LESSEE bears to the total area of the Leased Premises shall abate until the date LESSOR determines (utilizing commercially reasonable standards) that any interference with the operation of LESSEEs business in the Leased Premises resulting from such action by LESSOR, its agents, employees or contractors has been remedied.
11. MAINTENANCE AND REPAIR BY LESSEE; COMMON AREA MAINTENANCE
A. LESSEE shall, at its sole expense, repair and maintain all parts of the Leased Premises, ordinary wear and tear excepted and except those for which LESSOR is expressly responsible under this Lease or unless damage is caused by the negligence or willful misconduct of LESSOR, its agents, employees or contractors, in good condition, making all necessary repairs and maintenance, including but not limited to, ceiling tiles, interior windows or glass, doors, signs, office entries, railings, interior walls and finish work, floors and floor covering, heating and ventilation systems, air conditioning systems serving solely the Leased Premises, dock boards and ramps, truck doors, dock bumpers, plumbing fixtures, termite and pest extermination, removal of trash and debris, handicap access areas, and shall keep the whole of the Leased Premises in a safe, clean and sanitary condition. LESSEE shall not cause or permit trash to accumulate in or around the Building.
B. In addition, LESSEE shall at its sole expense, repair and maintain, those portions of the Leased Premises, to the extent that such items serve the Leased Premises exclusively, not in common with other LESSEEs; including but not limited to, plumbing, drains, electrical systems, fire sprinkler systems, loading areas, lighting, utility consumption, hallways, and other areas and improvements exclusive of the roof, foundation, grounds, parking areas, and other structural components or building systems not dedicated exclusively to the Leased Premises.
C. LESSEE shall not damage any demising wall or supports or disturb the integrity or support provided by any demising walls or supports and shall, at its sole expense, promptly repair any damage or injury to any demising wall or support caused by LESSEE or its employees, agents, contractors, invitees, licensees, patrons or others under its control.
D. In multiple occupancy buildings, LESSOR shall operate and perform maintenance, repair, and replacement as necessary to the Common Areas. The Common Areas are the parts of the Land and Building as designated by LESSOR from time to time for the common use of the tenants, including, but not limited to, plumbing, drains, electrical systems, fire sprinkler systems, gutters, downspouts, exterior painting, trees, shrubs, Landscaping, parking areas, driveways, sidewalks, curbs, bollards, loading areas, rail spur areas, private streets and alleys, lighting, hallways, and other areas and improvements provided by LESSOR for the common use of all tenants, exclusive of the roof, foundation and other structural components of the Building, all of which shall be operated and maintained by LESSOR in such manner as set forth in Article 10 above. LESSOR reserves the right to change from time to time the dimensions
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and location of the Common Areas. Subject to the First Year Cap and the Cap on Controllable Expenses, LESSOR shall charge to LESSEE pursuant to Articles 4.D. and 4.E. LESSEEs Proportionate Share of the cost of operation and maintenance of the Common Areas (including, but not limited to, commercially reasonable costs incurred for management fees (not to exceed four percent [4%] of gross rental receipts), maintenance, personnel, lighting, utility consumption, owners association dues, heating, air conditioning, water, sewerage, painting, termite control, pest extermination, trash and debris removal, cleaning, inspecting, landscaping, lawn sprinkler systems, repairing, replacing, policing, guarding and protecting) which may be incurred by LESSOR in its discretion.
E. LESSOR reserves the right after ten (10) days prior written notice to LESSEE (except in the event of an emergency), but is not obligated to make repairs, maintenance and replacements which are otherwise LESSEEs obligation under this Article 11., and LESSEE shall, with respect to such items, be liable for and pay to LESSOR the actual cost of same within ten (10) days after written request. Provided that if any other particular tenant of the Building can be clearly identified as being responsible for the actions or inactions leading to the need for such repair, maintenance or replacement as described in this Article 11., then LESSOR shall seek from such other tenant, if responsible, to pay for entire cost thereof.
F. LESSEE shall, at its sole expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all hot water, heating, ventilation and air conditioning systems and other equipment within the Leased Premises. LESSOR reserves the right to approve or disapprove (which approval shall not be unreasonably withheld, delayed or conditioned) of any maintenance contract and the contractor(s) performing work on equipment serving the Leased Premises, The service contract must include all services recommended by the equipment manufacturer and must become effective and a copy thereof delivered to LESSOR without demand within thirty (30) days of the date of this Lease.
12. UTILITIES
LESSOR agrees to provide, at its sole expense, the connections to the Leased Premises for sewer, water, electricity, natural gas and telephone service; but LESSEE shall pay for all charges for water, gas, heat, light power, telephone, sewer, fire sprinklers and all other utilities and services used on or from the Leased Premises, together with any taxes, assessments, deposits, surcharges or other additional charges, penalties or the like pertaining thereto and any repair and maintenance charges for utilities exclusively serving the Leased Premises, and LESSEE shall furnish all electric light bulbs and tubes and elements. If any such services are not separately metered to LESSEE, LESSEE shall pay its Proportionate Share (which amount shall be adjusted for any disproportionate user[s]) of the cost of such services pursuant to Articles 4.D. and 4.E. of all charges jointly metered with other tenants of the Building; provided, however, LESSOR shall have the right to charge LESSEE with a greater share of the cost of such services on an equitable basis following written verification of same or a sub meter placed in the Leased Premises at LESSEEs sole expense, to the extent LESSEE is using a disproportionately large amount of the services in relation to the other tenants of the Building and/or project. LESSOR reserves the right to cause any of said services to be separately metered to LESSEE at LESSEEs sole expense. LESSOR shall not be liable or pay for any interruption, re-establishment or failure of utility services to the Leased Premises.
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A. Notwithstanding anything to the contrary contained in this Article 12, if by reason of the intentional act or omission or negligence of LESSOR, its agents, employees or contractors (not included in the provisions of this Paragraph 12.A. is any action (whether direct or indirect) of any municipality, utility, other tenant in the Building or any other third party which results in an interruption or discontinuance in LESSEEs utilities or other services) there is an interruption or discontinuance in the utilities furnished by LESSOR or other services LESSOR is required to provide under this Lease which results in LESSEE being unable to conduct business from all or a substantial portion of the Leased Premises, and LESSEE does in fact cease the conduct of business in the Leased Premises or such substantial portion thereof for a period in excess of two (2) consecutive business days, then rent shall abate beginning on the third (3 rd ) consecutive business day of the interruption or discontinuance and ending on the services are restored such that LESSEE is again reasonably able to conduct business at the Leased Premises or such portion thereof. Such abatement shall be in an amount bearing the same ratio to the total amount of rent for such period as the portion of the rentable square feet of the Leased Premises from which LESSEE is unable to and does not conduct business from time to time bears to the rentable square feet of the entire Leased Premises, it being acknowledged that LESSEE may be unable to conduct business from portions of the Leased Premises, even if not directly affected by an interruption or discontinuance of services, if they cannot be occupied for the conduct of LESSEEs business as a result of an interruption or discontinuance of services to other areas of the Leased Premises which are critical to LESSEEs business operations.
13. TAXES
A. LESSEE shall pay, in advance, LESSEEs Proportionate Share pursuant to Articles 4.D. and 4.E., of all taxes, assessments and governmental charges of any kind and nature imposed upon the Leased Premises, Land, Building and/or project of which the Leased Premises are a part (referred to herein as Taxes). If at any time during the Term, there shall be levied, assessed or imposed on LESSOR a capital levy or other tax directly on the rents received from the Leased Premises, Land, and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part upon such rents from the Leased Premises, Land or Building, in which the Leased Premises is located, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term Taxes. Taxes shall not include any net income, capital stock, succession, transfer, franchise, gift, estate or inheritance taxes. If LESSOR receives a refund of any Taxes of which LESSEE paid LESSEEs Proportionate Share hereunder, within sixty (60) days after receipt thereof LESSOR shall reimburse LESSEE for LESSEEs Proportionate Share of such refund applicable at the time LESSEE paid LESSEEs Proportionate Share thereof.
B. LESSEE shall be liable for and pay all taxes, assessments, levies and governmental charges imposed against any personal property or fixtures placed in the Leased Premises. If any such taxes, assessments, levies or governmental charges are against LESSEEs property and (i) LESSOR pays same or (ii) the assessed value of LESSORs property is increased by inclusion of LESSEEs personal property and fixtures and LESSOR pays all or part of same, then, within fifteen (15) days after written request, LESSEE shall pay same to LESSOR.
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C. LESSOR shall have the option, but not the obligation, to pay any and all taxes, assessments, levies and charges (whether or not included in the aforementioned definition of Taxes) payable by LESSEE under this Lease or by law. If LESSOR does so, LESSEE shall pay to LESSOR the amount so paid within fifteen (15) days after written request.
D. LESSOR shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the Leased Premises, Land and Building within the applicable taxing jurisdiction, and LESSEEs Proportionate Share of the cost of such consultant shall be included as taxes to be charged to LESSEE pursuant to this Article.
14. ALTERATIONS AND FIXTURES
LESSEE shall not make any alterations, additions or improvements (Alterations) to the Leased Premises, Land or Building (including but in no way limited to roof and wall penetrations) without the express prior written consent of LESSOR, which consent shall not be unreasonably withheld, delayed or conditioned. LESSEE may, without the consent of LESSOR but with written notice to LESSOR of same, and at LESSEEs sole expense and in a good workmanlike manner, (a) erect such shelves, bins, machinery and trade fixtures (Fixtures), without altering the structural soundness, aesthetics or basic character of the Leased Premises, Land or Building or its walls and (b) make additional non-structural alterations to the Leased Premises which in the aggregate do not exceed $10,000 in any twelve (12) month period, and in all cases complying with all applicable governmental laws, ordinances, decisions, orders, decrees, regulations and other requirements. All Alterations and Fixtures erected by LESSEE that are affixed to the Leased Premises or the Building shall be and remain the property of LESSOR during the Term of this Lease; however, if LESSOR elects, in writing, LESSEE shall remove Alterations and Fixtures erected by LESSEE and restore the Leased Premises to its original condition by the end of the Term or upon earlier vacating of the Leased Premises, whichever comes first, provided LESSEE shall not be required to remove any improvements existing as of the Commencement Date or which were not identified at the time of LESSEES request or notice of such Alteration. Any Alterations and Fixtures remaining in the Leased Premises shall remain the property of LESSOR upon and after such end of the Term or LESSEEs earlier vacating of the Leased Premises. All removals and restorations by LESSEE shall be accomplished in a good and workmanlike manner so as not to damage the Leased Premises, Land or Building or their structural, aesthetic or functional qualities, and LESSEE shall repair any such damage at its sole cost and expense.
15. SIGNS AND SIGN REMOVAL
After first obtaining express written approval from LESSOR, LESSEE shall have the right to erect signs on the exterior walls of the Building in accordance with signage specifications established by LESSOR. Any such signs to be securely attached parallel to the walls and shall be in keeping with the general scheme of the signs and aesthetic characteristics in the immediate vicinity of the Leased Premises and shall not be other than customary trade signs identifying the business of LESSEE. LESSEE shall not erect any sign over the public way, over the roofline or on the roof, nor paint or otherwise deface or alter the exterior walls of the Building or Leased Premises. The erection of any signs by LESSEE shall be subject to and in conformity with all applicable laws, zoning ordinances, and building restrictions, covenants of
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record and in accordance with LESSORs signage standards. On or before the end of the Term, LESSEE shall remove all signs thus erected, and shall repair any damage or disfigurement, and close any holes, caused by such removal.
16. ASSIGNMENT OR SUBLETTING
LESSEE may not assign this Lease or sublease the Leased Premises in whole or in part without LESSORs prior express written consent (which consent shall not be unreasonably withheld if the prospective assignee or sublessee is financially comparable to LESSEE by commercially reasonable standards, and then only in accordance with and subject to the following conditions, the satisfaction of which shall be in the reasonable discretion of LESSOR:
A. If LESSEE desires to assign this Lease or sublet the Leased Premises in whole, then, at least sixty (60) days prior to the proposed effective date of any assignment or sublease, the LESSEE shall deliver to LESSOR a written notice of intention to assign or to sublease, setting forth a proposed commencement date for the assignment or sublease and shall attach to such notice a copy of the proposed assignment or sublease agreement and all agreements collateral thereto. The LESSOR shall then have the right, to be exercised by giving written notice to LESSEE within thirty (30) business days after receipt of LESSEEs notice of intention to assign or sublease, to cancel and terminate this Lease, as of the day before the proposed effective date of the assignment or sublease.
B. In the event of the assignment of this Lease or sublease of all or any portion of the Leased Premises where the rental reserved in the assignment or sublease exceeds the rental or the pro-rata portion of the rental, as the case may be, for such space reserved in this Lease, LESSEE shall pay the LESSOR monthly, as additional rent, at the same time and at the same place as the monthly installments of rent hereunder, the excess of the rental reserved in the assignment or sublease over the rental reserved in this Lease applicable to the assigned or subleased space after deducting LESSEES expenses, including brokerage commissions, legal fees, improvement costs, and rent concessions and advertising costs.
C. None of LESSEEs obligations to LESSOR under this Lease shall be waived, forfeited, compromised, released or novated regardless of any assignment or sublease, and any assignment or sublease shall be expressly subject to and in compliance with the provisions of this Lease. Further, the terms and conditions of this Lease shall take precedence over and control the provisions of any sublease or assignment to the extent of conflict or differing interpretation.
D. Notwithstanding anything contained herein to the contrary, LESSEE may, upon written notice to LESSOR, but without obtaining LESSORs consent, assign this Lease or sublease all or any part of the Leased Premises (Permitted Transfers) to (a) a wholly-owned subsidiary of LESSEE, (b) the parent of LESSEE, (c) any entity into or with which LESSEE may be reorganized, merged or consolidated, (d) an affiliate of LESSEE (for purposes hereof an affiliate shall mean any business entity controlling, controlled by or under common control with LESSEE), or (e) any person or entity which acquires all of the assets of LESSEE as a going concern of the business that is being conducted on the Leased Premises, provided that such transferee assumes in full the obligations of LESSEE under the Lease (Permitted Transferee).
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17. DAMAGE OR DESTRUCTION
A. If, at any time prior to the Commencement Date or during the first one half (1/2) of the Term, the Leased Premises or the Building should be destroyed or damaged to any extent which may require repairs in an amount in excess of twenty (20%) percent of the replacement cost, less reasonable depreciation under the straight line method, of the Leased Premises or the Building after having been verified to LESSEE in writing by the projects architect, LESSOR shall have the right and option of either.
(1) Terminating this Lease upon reasonable days prior written notice, in which case neither party shall have any rights against the other party from and after the occurrence or destruction except those arising from this Lease; or
(2) Repairing or rebuilding such damaged or destroyed portions of the Leased Premises or Building in substantially the same or better condition as immediately prior to the destruction or damage, in which event rental shall be reduced proportionately to the loss of actual physical occupancy suffered by LESSEE, provided that, if such damage was the result of the actions or inactions of LESSEE, its employees, agents, contractors, invitees, licensees, patrons or others under its control, rental shall not be reduced during such period.
B. If during the first one half (1/2) of the Term there should be any such damage or destruction, but to an extent less than the said twenty (20%) percent of the depreciated replacement cost as discussed above, this Lease shall continue and LESSOR shall repair or rebuild the damaged or destroyed portions of the Leased Premises as set forth in Article 17.A. above, and the rent shall be reduced in proportion to the actual loss of physical occupancy suffered by LESSEE for the period of the repair or rebuilding, provided LESSOR shall have no obligation to spend or incur costs for such repair or rebuilding in excess of the insurance proceeds actually paid to LESSOR.
C. If during the last one-half (1/2) year of the Term, there should be any damage or destruction (without any regard to whether the percentage of replacement cost exceeds twenty (20%) percent) to the Leased Premises or the Building, LESSOR shall have the same option to repair or rebuild or terminate this Lease (such termination to occur only after giving LESSEE reasonable prior written notice of same).
D. If during sixty (60) days after the occurrence of any damage or destruction which gives rise to the option of LESSOR either to terminate, repair or rebuild, LESSOR should not give LESSEE notice of its decision, then this Lease shall continue in full effect, the option to terminate this Lease shall be deemed to have been waived, and LESSOR shall repair or rebuild the Leased Premises, provided LESSOR shall have no obligation to spend or incur costs for such repair or rebuilding in excess of the insurance proceeds actually paid to LESSOR.
E. If LESSOR elects to rebuild or lease is not terminated, and the Leased Premises are not repair and accessible within two hundred seventy (270) days from the date of casualty, LESSEE may terminate this Lease.
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18. CONDEMNATION
A. If, at any time during the Term, (a) title to the entire Leased Premises should become vested in a public or quasi-public authority by virtue of the exercise of expropriation, condemnation or other power in the nature of eminent domain, or by voluntary transfer from the owner of the Leased Premises under threat of such a taking, or (b) if less than the entire Leased Premises be thus taken, or transferred in lieu of such a taking, but it would be legally and commercially impossible for LESSEE to occupy the portion of the Leased Premises remaining, and impossible for LESSEE reasonably to conduct his trade or business therein, or then in either event, the Term shall end as of the time of such vesting of title, after which neither party shall be further obligated to the other except for occurrences antedating such taking.
B. Should there be such a partial taking or transfer in lieu thereof, but not to such an extent as to make such continued occupancy and operation by LESSEE an impossibility, then this Lease shall continue on all of its same terms and conditions subject only to a reduction in rent proportionate to such taking. It is provided, however, that LESSOR shall have the right and option to terminate this Lease in the event there is a partial taking or transfer in lieu thereof which affects a portion of the Building and/or the project to the extent that, in LESSORs reasonable opinion, it is commercially impractical to continue the operation of the Building or the project in a manner that will justify the continuation of this Lease.
C. In the event of any such taking or private purchase in lieu thereof, all compensation awarded for any taking (or sale proceeds in lieu thereof) of the fee or leasehold interest shall be the property of LESSOR, and LESSEE shall have no claim thereto, the same being hereby expressly waived by LESSEE. Any amounts specifically awarded or agreed upon by LESSEE and the expropriating authority for the taking of LESSEEs removable trade fixtures or moving/relocation expenses shall be the property of LESSEE. LESSEE further grants LESSOR exclusive authority to negotiate with any such authority for payment both with respect to the interest of LESSOR and the leasehold interest of LESSEE in the Leased Premises.
19. ENTRY DURING TERM
A. LESSOR shall have the right to enter the Leased Premises throughout the Term for the following purposes: (1) inspecting the general condition and state of repair of the Leased Premises; (2) performing such maintenance and other obligations as may be required or permitted by this Lease of LESSOR; (3) showing the Leased Premises to any prospective purchasers, lenders; (4) showing the leased premised to prospective tenants during the last six (6) months of the Term or in the event of Default by LESSEE, at any time; (5) taking any emergency action which LESSOR in its sole discretion deems necessary to protect the Leased Premises, Land or Budding; (6) determining whether there has been a Default under this Lease; and (7) any other reasonable purposes. Except in the event of emergency action, LESSORs entry shall be upon prior reasonable notice to LESSEE. In all instances, LESSOR shall minimize interference with LESSEEs business operations during any such entry.
B. If this Lease is not renewed or extended within one hundred twenty (120) days prior to the end of the Term, LESSOR, its officers, agents or assigns, shall have the right to erect on or about the Leased Premises a customary sign advertising the Leased Premises, Building
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and/or Land for tease or for sale; and shall likewise have the right to enter the Leased Premises for the purpose of showing the Leased Premises to prospective tenants as set forth above.
20. DEFAULT
The following, whether one or more and whether occurring together or separately, shall each be considered a breath and default by LESSEE under and of this Lease (Default): (i) failure to timely pay all or part of any amount payable under this Lease within five (5) days after LESSEEs receipt of written notice that same is past due; (ii) failure, for any reason whatsoever, of LESSEE to perform or effect performance of any of the other terms, conditions, obligations, agreements or covenants to be observed or performed by LESSEE under this Lease, within thirty (30) days after written notice to LESSEE of its failure to do so, subject to extension if such breach or default cannot be cured within thirty (30) days and LESSEE is diligently prosecuting cure; (iii) failure to immediately comply with the provisions of Article 28 entitled Environmental Hazards; (iv) LESSEE or any officer, agent, successor, employee, director, legal representative or assign of LESSEE shall falsify any report or information furnished to LESSOR; (v) LESSEE or any guarantor of this Lease shall become bankrupt or insolvent or file or have filed against it any debtor or bankruptcy proceeding pursuant to any statute, either of the United States or of any state, or for the reorganization or for the appointment of a receiver or trustee of all or a portion of its property and not dismissed within sixty (60) days; (vi) LESSEE or any guarantor of this Lease makes an assignment for the benefit of creditors, or petitions for or enters into a plan of arrangements; and (vii) LESSEE shall abandon the Leased Premises without continuing to pay rent or suffer this Lease to be seized or otherwise taken under any levy, turnover order, writ of execution or any other order, decree, writ or judgment
21. REMEDIES
A. Upon each occurrence of Default, LESSOR shall have the option to lawfully pursue, at any time and from time to time, any one or more of the following remedies, and/or any other remedy provided by law or in equity, with notice as required by any municipal, county, state or federal law to the contrary:
(1) Terminate this Lease; and/or
(2) Enter upon and take possession of the Leased Premises with or without terminating this Lease; and/or
(3) Alter and/or change all locks and other security devices at the Leased Premises with or without terminating this Lease;
and in any such event LESSEE immediately shall surrender possession of the Leased Premises to LESSOR, and if LESSEE fails so to do, LESSOR may enter upon and take possession of the Leased Premises and expel or remove LESSEE and LESSEEs property and any other person and property occupying such Leased Premises or any part thereof, without further notice unless required by law and without being liable for prosecution or any claim of damages therefore, including but in no way limited to trespass or loss or damage to persons or property.
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B. If LESSOR terminates this Lease, LESSEE shall be liable for and shall pay to LESSOR within five (5) days after written request the sum of all base monthly rental and other payments owed to LESSOR hereunder accrued through the date of such termination, plus an amount equal to (1) the present value (using a discount rate equal to the 90 day U.S. Treasury Bill rate at the date of such determination) of the remaining Total Monthly Payment payments for the remaining portion of the Lease, calculated as if the Term expired on the date set forth in Article 2, less (2) the then present fair market rental value of the Leased Premises remaining for such period.
C. If LESSOR repossesses the Leased Premises without terminating this Lease, LESSEE, at LESSORs option, shad be liable for and shall pay LESSOR within five (5) days after written request all of the Total Monthly Payment and other payments owed to LESSOR accrued through the date of such repossession, plus on a monthly basis all amounts required to be paid by LESSEE to LESSOR under this Lease through the date of expiration of the Term diminished by all amounts received by LESSOR through reletting the Leased Premises for the remainder of the Term. Actions to collect amounts due by LESSEE to LESSOR under this Article 21.C. may be brought from time to time, on one or more occasions, without the necessity of LESSORs waiting until expiration of the Term.
D. Upon Default, in addition to any amount provided to be paid herein, LESSEE also shall be liable for and shall pay to LESSOR (i) brokers fees incurred by LESSOR in connection with reletting the whole or any part of the Leased Premises; (ii) the costs of removing and storing LESSEES or other occupants property; (iii) the costs of repairing, altering, remodeling or otherwise putting the Leased Premises and the fixtures, equipment and systems located therein into condition acceptable to a new tenant; and (iv) all reasonable expenses and fees, including but in no way limited to attorneys fees, incurred by LESSOR in enforcing or defending LESSORS rights and/or remedies; (v) interest at the rate of eighteen percent (18%) per annum on all sums due and owed to LESSOR by virtue of any provision of this lease including without limitation, Base Monthly Rent and late charges, from the time they are due and payable until they are paid. Notwithstanding the above, if LESSOR relets the Leased Premises for a term (the Relet Term) that extends past the Expiration Date of this Lease, the costs of reletting which may be included in LESSORs damages under this Lease shall be limited to a prorated portion of the costs of retelling, based on the percentage that the length of the Term remaining on the date LESSOR terminates this Lease or LESSEEs right to possession bears to the length of the Relet Term. For example, if there are two (2) years left on the Term at the time that LESSOR terminates possession and, prior to the expiration of the two (2)-year period, LESSOR enters into a lease with a Relet Term of ten (10) years with a new tenant, then only twenty percent (20%) of the costs of reletting shall be included when determining LESSORs damages.
E. In the event of termination and/or possession of the Leased Premises for a Default, LESSOR shall use reasonable efforts to re-let the Leased Premises and to collect rental after retelling; provided that LESSEE shall not be entitled to a credit or reimbursement from any proceeds in excess of the rental or other amounts owed under this Lease. LESSOR may relet the whole or any portion of the Leased Premises for any period, to any tenant and for any use and purpose.
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F. If LESSOR repossesses the Leased Premises, and LESSEE has not removed all of the furniture, fixtures, equipment and other contents located at the Leased Premises, including that which is owned by or leased to LESSEE at all times prior to any foreclosure or repossession by LESSOR or third party having a lien thereon. LESSOR also shall have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person (Claimant) who presents to LESSOR a copy of any instrument represented by Claimant to have been executed by LESSEE (or any predecessor of LESSEE) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of LESSOR to inquire into the authenticity or legality of said instrument. The rights of LESSOR herein stated shall be in addition to any and all other rights that LESSOR has or may hereafter have at law or in equity; and LESSEE stipulates and agrees that the rights granted LESSOR are commercially reasonable.
G. Should LESSOR fail to perform any of its obligations hereunder, LESSOR will have a period of thirty (30) days (unless a shorter or longer time is specifically set forth in another provision of this Lease) after its receipt of written notice from Tenant of a failure of performance, within which to commence a cure of that failure. Failure of LESSOR to commence that cure within the 30-day period or to effect the cure within the 30-day period (unless such cure will, due to the nature of the obligation, require a period of time in excess of thirty (30) days, then after such period of time as is reasonably necessary), shall entitled LESSEE, at its option, to elect to: (a) bring an action to require specific performance of LESSORs; (b) provide LESSOR with an additional period of time within which to effect that cure; (c) commence such cure itself, and require that LESSOR immediately reimburse LESSEE for its expenses; provided, however, in the event of an emergency, LESSEE may immediately effect a cure of LESSORs failure should LESSOR fail to act immediately to do so, without the requirement of any notice by LESSEE to LESSOR; and/or (d) pursue any other remedies provided herein or provided by law. Notwithstanding anything to the contrary contained herein, LESSEEs self-help remedies under this Paragraph 21.G. shall not include the right to set off from its Base Monthly Rent payments any expenses incurred in remedying LESSORS failure to take any action.
22. CONDITION AT TERMINATION AND KEYS
The Leased Premises and keys to same shall be surrendered to LESSOR, broom clean (free of all debris and property of LESSEE), no later than midnight on the last day of the Term, with the entire Leased Premises in good repair, reasonable wear and tear excepted (except as provided to the contrary in this Lease), and with all equipment and systems in good operating condition. Should LESSEE surrender the Leased Premises or the equipment or systems in other than the above specified condition, LESSEE hereby grants LESSOR the right to have the Leased Premises placed in such condition and LESSEE agrees to pay the cost of such reconditioning, within thirty (30) days after written request to LESSEE. At the end of the Term, LESSEE shall surrender all keys to LESSOR at the place then fixed for the payment of rent or such other location as specified by LESSOR in writing. All obligations of the LESSEE contained in this Article 22 shall survive the end of the Term. Notwithstanding any provision in this Lease to the contrary, all personal property of LESSEE that shall remain in the Leased Premises after the vacation of the Leased Premises by LESSEE shall be deemed abandoned, shall thereupon, at the election of LESSOR, become the property of LESSOR, and the LESSOR may dispose of such
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property in any way at any time, without notice, as LESSOR sees fit without liability or payment for same or damage thereto to LESSEE, at LESSEEs sole expense.
23. HOLDING OVER
Should LESSEE fail to surrender the Leased Premises or any part thereof at the end of the Term, such holding over shall constitute a month to month lease under the same terms and conditions as this Lease, except at a monthly rental for the first three (3) months of the holdover equal to 125% of the rent due for the last full month of the Term and then, equal to 150% of the rent due for the last full month of the Term. This Paragraph 23 shall not e construed as consent for LESSEE to retain possession of the Leased Premises.
24. FINANCIAL STATEMENTS
On no more than two occasions per twelve month period and upon the written request of LESSOR, LESSEE shall within ten (10) days of said request, furnish to LESSOR a copy of LESSEES income statements and balance sheets covering LESSEEs last fiscal year for which statements have been completed and which shall include all corresponding notes, comments, opinions and statements. Such financial information shall be certified by LESSEE or a Certified Public Accountant to be materially accurate.
25. SUBORDINATION AND ATTORNMENT
A. LESSEE agrees that this Lease is and shall remain subject to and subordinate to all present and future mortgages, deeds to secure debt, deeds of trust, security agreements, financing statements and all other security instruments and other similar encumbrances (the Encumbrances) affecting the Land or the Building, or any part thereof, and within ten (10) business days after written request, LESSEE shall execute, acknowledge, verify and deliver to LESSOR such certificate(s), letters, representations and agreements in writing as LESSOR or its lender may reasonably request, acknowledging the subordination of this Lease to such Encumbrances. Notwithstanding anything contained herein to the contrary, the subordination of this Lease to any current or future mortgages hereafter affecting the Leased Premises is subject to the express condition that so long as the Lease is in effect and no Default exists, this Lease shall not be terminated nor shall LESSEES use, possession or enjoyment of the Leased Premises be interfered with, nor shall the leasehold estate granted by this Lease be affected in any other manner, in any foreclosure or any action or proceeding instituted under or in connection with such mortgages. LESSOR, LESSEE and any current or future mortgagee shall enter into a commercially reasonable form of subordination, non-disturbance and attornment agreement (SNDA) reasonably acceptable to LESSEE.
B. Nothing in this Lease shall in any manner restrict LESSORs right to assign or encumber this Lease in its sole discretion. Should the LESSOR assign this Lease or should LESSOR enter into Encumbrances affecting all or any portion of the Leased Premises and should the holder(s) of such Encumbrances succeed to the interest of LESSOR, LESSEE shall be bound to any such holder under all the terms, covenants and conditions of this Lease, and LESSEE shall promptly attorn to such holder as LESSOR under this Lease.
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26. EXCULPATION
LESSEE agrees that LESSEE shall look solely to LESSORS interest in the Leased Premises, Land and Building (or proceeds thereof) for the satisfaction of any claim, judgment, decree, decision, or ruling lawfully requiring the payment of money by LESSOR, and no other property or assets of LESSOR, its officers, directors, agents, employees, partners, owners, shareholders, successors, assigns or legal representatives, shall be subject to lien, levy, execution or other enforcement procedure for the satisfaction of any such claim, judgment, injunction, decree, decision or ruling, nor shall any of the foregoing individuals or entities have any liability, whether jointly, individually or derivatively, for any obligation of or any claim against LESSOR.
27. ESTOPPEL REPRESENTATIONS
Within ten (10) business days after written request from LESSOR, LESSEE shall execute, acknowledge, verify and deliver to LESSOR written statements certifying that this Lease in full force and effect (and, if there has been a modification thereof, that the same is in full force and effect as modified), that to the best of LESSEEs knowledge there are no uncured defaults on the part of LESSOR (or of any such default exists, the specific nature and extent thereof), the date to which any rent or other charges have been paid in advance, if any, and such other matters as LESSOR may reasonably request.
28. ENVIRONMENTAL HAZARDS
A. The term Hazardous Substances, as used in this Lease shall mean all pollutants, contaminants, explosives, flammable materials, compressed materials, corrosives and toxic, radioactive and hazardous materials, and all other substances, the use, containment, existence, monitoring, transporting, maintenance prevention and/or removal of which is monitored, restricted, prohibited or penalized by an Environmental Law, which term shall mean all federal, state or local laws, ordinances, statutes, orders, directives and decrees, and all orders, directives, rulings, rules, regulations and decisions of a governmental or quasi-governmental authority, and all decisions, orders, decrees and judgments of a judicial or quasi-judicial body, and all rules, regulations, rulings, orders, directives and decisions of any regulatory or quasi-regulatory body relating to the foregoing or the pollution, contamination, regulation, monitoring, cleansing or protection of the environment. LESSEE hereby agrees that: (i) no activity or inactivity will be conducted on the Leased Premises that will produce any Hazardous Substances, except for such activities that are part of ordinary course for LESSEES business activities and which are conducted in accordance with all Environmental Laws and have been expressly and specifically approved in advance in writing by LESSOR in its sole discretion (Permitted Activities); LESSEE shall be responsible for obtaining any required permits, certificates variances and all approvals and for paying any fees and providing any testing required by any governmental agency; (ii) the Leased Premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of Permitted Materials (as defined in Article 28.B.), which are properly stored in a manner and location meeting all Environmental Laws and are expressly and specifically approved in advance in writing by LESSOR in its sole discretion; (iii) no portion of the Leased Premises will be used as a landfill, waste disposal facility, waste storage facility or a dump; (iv) there will be no installation of any above ground or underground tanks or other storage facilities of any type; (v) no surface or subsurface conditions
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will exist or come into existence that constitute, or with the passage of time may constitute a public or private nuisance; (vi) there will be no Hazardous Substances brought onto the Leased Premises, except for the Permitted Materials and items customarily found in an office setting, and if so brought or found located thereon, the same shall be immediately removed by LESSEE, with proper disposal pursuant to all Environmental Laws, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. LESSOR shall have the right but not the obligation to enter the Leased Premises for the purpose of inspecting the storage, use and disposal of Permitted Materials to ensure compliance with this Lease and all Environmental Laws. Should it be determined, in LESSORs sole discretion, that said Permitted Materials are being improperly stored, used, or disposed of, then LESSEE shall take such corrective action within 24 hours after written demand from LESSOR. If such corrective action is not so taken, LESSOR shall have the right, but not the obligation, to perform such work and LESSEE shall reimburse LESSOR for all costs associated with said work within five (5) days after written request. If at any time during or after the Term, the Leased Premises are found to be so contaminated or subject to said conditions existing as a result of LESSEEs actions or inactions, LESSEE shall immediately institute proper and thorough cleanup procedures at LESSEEs sole cost, and LESSEE agrees to indemnify and hold LESSOR harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from, in connection with or as a result of said conditions existing as a result of LESSEES actions. If such corrective action is not so taken, LESSOR shall have the right, but not the obligation, to perform such work and LESSEE shall reimburse LESSOR for all costs associated with said work within thirty (30) days after written request. The foregoing indemnification and the responsibilities of LESSEE in this Article 28 shall survive the end of the Term.
B. PERMITTED MATERIALS:
C. LESSOR hereby represents and warrants to LESSEE that as of the date hereof no Hazardous Substances are contained in any part of, nor exist in, the Leased Premises, the Building or the Land.
29. PROHIBITION OF LIENS
LESSEE has no authority, express or implied, to create, place or allow any lien or encumbrance of any kind or nature whatsoever upon the Leased Premises, Land or Building, or in any manner to bind the interest of LESSOR or LESSEE in the Leased Premises, Land or Building or to charge any amount payable under this Lease for any claim in favor of any person dealing with LESSEE, including those who may furnish materials or perform labor for any construction or repairs. LESSEE agrees that it will pay or cause to be paid all sums for labor performed or materials furnished in connection with any work performed on the Leased Premises, and that it will save and hold LESSOR harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the Leased Premises, Land or Building or against the right, title and interest of the LESSOR in the Leased Premises, Land or Building or
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under this Lease. LESSEE agrees to give LESSOR written notice within five (5) days of the placing of any lien or encumbrance against the Leased Premises, Land or Building.
30. PROPORTIONATE SHARE
Proportionate Share, as used in this Lease, shall mean 16.9% , the percentage which is the ratio of the square feet of the Leased Premises to the total rentable square feet contained in the Building (i.e., 16,485 rsf/97,525 rsf).
31. SEVERABILITY
If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent and for any reason, be declared invalid or unenforceable by a court of law or regulatory agency, the remainder of this Lease and the application of such term, covenant or condition to persons or circumstances other than those which or to which such may be held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition of this Lease shall be valid and enforceable to the fullest extent permitted by law.
32. FURNISHING NOTICE
Any notice, demand, request or writing which shall be required or permitted under this Lease must be in writing and (i) delivered in person or by courier or (ii) deposited, postage prepaid, return receipt requested in the US Mail, certified or registered, or (iii) via a nationally recognized overnight delivery service, and addressed to:
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LESSOR: |
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Sealy Summit Tech L.P. |
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Attn: Mark P. Sealy |
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Sealy & Company, Inc. |
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333 Texas Street, Suite 1050 |
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Shreveport, Louisiana 71101 |
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318-222-8700 |
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318-222-4124 |
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LESSEE: |
With a copy to: |
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Xplore Technologies Corp. |
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Attn: Mr. Michael Ross |
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14000 Summit Drive, Suite 900 |
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Austin, Texas 78728 |
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or such other address as LESSOR or LESSEE shall have most recently designated by written notice. Any notice, demand or request hereunder shall be deemed to have been received on the
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date of delivery, if delivered in person or by courier, or on the date of receipt or rejection on the return receipt, if delivered by US Mail or overnight delivery service.
33. TITLES
Notations or titles appearing in this Lease are provided merely for ease of reference, and the parties hereto expressly acknowledge and agree that such notations and titles do not constitute a part of this Lease, have no legal effect whatsoever in determining the rights or obligations of parties and shall have no bearing upon the meaning or interpretation of this Lease or any portion of it.
34. NON-WAIVER
The failure by LESSOR to act upon a specific Default, failure or breach of any term, covenant or condition in this Lease (whether once or more) is not and will not be intended to be, and shall not be deemed to be a surrender of the Leased Premises or a waiver, forfeiture, compromise, release or novation of such term, covenant, or condition nor of any subsequent Default, failure or breach of the same or any other term, covenant or condition of this Lease. Any acceptance by LESSOR of any amount of money is not intended to be, nor shall be deemed to be a surrender of the Leased Premises or a waiver, forfeiture, compromise, release or novation of any Default, failure or breath by LESSEE of any term, covenant or condition of this Lease, regardless of LESSORs knowledge of such Default, failure or breach at the time of acceptance of such amount. No covenant, term or condition of this Lease shall be deemed to have been compromised, forfeited, released, novated or waived by LESSOR unless specifically expressed in writing by LESSOR.
35. ENTIRE AGREEMENT
This Lease constitutes the entire agreement between the parties, and there are no other agreements or covenants by either LESSOR or LESSEE other than set forth in this Lease. No subsequent amendment, modification, renewal, extension, restatement, addition or deletion to this Lease shall be binding upon or inure to the benefit of LESSOR or LESSEE unless reduced to writing, signed by their authorized representatives.
36. RECORDATION OF LEASE OR SHORT FORM
Within ten (10) days after written request by LESSOR or LESSEE each party shall join in the execution of a memorandum or short form of this Lease for the purposes of recordation. The memorandum shall describe the parties, the Leased Premises, and the Term of this Lease and any options granted to LESSEE, and shall incorporate this Lease by reference.
37. TIME OF ESSENCE
Time is the essence with respect to the performance of each of the payments, covenants and agreements in this Lease.
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38. GOVERNING LAW; JURISDICTION; VENUE
The laws of the State of Texas shall govern the validity, performance, interpretation and enforcement of this Lease and all claims, suits, demands and actions relating to, in connection with and arising from this Lease and its subject matter, and all such claims, suits, demands and actions shall be made and brought in Travis County, Texas.
39. ACTS OF GOD; FORCE MAJURE
Except for all monetary obligations under this Lease, including, but not limited to, LESSEEs obligation to pay Rent hereunder, no party shall be required to perform any term, condition or covenant of this Lease, or be liable for any damages, so long as the performance or nonperformance of the term, condition or covenant is delayed, caused by or prevented by an Act of God or Force Majeure. For purposes of this Lease, Act of God and Force Majeure are defined as strikes, lock-outs, sit-downs, material or labor restrictions by any governmental authority, unusual transportation delay, riots, floods, washouts, explosions, earthquakes, fire, storms, weather (including wet grounds or inclement weather which prevents construction), acts of the public enemy, wars, insurrections or any other cause not reasonably within the control of the party and which by the exercise of due diligence is unable, fully or in part, to prevent or overcome.
40. AUTHORITY
The individual(s) signing on behalf of LESSOR and LESSEE below hereby represent and warrant that they are duly authorized to execute and deliver this Lease and bind LESSOR or LESSEE, as applicable, to the terms thereof without the consent of any other individual, entity or group of individuals and/or entities.
41. COMPLIANCE WITH LAW
All agreements between LESSOR and LESSEE, whether now existing or hereafter arising, are hereby limited so that in no contingency, whether by reason of demand or acceleration or otherwise, shall any amount contracted for, charged, received, paid or agreed to be paid to LESSOR exceed the maximum amount permissible under applicable law. If, from any circumstances whatsoever, any amount would otherwise be payable to LESSOR in excess of the maximum lawful amount, such payable to LESSOR shall be reduced to the maximum amount permitted under applicable law; and if from any circumstances LESSOR shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the amounts due and to become due under this Lease and not the payment of interest, or if such excessive amount exceeds amounts due and to become due under this Lease, such excess shall be refunded to LESSEE. This Article 40 shall control all agreements between the LESSOR and LESSEE.
42. QUIET ENJOYMENT.
LESSEE, on paying the Rent and keeping and performing the conditions and covenants herein contained, shall and may peaceably and quietly enjoy the Leased Premises for the Term,
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subject to the aforesaid underlying leases, mortgages, deed of trust and security agreements, all applicable laws and other governmental and legal requirements, applicable insurance requirements and regulations, and the provisions of this Lease.
43. REAL ESTATE BROKERS/COMMISSIONS.
Brokers Commissions shall be paid by LESSOR as specified in the written commission agreement entered into by and between LESSOR and CB Richard Ellis, Inc. its Lease-Listing Agent, and between LESSOR and Hill Partners Corporate Services, as LESSEE=s agent. Except as set forth in the preceding sentence, LESSOR and LESSEE represent and warrant to each other that no other real estate brokerage or leasing commission, finders fee or other similar compensation shall be due and owing in connection with this Lease. LESSOR and LESSEE agree to indemnify and hold one another harmless from any cost or claim or any agent, broker or person, other than the Brokers identified herein, alleging to be acting for the indemnifying party for fee, commission or other compensation by reason of this Lease. The indemnity obligations set forth herein shall survive the expiration and any termination or cancellation of this Lease notwithstanding any contrary provision.
44. PARKING RATIOS.
At all times pertinent hereto, LESSOR shall maintain, at a minimum, the parking ratios set by the City of Austin, Texas as to the number of parking spaces per square foot of space in the Building. The current parking ratios set by the City of Austin are one parking space for each 450 square feet of rentable space.
45. ACCESS TO BUILDING.
LESSEE shall, through keys, codes or otherwise, have access to the Leased Premises twenty-four (24) hours per day, seven (7) days per week.
46. ATTORNEYS FEES.
In the event either party to this Lease commences legal action of any kind to enforce the terms and conditions of this Lease, the prevailing party in such litigation shall be entitled to collect from the other party all reasonable costs, expenses and attorneys fees incurred in connection with such action.
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This Lease Agreement is executed as of the dates indicated below.
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Re: |
14000 Summit Drive |
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Austin, Texas |
FIRST AMENDMENT TO LEASE
THE STATE OF TEXAS |
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KNOW ALL MEN BY THESE PRESENTS: |
COUNTY OF TRAVIS |
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THIS FIRST AMENDMENT TO LEASE (this Amendment ) has been executed as of this 18th day of May, 2003, by SEALY SUMMIT TECH, L.P., a Georgia limited partnership ( Landlord ) and XPLORE TECHNOLOGIES CORPORATION, a Canadian corporation, ( Tenant ).
R E C I T A L S:
A. Landlord and Tenant have heretofore entered into that certain Lease Agreement dated April 10, 2003 (the Lease), pursuant to which Tenant leased from Landlord approximately 16,485 square feet of rentable area located in Suite 900 (the Premises ) in that certain building known as Sealy Tech Center @Summit and located at 14000 Summit Drive, Austin, Texas and more particularly described in the Lease (the Building ). Unless otherwise defined herein, all initially capitalized terms will have the respective meanings assigned thereto in the Lease.
B. Landlord and Tenant desire to execute this Amendment in order to evidence their agreement to amend the Lease subject to, and in accordance with, the terms more particularly set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
ARTICLE I
CERTAIN AMENDMENTS
SECTION 1.01 Base Monthly Rent . Tenant has requested and Landlord has agreed to amortize $15,707.80 of the cost of certain additional improvements made by Tenant to the Premises (such cost, the Additional Cost ) over the Term. Landlord agrees that the Additional Cost shall be added to the Allowance and paid in the same manner as the Allowance is paid for in Exhibit C to the Lease. Tenant agrees that the Base Monthly Rent set forth in Article 4E of the Lease shall be modified as follows: (a) the Base Monthly Rent due during each of the first two (2) months of the Term shall he increased by $409.55 from $0.00 to $409.55 per month; and (b) the Base Monthly Rent due during each of months 3 to 48, inclusive, of the Term shall be increased by $409.55 from $11,539.50 to $11,949.05 per month.
SECTION 1.02 Further Amendments . The Lease shall be and hereby is further amended wherever necessary, even though not specifically referred to herein, in order to give effect to the terms of this Amendment.
ARTICLE II
MISCELLANEOUS
SECTION 2.01 Ratification . The Lease, as amended hereby, is hereby ratified, confirmed and deemed in full force and effect in accordance with its terms. Each party represents to the other that such party (a) is currently unaware of any default by the other party under the Lease; and (b) has full power and authority to execute and deliver this Amendment and this Amendment represents a valid and binding obligation of such party enforceable in accordance with its terms.
SECTION 2.02 Notices . All notices to be delivered to Landlord under the Lease or otherwise with respect to the Premises shall, unless Landlord otherwise notifies Tenant, be delivered to Landlord at the address and otherwise in accordance with Article 32 of the Lease, but with an additional copy at the same time to the following address:
c/o Sealy & Company, Inc.
8401 North Central Expressway
Suite 150, LB 29
Dallas, Texas 75225
Attn: Scott P. Sealy, Jr.
or to such other person at such other address as Landlord may designate by notice to Tenant.
SECTION 2.03 Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of Texas.
SECTION 2.04 Counterparts . This Amendment may be executed in multiple counterparts each of which is deemed an original but together constitute one and the same instrument. This Amendment may be executed by facsimile and each party has the right to rely upon a facsimile counterpart of this Amendment signed by the other party to the same extent as if such party had received an original counterpart.
IN WITNESS WHEREOF, this Amendment has been executed as of (but not necessarily on) the date and year first above written.
Dated: May 18, 2003 |
LANDLORD : |
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SEALY SUMMIT TECH, L.P.,
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By: |
Sealy G.P. Summit Tech, LP.,
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By: |
Summit Tech Investors, L.L.C.,
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By: |
/s/ Mark P. Sealy |
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Mark P. Sealy, its manager |
Date: May 17, 2003 |
TENANT : |
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XPLORE TECHNOLOGIES CORPORATION, a
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By: |
/s/ Shelley Lance |
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Name: Shelley Lance |
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Title: Corporate Secretary |
SECOND AMENDMENT OF LEASE
This Second Amendment of Lease (Second Amendment) is entered into to be effective on the date of the last execution by the parties hereto as shown on the signature page below (Effective Date) by and between Sealy Summit Tech L.P., a Georgia limited partnership (LESSOR) and Xplore Technologies Corporation, a corporation organized under the laws of Canada (LESSEE).
Recitals
WHEREAS, LESSOR and LESSEE entered into that certain Lease Agreement dated effective April 10, 2003 (the Lease) for 16,485 square feet in the industrial park known locally as Sealy Tech Center @ Summit, 14000 Summit Drive, Austin, Texas (the Original Premises).
WHEREAS, and pursuant to the terms of the Lease, the term of the Original Premises commenced on June 1, 2003 and expires on May 31, 2007 (the Expiration Date).
WHEREAS and under the terms of the Lease, LESSEE agreed to pay as Base Rent for the Original Premises the monthly amount of $11,539.50 or $.70 per square foot of space in the Original Premises.
WHEREAS, LESSEE later requested and LESSOR agreed to amortize an additional $11,902.80 in costs for additional tenant improvements to the Original Premises, resulting in a $409.55 increase in Base Rent for months 3 through 48 of the Original Term, or a Base Rent of $11,949.05 per month or $.72 per square foot of space in the Original Premises. This increase in Base Rent was memorialized by that certain First Amendment to Lease dated May 18, 2003 between LESSOR and LESSEE (the First Amendment).
WHEREAS, and pursuant to the terms of the Expansion Option attached to the Lease as Exhibit G, LESSEE was granted a one-time right of first refusal (ROFR) on all or a portion of the 8,160 square feet directly adjacent to the Original Premises (the Expansion Premises).
WHEREAS by letter dated January 14, 2004, LESSOR notified LESSEE of LESSORs receipt of a bona-fide third party offer for the Expansion Premises. By letter dated February 3, 2004, LESSEE exercised its ROFR rights as to 5,192 rentable square feet of the Expansion Premises (the Additional Space) and under the terms and conditions more specifically described below.
NOW THEREFORE, for and in consideration of the mutual premises set forth below and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
2
Agreement
1. Incorporation of Recitals . The foregoing recitals shall be incorporated into the parties agreement as if copied herein in full.
2. Leased Premises . Paragraph 1 of the Lease shall be amended and in each instance in said Lease, except as specifically provided herein, reference to the Leased Premises shall mean that certain 21,677 square feet consisting of the Original Premises plus the Additional Space (collectively referred to hereinafter as the Leased Premises).
3. Term . Paragraph 2 of the Lease shall be amended to extend the Expiration Date under the Lease as to all of the Leased Premises to July 31, 2009 (Extended Term).
4. Lease Commencement Date for Additional Space . LESSEE shall take possession of the Additional Space on the date that the Tenant Improvements described in Paragraph 6 below have been substantially completed (the Lease Commencement Date for the Additional Space). Notwithstanding anything to the contrary contained herein, LESSOR and LESSEE intend and agree that each shall have vested rights on the Effective Date and that it is intended that this Second Amendment shall be fully binding upon the parties and shall be in full force and effect from the Effective Date to the Expiration Date of the Extended Term.
5. Base Rent Commencement on Additional Space . Paragraph 4 of the Lease shall be amended to include in LESSEEs obligation to pay rent, LESSEEs obligation to pay rent on the Additional Space in the Base Monthly Rent amount of $3,634.40 commencing on the first day of the third full month following the Lease Commencement Date for the Additional Space and continuing in each successive month thereafter through July 2009. If the Lease Commencement Date for the Additional Space falls on a day other than the first day of a calendar month, Base Monthly Rent for that month shall be prorated on a daily basis (the intention of the parties being to allow LESSEE two (2) free months of Base Monthly Rent. LESSEEs obligation to pay, as additional rent, the Proportionate Share of Operating Expenses chargeable to the Additional Space as set forth in the Lease shall commence on the Lease Commencement Date for the Additional Space.
6. Tenant Improvements for Additional Space . The Work Agreement attached to the Lease as Exhibit C shall be amended to include the tenant improvements to be made to the Additional Space in accordance with this Second Amendment (Tenant Improvements) to the extent applicable thereto and as specifically modified hereby. In that regard, LESSOR agrees to construct the Tenant Improvements in the Additional Space in substantial accordance with plans to be provided by LESSEE to LESSOR no later than May 1, 2004. LESSOR shall pay for a portion of the cost of the Tenant Improvements for the Additional Space (the Allowance).
(a) Allowance . Subject to paragraph 6(b) below, the Allowance for the Additional Space will be in an amount up to Ninety-Eight Thousand Six Hundred Forty-Eight and No/100 Dollars ($98,648.00).
(b) Excess Funds . In the event that the cost of the Tenant Improvements exceeds the Allowance, LESSOR shall loan LESSEE such additional amounts up to an additional $4.00 per square foot (Excess Funds). The Excess Funds shall be amortized over the 60 month term at
3
10% interest per annum. In the event that LESSOR contributes Excess Funds to the construction of the Tenant Improvements, the parties shall, within 20 days of substantial completion of such Tenant improvements, execute an amendment to the Lease modifying the amount of Base Monthly Rent for the Additional Space to include the Excess Funds as set forth herein. LESSEEs failure to execute the rent amendment in the time required will be an event of default under the Lease entitling LESSOR to exercise all of the remedies set forth in the Lease.
7. Adjustment of Base Rent for Original Premises . Beginning August 1, 2007 and continuing through the end of the Extended Term, LESSEE shall pay as Base Rent for the Original Premises, the amount of $11,539.50 per month or $.70 per square foot of space in the Original Premises. The parties agree and acknowledge that (unless otherwise amended by a written agreement signed by all parties hereto) beginning August 1, 2007, the Base Rent for the Leased Premises shall be in the amount of $15,173.90.
8. Reserved Parking Spaces . LESSEE shall have the exclusive use of up to ten (10) parking spaces immediately in front of the Leased Premises (Reserved Spaces). These Reserved Spaces shall be identified by signs or other markings on the Reserved Spaces themselves. LESSEE shall also have the non-exclusive use of all of the parking areas on the Land (as defined in the Lease), except for the spaces reserved for the exclusive use of the other tenants.
9. Expansion Option . LESSEE shall have the right of first refusal on the ROFR Space (as defined in the attached Exhibit A) as provided and in accordance with the terms of the Expansion Option attached hereto as Exhibit A and incorporated herein by reference for all purposes.
10. Miscellaneous .
(a) In all other respects, the Lease is ratified and affirmed. Each party represents to the other that such party (a) is currently unaware of any default by the other party under the Lease, (b) has full power and authority to execute and deliver this Second Amendment, and (c) this Second Amendment represents a valid and binding obligation of such party enforceable in accordance with its terms.
(b) All capitalized terms, unless otherwise defined herein, shall have the meaning given to such term in the Lease.
(c) This Second Amendment shall bind LESSOR and LESSEE and their respective successors and assigns. The provision of this Second Amendment shall prevail over any conflicting provisions of the Lease and/or the First Amendment.
(d) This Second Amendment may be executed in identical original counterparts, each of which for all purposes, is deemed to be an original, and all of which constitute, collectively one amendment.
4
(e) This Second Amendment shall be governed by and construed in accordance with the laws of the State of Texas.
EXECUTED to be effective as of the Effective Date.
LESSOR :
Sealy Summit Tech L.P., a Georgia limited partnership
By: Sealy G.P. Summit Tech L.P., a Georgia limited partnership
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By: |
Summit Tech Investors, L.L.C., |
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a Georgia limited liability company |
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By: |
/s/ Mark P. Sealy |
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Mark P. Sealy, Manager |
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Date: |
May 26, 2004 |
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LESSEE:
Xplore Technologies Corporation,
a corporation organized under the laws of Canada
By: |
/s/ B. Groh |
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Print Names: |
B. Groh |
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Date: |
May 17, 2004 |
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5
THIRD AMENDMENT OF LEASE
This Third Amendment of Lease (Third Amendment) is entered into on this the 29 th day of June, 2004 (Effective Date) by and between Sealy Summit Tech L.P., a Georgia limited partnership (LESSOR) and Xplore Technologies Corporation, a corporation organized under the laws of Canada (LESSEE).
Recitals
WHEREAS, LESSOR and LESSEE entered into that certain Lease Agreement dated effective April 10, 2003 (the Lease) for 16,485 square feet in the industrial park known locally as Sealy Tech Center @ Summit, 14000 Summit Drive, Austin, Texas (the Original Premises).
WHEREAS, by way of that certain First Amendment to Lease dated May 18, 2003, the Base Rent was increased in order to amortize an additional $11,902.80 in costs for additional tenant improvements to the Original Premises, resulting in a $409.55 increase in Base Rent for months 3 through 48 of the Original Term, or a Base Rent of $11,949.05 per month or $.72 per square foot of space in the Original Premises.
WHEREAS, by way of that certain Second Amendment of Lease dated effective May 26, 2004 (the Second Amendment) and following LESSEEs exercise of its Expansion Option, the Original Premises were expanded to include an additional 5,192 rentable space feet, the Base Rent was increased to include the Additional Space and LESSEE was granted an additional $98,648.00 in additional tenant finish allowance.
WHEREAS, the Second Amendment contemplated that the cost of the Tenant Improvements might exceed the Allowance, and if so, LESSOR agreed to loan LESSEE that part of any excess up to $4.00 per square foot of the Additional Space or $20,768.00 (the Excess Funds) as more particularly set forth therein.
WHEREAS, the cost of the Tenant Improvements did exceed the Allowance by a total of $99,206.86 and this Third Amendment is entered into in order to memorialize the parties agreement in regard to same.
NOW THEREFORE, for and in consideration of the mutual premises set forth below and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1
Agreement
1. Incorporation of Recitals . The foregoing recitals shall be incorporated into the parties agreement as if copied herein in full.
2. Base Rent . Paragraph 4 of the Lease shall be amended to include in LESSEEs obligation to pay rent, the Excess Funds amortized over the remainder of the Extended Term for the Additional Space at 10% per annum, or an increase in the Base Monthly Rent amount of $441.26 commencing on August 1, 2004 and continuing in each successive month thereafter through July 2009. LESSOR and LESSEE agree and acknowledge that beginning August 1, 2004, its Base Monthly Rent obligation throughout the Term of the Lease shall be as follows:
Original Premises |
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Rent |
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August 1, 2004 thru July 31, 2006 |
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$ |
11,949.05 |
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August 1, 2007 thru August 31, 2009 |
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$ |
11,539.50 |
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Expansion Premises |
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Rent |
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August 1, 2004 thru August 31, 2009 |
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$ |
4,075.66 |
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3. Remainder of Cost of Tenant Improvements . The remaining $78,438.86 in amounts spent by LESSEE on tenant improvements for the Additional Space over the Allowance ($99,206.86 - $20,768.00) shall be paid by LESSEE to LESSOR within thirty (30) days of its receipt of an invoice showing the work completed through the date of the invoice and the cost of same. Beginning on the 31 st day after LESSEEs receipt of each invoice, any unpaid amounts shall accrue interest at the rate of 15% per annum until paid.
4. Miscellaneous .
(a) In all other respects, the Lease is ratified and affirmed. Each party represents to the other that such party (a) is currently unaware of any default by the other party under the Lease, (b) has full power and authority to execute and deliver this Third Amendment, and (c) this Third Amendment represents a valid and binding obligation of such party enforceable in accordance with its terms.
(b) All capitalized terms, unless otherwise defined herein, shall have the meaning given to such term in the Lease.
(c) This Third Amendment shall bind LESSOR and LESSEE and their respective successors and assigns. The provision of this Third Amendment shall prevail over any conflicting provisions of the Lease and/or the First and/or Second Amendment.
(d) This Third Amendment may be executed in identical original counterparts, each of which for all purposes, is deemed to be an original, and all of which constitute, collectively one amendment.
2
(e) This Third Amendment shall be governed by and construed in accordance with the laws of the State of Texas.
EXECUTED to be effective as of the Effective Date.
LESSOR :
Sealy Summit Tech L.P., a Georgia limited partnership
By: Sealy G.P. Summit Tech L.P., a Georgia limited partnership
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By: |
Summit Tech Investors, L.L.C.,
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By: |
/s/ Mark P. Sealy |
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Mark P. Sealy, Manager |
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Date: |
8/04/04 |
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LESSEE:
Xplore Technologies Corporation,
a corporation organized under the laws of Canada
By: |
/s/ David Belbeck |
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Print Names: |
David Belbeck |
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Date: |
July 29, 2004 |
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3
Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges
For Six Months Ended September 30, 2006
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Pre-Tax Net Income |
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9/30/2006 |
(2,488,665 |
) |
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Adjustments |
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Fixed Charges: |
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Amortization of Interest |
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906,512 |
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Interest Expense |
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395,568 |
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Dividends Accrued |
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358,015 |
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Interest on Rent |
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0 |
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1,660,095 |
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Adjusted NI |
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(828,570 |
) |
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Ratio |
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(0.50 |
) |
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Exhibit 21.1
Subsidiaries of Xplore Technologies Corp.
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State of
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Name under which
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Xplore Technologies Corporation
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Delaware |
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Xplore Technologies Corporation of America |
Exhibit 23.2
MINTZ & PARTNERS LLP
INDEPENDENT AUDITORS CONSENT
We consent to the inclusion in this Registration Statement of Xplore Technologies Corp. on Form S-4 (the Registration Statement) of (i) our report dated June 20, 2006 (except for Notes 19(a) and 19(c), as to which the date is November 8, 2006), appearing in the prospectus that forms a part of the Registration Statement (the Prospectus), and (ii) to the reference to us under the heading Experts in the Prospectus.
Toronto, Canada
November 14, 2006
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CHARTERED ACCOUNTANTS |