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
Exhibit 10.6
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 Lender’s 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 Corporation’s 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 ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, 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 Lender’s 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 Person’s 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 & Poor’s Rating Service or at least P-1 from ▇▇▇▇▇’▇ 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s consolidated statement of loss included in the Corporation’s 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’, warehousemen’s and materialmen’s liens and liens in respect of vacation pay, workers’ compensation, employment insurance or similar statutory obligations, provided the obligations secured by such liens are not yet due and payable 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 Corporation’s 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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 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 “Arm’s 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 Corporation’s 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-Arm’s 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 worker’s 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 ▇▇▇▇, 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 ▇▇▇▇▇ RAYSMAN ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ 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 Corporation’s 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 14▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇;
(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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Arm’s 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 Arm’s 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 Corporation’s 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 Corporation’s 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 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 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 Lender’s 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 Borrower’s 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 Borrower’s 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
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Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ Raysman ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
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Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
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(b) to the Borrowers at:
Xplore Technologies Corp.
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Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Xplore Technologies Corporation of America
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Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
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Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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 CORP. |
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ |
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Title: Chief Financial Officer |
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XPLORE TECHNOLOGIES CORPORATION OF AMERICA |
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ |
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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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Name: ▇▇▇▇▇▇ ▇▇▇▇▇ |
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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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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ |
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Title: Chief Executive Officer |
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