DECEMBER 2004 DEBENTURE PURCHASE AGREEMENT

 

 

DECEMBER 2004 DEBENTURE PURCHASE AGREEMENT

 

THIS AGREEMENT is made the 17th day of December, 2004, by and among Xplore Technologies Corp. , a corporation incorporated under the laws of Canada (the “ Corporation ”), Phoenix Venture Fund LLC , a limited liability company organized under the laws of the State of Delaware (“ Phoenix ”) and each of the other lenders listed on Schedule 1 attached to this Agreement (each such lender, a “ Lender ” and collectively, the “ Lenders ”).

 

WHEREAS the Corporation is in the business of engineering, developing, integrating and marketing ruggedized mobile wireless pen-based computing systems;

 

WHEREAS the Lenders agree to subscribe for and purchase from the Corporation, and the Corporation agrees to issue to the Lenders, units (the “ Units ”) each consisting of (a) a senior secured convertible debenture of the Corporation in the principal amount of $1,000 (each, a “ Debenture ”), and (b) a share purchase warrant (each, a “ Warrant ”) entitling the holder thereof to purchase up to 1,820 Common Shares of the Corporation (“ Common Shares ”). The Debentures, collectively held by all Lenders, will not exceed in the aggregate, the principal amount of Five Million United States Dollars ($5,000,000) and the Warrants, collectively as held by all Lenders, will be exercisable for an aggregate of no more than 9,100,000 Common Shares (subject to the adjustments provided by the terms of the Warrants);

 

WHEREAS the proceeds to the Corporation paid by the Lenders for the Units will be used by the Corporation solely in accordance with the terms of this Agreement;

 

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:

 

ARTICLE 1.
TRANSACTIONS

 

Section 1.1.                                    Issuance of Debentures and Share Purchase Warrants to the Lenders.

 

On the terms and subject to the conditions hereof, on the Closing Date each Lender will purchase from the Corporation and the Corporation will issue and sell to each such Lender that number of Units as is set forth opposite such Lender’s name on Schedule 1 hereto, each of which shall consist of one Debenture in the principal amount of $1,000 and a Warrant entitling the holder thereof to purchase up to 1,820 Common Shares. The terms and conditions of the Debentures are as set forth herein and are evidenced by the Debenture Certificates in the form attached hereto as Exhibit A. The terms and conditions of the Warrants are as set forth in the Share Purchase Warrant Certificate in the form attached hereto as Exhibit B .

 

Section 1.2.                                    Purchase Price

 

On the terms and subject to the conditions hereof, on the Closing Date, each Lender shall pay the amount set forth opposite its name on Schedule 1 , which amount has been calculated by multiplying the per Unit purchase price of $1,000 (the “ Purchase Price ”) by the number of Units being purchased by such Lender, to the Corporation by way of certified check, bank draft

 

3

 

or wire transfer, less in the case of Phoenix Fund as a Lender, (i) any unpaid fees and expenses payable by the Corporation to Phoenix pursuant to Section 1.3 hereof, and (ii) an amount equal to the aggregate principal amount of the Fund Debenture plus all interest accrued thereon, which shall represent payment-in-full of the Fund Debenture. The Corporation hereby irrevocably directs Phoenix to withhold such fees and expenses from the payment of the Purchase Price and Phoenix hereby agrees that the withholding of such fees and expenses shall constitute Phoenix’s acknowledgement and agreement that the Corporation shall not thereafter have any further obligation to Phoenix under Section 1.3 hereof, except as set forth in Section 7.2(f).

 

Section 1.3.                                    Fees and Expenses

 

(a)                                   The Corporation acknowledges and agrees that it will be responsible for and will pay or reimburse Phoenix forthwith on demand for all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by Phoenix, its representatives and consultants relating to its investigation of the Corporation, the Subsidiaries and its respective businesses, the negotiation, preparation and review of this Agreement and the other Instruments and related agreements and all other matters pertaining to the transactions hereby contemplated, including, without limitation, all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by Phoenix for legal advice and services in connection with such transactions.

 

(b)                                  The Corporation acknowledges and agrees that it will be responsible for and will pay all such reasonable fees (including, but not limited to, legal fees), expenses and other out-of-pocket expenses whether or not the transactions hereunder are completed and even if it is the Lenders who terminate this Agreement pursuant to Section 7.2 hereof; provided , that if this Agreement is terminated prior to Closing, the maximum amount the Corporation will be required to pay or reimburse the Lenders for legal fees is $100,000 (inclusive of outstanding and unpaid expenses of Phoenix’s counsel incurred since February 2004).

 

Section 1.4.                                    Use of Proceeds

 

The Corporation hereby covenants, agrees, represents and warrants with and to the Lenders that the Corporation will use the net proceeds from the issuance and sale of the Units to the Lenders solely to finance its product development and for working capital and general corporate purposes; provided , that $2,686,109.59 from such net proceeds will be used to repay the CRAT Debenture and the Fund Debenture in full, plus all interest accrued thereon, and up to a maximum of $100,000 from such net proceeds will be used to pay a portion of the legal expenses incurred in connection with the financing and restructuring of the Corporation’s obligations and credit arrangements with Wistron Corporation.

 

Section 1.5.                                    Closing Arrangements

 

Subject to the terms and conditions hereof, the transactions contemplated herein shall close (the “ Closing ”) on the Closing Date at such place or places as may be mutually agreed upon by the Corporation and Phoenix.

 

4

 

ARTICLE 2.
PAYMENT OBLIGATIONS

 

Section 2.1.                                    Principal Sum

 

For value received, the Corporation, having its principal business office at 14000 Summit Drive, Austin, Texas 78728, shall pay to the order of each of the Lenders the principal amount of each Debenture held by such Lender (as set forth opposite such Lender’s name on Schedule 1 ), unless such Debenture has been prepaid or has been converted by the Lender, plus all accrued and unpaid interest thereon in lawful money of the United States on October 31, 2005 (the “ Maturity Date ”), or such earlier date as the Obligations shall become due and payable hereunder, at the offices of the respective Lenders identified on the signature pages attached hereto or such other place as the Lenders may designate in writing not less than two Business Days prior to the Maturity Date.

 

Section 2.2.                                    Interest

 

The principal outstanding on each Debenture from time to time shall bear interest from and including the Closing Date to the date of repayment in full at 10% per annum calculated and payable semi-annually, in arrears (the “ Interest Rate ”), and payable in cash or, at the option of the Lender with 30 days prior written notice to the Company and subject to the approval of the Toronto Stock Exchange, that number of Conversion Shares determined by dividing (a) the amount of the applicable interest payment by (b) the volume weighted average trading price of the Common Shares on the TSX for the 10 trading days preceding the applicable interest payment date less the maximum discount permitted by the TSX, on June 30th and December 31st in each year during which any Obligations are outstanding, the first of such payments being due December 31, 2004. Interest on overdue interest shall be calculated and payable at the same rate. After the occurrence of an Event of Default and for so long as it continues, all Obligations shall bear interest at a rate that is 5% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the Debentures (the “ Default Interest Rate ”).

 

This Agreement and the other Transaction Documents are subject to the express condition that at no time shall the Corporation be required to pay interest on the principal balance of the Debentures at a rate which could subject Lenders to either civil or criminal liability as a result of being in excess of the maximum amount permissible under applicable usury or similar laws (the “ Maximum Legal Rate ”). If by the terms of this Agreement or the other Transaction Documents, the Corporation is at any time required or obligated to pay interest on the principal balance due under the Debentures at a rate in excess of the Maximum Legal Rate, the Interest Rate, or the Default Interest Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lenders for the use, forbearance, or detention of the sums due under the Debentures, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of the Debentures until payment in full so that the rate or amount of interest on account of the Debentures does not exceed the Maximum Legal Rate from time to time in effect and applicable to the Debentures for so long as the Debentures are outstanding.

 

5

 

Section 2.3.                                    Repayments

 

The Corporation shall pay to each Lender the principal amount, any accrued and unpaid interest (in cash or Conversion Shares at the option of the Lender in accordance with Section 2.2) and any other monies owing in respect of the Debentures in full on the Maturity Date or on such earlier date as the Obligations shall become due and payable in full hereunder. Each payment of principal amount of the Debentures hereunder (whether at maturity, by way of prepayment of otherwise), and each payment of interest on the Debentures shall be made and applied to the Lenders pro rata (in cash or Conversion Shares, as the case may be) based on the ratio that each Lender’s Debentures bears to the total number of Debentures issued to the Lenders hereunder.

 

Section 2.4.                                    Prepayments

 

The Corporation may, upon at least fifteen (15) days prior notice to the Lenders, prepay the Debentures (a “ Voluntary Prepayment ”), without premium or penalty, in whole or in part at any time (any such date, the “ Prepayment Date ”); provided that upon any such prepayment all accrued and unpaid interest as of the date immediately preceding the Prepayment Date shall be paid in cash.

 

Section 2.5.                                    Acceleration Events/Mandatory Prepayments

 

(a)                                   Subject to the terms of the Intercreditor Agreement and the Wistron Intercreditor Agreement, the unpaid principal amount of the Debentures, together with any accrued and unpaid interest thereon, shall become immediately due and payable on a first priority basis prior to any repayment of the Existing Debentures, but pari passu with the CRAT Debenture, if then outstanding, and the Fund Debenture, if then outstanding, and subject to the rights of Wistron under the Wistron Intercreditor Agreement (an “ Acceleration Event ”), in whole or in part, to the extent of fifty percent (50%) of the proceeds received by the Corporation in any one or more financing transactions (a “ Financing ”) involving the sale and issuance by the Corporation of equity or debt securities of the Corporation (other than proceeds from the exercise of share options, stock purchase warrants or other convertible securities of the Corporation outstanding at or prior to the Closing or any Warrant). Subject to the terms of the Intercreditor Agreement and the Wistron Intercreditor Agreement, any remaining proceeds of any such Financing allocated to the repayment of Funded Indebtedness of the Corporation shall first be applied to repayment of the Debentures prior to any repayment of the Existing Debentures or any other Funded Indebtedness of the Corporation, except for the CRAT Debenture, if still outstanding, and the Fund Debenture, if then outstanding.

 

(b)                                  The Corporation shall, subject to the terms of the Intercreditor Agreement and the Wistron Intercreditor Agreement, promptly upon the consummation of a sale or disposition of assets in bulk (other than as part of a bankruptcy or insolvency proceeding or a liquidation of the Corporation or any Subsidiary) by the Corporation or any Subsidiary in which the Corporation or Subsidiary, as applicable, shall receive aggregate proceeds in excess of $5,000,000, prepay the Debentures, on a first priority basis prior to any repayment of the Existing Debentures (a “ Mandatory Prepayment ”), to the extent of all such proceeds.

 

6

 

Section 2.6.                                    Payment in US Dollars .

 

All payments made in cash by the Corporation shall be made in U.S. Dollars in immediately available funds.

 

Section 2.7.                                    Taxes

 

Any and all payments or reimbursements made under the Debentures shall be made free and clear of, and without deduction for, any and all taxes, levies, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, deductions, charges or withholdings and all liabilities with respect thereto, excluding such taxes imposed on net income, “ Tax Liabilities ”), excluding, however, (i) any taxes imposed on income or any franchise tax imposed in lieu of a net income tax; (ii) any taxes imposed on any Lender (or any Person or entity with an interest in Lender), and (iii) any taxes for which any Lender (or any Person or entity with an interest in such Lender) would be entitled to claim a credit against its income tax liability in the country in which the Lender is organized or otherwise subject to taxation. If the Corporation shall be required by law to deduct any such amounts from or in respect of any sum payable hereunder to a Lender then, the Corporation shall pay such amounts to the appropriate Governmental Body and provide such Lender with satisfactory documentary evidence of such payment within ten (10) days after such payment and the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, such Lender receives an amount equal to the sum it would have received had no such deductions been made.

 

ARTICLE 3.
INTERPRETATION

 

Section 3.1.                                    Defined Terms

 

As used herein the following expressions shall have the following meanings:

 

“ Accounts Receivable ” means all of the Corporation’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 a Corporation whether through the ownership of Voting Shares or by contract or otherwise.

 

“Aggregate Purchase Price” means the total amount of up to $5,000,000 paid collectively by all Lenders to the Corporation for Units, as more specifically set forth on Schedule 1 hereto.

 

“Applicable Law” means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees of Governmental Bodies.

 

7

 

“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 Moody’s 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 Lenders pursuant to Section 6.5 or by the Existing Debenture Holders pursuant to the November 2002 Debenture Agreement, the April 2003 Debenture Agreement or the Second April 2003 Debenture Agreement, such new director shall, for purposes hereof, be considered as a member

 

8

 

of the Incumbent Board; provided further , however , that no individual (other than an individual designated pursuant to Section 6.5 or pursuant to the rights of the Existing Debenture Holders) shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “ Proxy Contest ”) including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest;

 

(iii)                                the Corporation shall cease to own and control all of the economic and voting rights associated with ownership of at least 100% of the outstanding shares of all classes of the Subsidiaries on a fully diluted basis, other than pursuant to the dissolution or winding-up of a Subsidiary pursuant to which all of the assets of such Subsidiary are transferred or conveyed to the Corporation or a Subsidiary; and

 

(iv)                               with respect to any of the Corporation or Subsidiaries, the time when the Corporation or such Subsidiary has sold, transferred, conveyed assigned or otherwise disposed of all or substantially all of its assets, other than pursuant to a transaction in which such assets are sold, transferred, conveyed, assigned or disposed of to the Corporation or a Subsidiary.

 

“Closing Date” means December 17, 2004 or such other date as Phoenix and the Corporation may agree upon as the Closing Date.

 

“Contingent Liabilities” means, as applied to any Person, any direct or indirect contingent liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings. Contingent Liabilities shall also include (A) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (B) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, other than pursuant to routine agreements entered into in the ordinary course of business, and (C) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefore, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Liabilities shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.

 

“ Conversion Shares ” means Common Shares issued to the Lenders in payment of interest on the Debentures in lieu cash.

 

9

 

“ CRAT ” means The Philip S. Sassower 1996 Charitable Remainder Annuity Trust, a trust organized under the laws of the State of New York.

 

“ CRAT Debenture ” means that debenture of the Corporation issued pursuant to that certain Debenture Purchase Agreement, dated September 15, 2004, by and between the Corporation (as Borrower) and The Philip S. Sassower 1996 Charitable Remainder Annuity Trust  (the “ September 2004 Debenture Agreement ”).

 

“Default” means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default.

 

“Encumbrance” means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, hypothec, levy, execution, seizure, attachment, garnishment, right of distress or other claim in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back.

 

“Environmental Laws” means all applicable federal, provincial, state, municipal or local laws, statutes, regulations or ordinances relating to the environment, occupational safety, health, product liability and transportation.

 

“Environmental Order” means any prosecution, order, decision, notice, direction, report, recommendation or request issued, rendered or made by any Governmental Body in connection with Environmental Laws.

 

“Event of Default” has the meaning ascribed to such term in Section 8.1.

 

“ Existing Debentures ” means those debentures of the Corporation issued pursuant to (i) that certain Debenture Purchase Agreement, dated November 5, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the “ November 2002 Debenture Agreement ”), (ii) that certain December 2002 Debenture Purchase Agreement, dated December 6, 2002, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the “ December 2002 Debenture Agreement ”), (iii) that certain April 2003 Debenture Purchase Agreement, dated April 9, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the “ April 2003 Debenture Agreement ”) and (iv) that certain Second April 2003 Debenture Purchase Agreement, dated April 28, 2003, by and among Xplore Technologies Corp (as Borrower), Phoenix Enterprises LLC and the lenders listed on Schedule 1 thereto, as amended (the “ Second April 2003 Debenture Agreement ”).

 

“ Existing Debenture Agreements ” means (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement and (iv) the Second April 2003 Debenture Agreement.

 

“ Existing Debenture Holders ” means those Persons in their capacity as lenders under (i) the November 2002 Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the April 2003 Debenture Agreement and (iv) the Second April 2003 Debenture Agreement.

 

10

 

“ Fund Debenture ” means that debenture of the Corporation issued pursuant to that certain Debenture Purchase Agreement, dated November 23, 2004, by and between the Corporation (as Borrower) and Phoenix (the “ November 2004 Debenture Agreement ”).

 

“Funded Indebtedness” means, with respect to any Person at any particular time, the aggregate (without duplication) of the following amounts determined in accordance with generally accepted accounting principles on a consolidated basis at such time:

 

(i)                                      indebtedness for money borrowed and indebtedness represented by notes payable and drafts accepted representing extensions of credit (including, as regards any note or draft issued at a discount, the face amount of such note or draft) and including the face amount of bankers’ acceptances and letters of credit;

 

(ii)                                   all obligations (whether or not with respect to the borrowing of money) which are evidenced by bonds, debentures, notes or other similar instruments or not so evidenced but which would be considered to be indebtedness for borrowed money in accordance with generally accepted accounting principles;

 

(iii)                                all indebtedness for borrowed money secured by an Encumbrance on any property of such Person;

 

(iv)                               all indebtedness upon which interest charges are customarily paid;

 

(v)                                  Capital Lease Obligations and all other indebtedness issued or assumed as full or partial payment for property or services or by way of capital contribution; and

 

(vi)                               any of the foregoing amounts in respect of any Subsidiary of the Person whose accounts are not required under generally accepted accounting principles to be consolidated with the accounts of such Person, including (without limitation) the aggregate outstanding amount of the Obligations at such time.

 

Notwithstanding the foregoing, trade payables, expenses, costs and charges accrued in the ordinary course of business in accordance with customary trade terms and not overdue for more than 90 days (or which, if overdue for more than 90 days, are being and continue to be actively and diligently contested in good faith or in respect of which no legal proceedings for payment of any such amount have been commenced and are continuing), customer advance payments and deposits received in the ordinary course of business shall not constitute Funded Indebtedness .

 

“Governmental Body” means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing (including, without limitation, any arbitrator).

 

“Hazardous Substance” means any substance or combination of substances which is or may become hazardous, toxic, injurious or dangerous to persons, property, air, land, water, flora,

 

11

 

fauna or wildlife, and includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous materials or hazardous substances as defined in or pursuant to any Environmental Laws or Environmental Orders pursuant thereto.

 

“Instrument” means this Agreement, the Debenture Certificates and any other agreement or instrument (whether now existing, presently arising or created in future) delivered by or on behalf of the Corporation to the Lenders.

 

“Intellectual Property” means all right, title, interest and benefit of the Corporation and its Subsidiaries in and to any registered or unregistered world wide trade marks, trade or brand names, service marks, copyrights, copyright applications, designs, inventions, patents, patent applications, patent rights, licenses, sub-licenses, franchises, formulas, processes, know-how, technology, computer rights and other intellectual or industrial property of the Corporation or any of its Subsidiaries or pertaining to the Corporation’s business.

 

“ Intercreditor Agreement ” means that Amended and Restated Consent, Amendment and Intercreditor Agreement, dated as of December 17, 2004, by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix and each of those persons and entities listed on Schedule A attached thereto.

 

“ Inventory ” means any and all goods, merchandise and other personal property located in the United States, including, without limitation, goods representing returns upon any accounts, and whether now owned or hereafter acquired by the Corporation that is free and clear of all Encumbrances and is not unsellable, damaged, obsolete or otherwise not readily saleable at market value in the ordinary course of business, consistent with past practice.

 

“Material Adverse Effect” means any change or effect that is materially adverse to (i) the business, financial condition, or results of operations of such Person and its Subsidiaries, taken as a whole, other than any change or effect relating to general political, financial or economic conditions or the state of financial markets in general or (ii) the rights, remedies and benefits available to, or conferred upon, the Lenders under the Transaction Documents.

 

“Material Authorization” means, with respect to any Person, any approval, permit, license or similar authorization (including any trademark, trade name or patent) from, and any filing or registration with, any Governmental Body or other Person required by such Person to own its property and assets or to carry on its business as presently carried on by it or as contemplated hereunder to be carried on by it in each jurisdiction in which it does so or is contemplated to do so or where the failure to have such approval, permit, license, authorization, filing or registration would have a Material Adverse Effect upon such Person or upon its ability to perform its obligations under any of the Instruments.

 

“Maturity Date” shall mean October 31, 2005.

 

“ Management Committee ” has the meaning ascribed to such term in Section 7.2(p).

 

“ MC Operational Procedures ” has the meaning ascribed to such term in Section 7.2(p).

 

12

 

“Obligations” means all monies now or at any time and from time to time hereafter owing or payable by the Corporation to the Lenders and all obligations (whether now existing, presently arising or created in the future) of the Corporation in favor of the Lenders, and whether direct or indirect, absolute or contingent, matured or not, each in connection with or relating to the Debentures, this Agreement or any of the other Transaction Documents.

 

“ Operating Expenses ” means, as of any date, the sum of the line items entitled “Sales and marketing”, “Research, development and engineering”, “General and administrative” and “Depreciation and amortization” on the 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;

 

13

 

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

 

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

 

(viii)                         Encumbrances in favor of (i) each Lender pursuant to this Agreement, (ii) the Existing Debenture Holders pursuant to the Existing Debenture Agreements, (iii) the CRAT pursuant to the September 2004 Debenture Agreement, and (iv) Phoenix pursuant to the November 2004 Debenture Agreement;

 

(ix)                                 Encumbrances pursuant to Purchase Money Security Interests;

 

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

 

(xi)                                 Encumbrances granted to Wistron under to the Wistron Intercreditor Agreement;

 

(xii)                              any other Encumbrance which Phoenix approves in writing as a Permitted Encumbrance subsequent to the date hereof; and

 

(xiii)                           the Encumbrances listed under the heading “Permitted Encumbrances” in Schedule 3.1 .

 

“Person” means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or governmental entity, and pronouns have a similarly extended meaning.

 

“Premises” means any premises owned or occupied by the Corporation or its Subsidiaries from time to time.

 

“Purchase Money Security Interest” means an Encumbrance on any asset, other than accounts receivable or inventory, of a Person which is assumed, created, guaranteed or reserved to secure the unpaid purchase price of such asset, provided that any such Encumbrance is limited to the asset so acquired and does not secure in excess of the purchase price thereof, such purchase price not to exceed the fair market value of the purchased asset.

 

“Receiver” means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of the undertaking, property and assets of the Corporation appointed by each

 

14

 

Lender pursuant to this Agreement, any of the Security Documents or by or under any judgment or order of a court.

 

“Release” includes abandon, add, deposit, discharge, disperse, dispose, dump, emit, empty, escape, leach, leak, migrate, pour, pump, release or spill.

 

“Secured Property” means all property and assets of the Corporation subjected to the security interest under Section 4.1, including without limitation all Intellectual Property.

 

“Security Documents” means, collectively, this Agreement and all other agreements and other instruments delivered to each Lender by or on behalf of the Corporation or the US Subsidiary (whether now existing or presently arising) for the purpose of establishing, perfecting, preserving or protecting any security held by each Lender in respect of any Obligations.

 

“Shareholders’ Equity” of the Corporation at any particular time means the difference between (i) the aggregate of Total Tangible Assets of the Corporation and (ii) the Total Liabilities of the Corporation at such time.

 

“Subsidiary” means a corporation controlled by the Corporation, as the term “control” is defined in the Business Corporations Act (Ontario) as in effect at the date hereof and without reference to any amendments thereto after the date hereof and includes the corporations set out in Schedule 5.1(q) hereto.

 

“Taxes” means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon.

 

“Total Tangible Assets” of any Person means the aggregate book value amount of all tangible assets of the Person which would, on a consolidated basis in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person.

 

“Total Liabilities” of any Person means the aggregate amount of all indebtedness and liabilities determined on a consolidated basis, which would, in accordance with generally accepted accounting principles, be reflected on a balance sheet of the Person including, for greater certainty, deferred taxes, together with, without duplication:

 

(i)                                      the amount of all Funded Indebtedness and all Contingent Liabilities of the Person, whether or not reflected on a balance sheet;

 

(ii)                                   the amount for which any shares in the capital of the Person (if it is a corporation) may be redeemed if the holders of such shares are entitled at any time to require the Person to redeem such shares or if the Person has called such shares for redemption; and

 

(iii)                                the amount of all Capital Lease Obligations of the Person, provided that if the rights and remedies of the lessor under such Capital Lease Obligations in the

 

15

 

event of default are limited to repossession or sale of property, such amount shall be deemed to be equal to the lesser of (A) the amount of the Capital Lease Obligations and (B) the book value of such property.

 

“Transaction Documents” means this Agreement, the Warrants, the Debenture Certificates, the Guaranty Agreement dated the date hereof, by the U.S. Subsidiary for the benefit of the Lenders, the Security Agreement, dated the date hereof, by the U.S. Subsidiary for the benefit of the Lenders, and any other documents, instruments or agreements entered into by the Corporation or the U.S. Subsidiary in connection with any of the foregoing.

 

“Voting Shares” means capital stock of any class of a corporation which carries voting rights under any circumstances, provided that shares which carry the right to vote conditionally upon the happening of an event shall not be considered Voting Shares until the occurrence of such event and then only during the continuance of such event.

 

“ Wistron Intercreditor Agreement ” means that Intercreditor, Trade Credit Restructuring and Security Agreement, dated as of November 24, 2004 by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises LLC, Phoenix, the CRAT and Wistron Corporation (“ Wistron ”).

 

Section 3.2.                                    Interpretation

 

(a)                                   “This Agreement”, “hereto” , “hereby” , “hereunder” , “herein” , and similar expressions refer to the whole of this Agreement and not to any particular Article, Section, paragraph, clause, subdivision or other portion hereof.

 

(b)                                  The expression “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)                                  Except as expressly provided herein, terms which are defined in the Personal Property Security Act (Ontario) shall have the same meaning where used herein as the same may be amended or replaced from time to time.

 

(e)                                   Words importing the singular number only include the plural and vice versa and words importing gender shall include all genders.

 

(f)                                     All financial or accounting determinations, reports and statements provided for in this Agreement shall be made or prepared in accordance with generally accepted accounting principles applied in a consistent manner and shall be made and prepared on a consolidated basis.

 

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

 

16

 

(h)                                  The schedules and exhibits annexed hereto shall, for all purposes, form an integral part of this Agreement.

 

(i)                                      References to sums of money herein are to US dollars, unless otherwise specified.

 

(j)                                      Time is of the essence hereof.

 

(k)                                   Where the word “including” or “includes” is used in this Agreement, it means “including (or includes) without limitation”.

 

(l)                                      Wherever in this Agreement reference is made to generally accepted accounting principles or GAAP, such reference shall be deemed to mean the generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which a given calculation is made or required to be made in accordance with generally accepted accounting principles.

 

Section 3.3.                                    Invalidity of Provisions

 

Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of fees or otherwise payable by the Corporation to the Lenders hereunder or under the Debenture Certificates exceed the maximum amount recoverable under applicable law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under applicable law.

 

Section 3.4.                                    Day Not A Business Day

 

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

 

Section 3.5.                                    Governing Law

 

This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereby agrees to the non-exclusive jurisdiction of the courts of the Province of Ontario. For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have non-exclusive jurisdiction to entertain any action arising under this Agreement.

 

17

 

ARTICLE 4.
SECURITY

 

Section 4.1.                                    Charge

 

(a)                                   In consideration of the sum of Ten Dollars ($10.00) now paid to it by each Lender (receipt of which is hereby acknowledged), and to secure the due payment of the Obligations hereunder, but subject to the exceptions set forth in Section 4.2, the Corporation hereby grants to each Lender a security interest in, and charges with payment to each Lender of all sums payable hereunder as and by way of a fixed and a floating charge, the whole of the undertaking of the Corporation and all of its property and assets, real and personal, movable and immovable, tangible and intangible, of every nature and kind whatsoever, whosesoever situate, both present and future.

 

(b)                                  The Corporation and each Lender hereby acknowledge that (i) value has been given to the Corporation by such Lender, (ii) the Corporation has rights in the Secured Property (other than after-acquired property), and (iii) they have not agreed to postpone the time of attachment of the security granted hereunder.

 

Section 4.2.                                    Exceptions as to Leases

 

The last day of any term of years reserved by any lease, verbal or written, or any agreement therefor, now held or hereafter acquired by the Corporation is excepted out of the Secured Property, but the Corporation shall stand possessed of any such reversion upon trust to assign and dispose thereof as each Lender may direct. Where the giving of a charge or security interest on any real or personal property held by the Corporation under lease requires the consent of the lessor of such property, the giving of the charge or security interest hereunder on such property shall not take effect until such consent is obtained or legally dispensed with but the suspension of the effect of the charge or security interest on such property shall not affect the charge or security interest on any other property of the Corporation.

 

Section 4.3.                                    Habendum

 

The Lenders shall have and hold the Secured Property and all of the rights hereby conferred unto the Lenders, their successors and assigns forever, but subject nevertheless to the provisions and with the powers herein set forth.

 

Section 4.4.                                    Charge Valid Irrespective of Advance of Money

 

The charges and security interests hereby created shall have effect and be deemed to be effective whether or not the monies or obligations hereby secured or any part thereof shall be advanced or owing or in existence before or after or upon the date of this Agreement and neither the giving of charges and security interests hereunder nor any advance of funds shall oblige each Lender to advance any funds or any additional funds.

 

18

 

Section 4.5.                                    Supplemental Indentures

 

The Corporation shall from time to time on demand by each Lender and at the expense of the Corporation execute and deliver such further deeds or indentures supplemental hereto, which shall thereafter form part hereof, for the purpose of charging, or securing in favor of each Lender any property now owned or hereafter acquired by the Corporation and falling within the description of the Secured Property, for correcting or amplifying the description of any property hereby charged or secured or intended so to be, or for any other purpose not inconsistent with the terms of this Agreement.

 

Section 4.6.                                    Continuing Security

 

Any and all payments made at any time in respect of the Obligations and the proceeds realized from any securities held therefor (including moneys realized from the enforcement of this Agreement) shall be applied in accordance with the Intercreditor Agreement. Each Lender may hold as additional security hereunder any increase or profits or other proceeds realized from the Secured Property (including money) for such period of time as each Lender sees fit. The Corporation shall be accountable for any deficiency.

 

Section 4.7.                                    Defeasance

 

If the Corporation, its successors or assigns or any of them, make or cause to be made due payment or performance of all Obligations, without any reduction or abatement, and all taxes, rates, levies, charges or assessments payable by the Corporation upon the Secured Property or in respect thereof no matter by whom or by what authority imposed which each Lender shall have paid or shall have been rendered liable to pay, then, subject to Article 8 and Sections 9.6 and 9.17 hereof, everything in this Agreement shall be absolutely null and void and each Lender shall on request therefor by the Corporation, and at the expense of the Corporation, at that time surrender the Debenture Certificate to the Corporation, but until that time it shall remain in full force and effect despite the repayment or satisfaction from time to time of the whole or any part of the Obligations.

 

Section 4.8.                                    Guarantees

 

Contemporaneous with the execution and delivery hereof, the Corporation shall cause Xplore Technologies Corporation of America (the “ US Subsidiary ”) to execute and deliver to each Lender unlimited guarantees of the Obligations to such Lender and a general security agreement granting security over all of the US Subsidiary’s property, assets and undertaking as security for the obligations of the US Subsidiary. At the Lender’s request, the Corporation shall cause any corporation that becomes a Subsidiary after the date hereof, from time to time, to provide each Lender with an unlimited guarantee supported by such security as each Lender may request, acting reasonably, in respect of the Obligations.

 

19

 

ARTICLE 5.
REPRESENTATIONS AND WARRANTIES

 

Section 5.1.                                    General Representations and Warranties of the Corporation

 

The Corporation represents and warrants to each Lender as follows and shall continue to represent and warrant to each Lender as follows for so long as the Obligations are outstanding:

 

(a)                                   Incorporation and Status. Each of the Corporation and each Subsidiary is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the corporate power and capacity to own its properties and assets and to carry on its businesses as presently carried on by it or as contemplated hereunder to be carried on by it and hold all Material Authorizations.

 

(b)                                  Power and Capacity. Each of the Corporation and each Subsidiary has the corporate power and capacity to enter into this Agreement and each Instrument to which it is a party and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it.

 

(c)                                   Due Authorization. Each of the Corporation and each Subsidiary has taken all necessary corporate action to authorize the execution, delivery and performance of each of this Agreement and each Instrument to which it is a party.

 

(d)                                  No Contravention. The execution and delivery of this Agreement and the other Instruments to which each of the Corporation and each Subsidiary is a party and the performance by each of the Corporation and each Subsidiary of their obligations hereunder or thereunder (i) does not and will not contravene, breach or result in any default under (A) the articles, memorandum of association, by-laws, constating documents or other organizational documents of the Corporation or such Subsidiary, or (B) under any mortgage, lease, agreement or other legally binding instrument, license, permit or Applicable Law to which any of the Corporation or Subsidiary is a party or by which any of the Corporation or Subsidiary or any of its properties or assets may be bound, (ii) will not oblige any of the Corporation or Subsidiary to grant any Encumbrance to any Person other than each Lender, and (iii) will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation of any of the Corporation or Subsidiary under any mortgage, lease, agreement or other legally binding instrument of or affecting any of the Corporation or Subsidiary.

 

(e)                                   No Senior or Pari Passu Indebtedness . Other than (i) an amount of $1.05 million of the Corporation’s indebtedness to the CRAT plus accrued and unpaid interest thereon, (ii) an amount of $1.6 million of the Corporation’s indebtedness to Phoenix pursuant to the November 2004 Debenture Agreement plus accrued and unpaid interest thereon, and (iii) and the Corporation’s indebtedness to Wistron plus accrued and unpaid interest thereon, the Corporation has no, and shall not have any, indebtedness which ranks senior to or !pari passu with the Debentures. Except for Section 2.5, the Intercreditor Agreement and the Wistron Intercreditor Agreement, nothing herein, including pursuant to Section 6.4(a), shall operate to subordinate the security interest provided for in the Security Documents to or in favor of any Encumbrance or Permitted Encumbrance, or to postpone any of the Obligations to any of the

 

20

 

obligations, indebtedness or liabilities owed by the Corporation or its Subsidiaries to the holder of any Permitted Encumbrances or Encumbrance.

 

(f)                                     No Consents Required. No authorization, consent or approval of, or filing with or notice to, any Person (including any Governmental Body) is required in connection with the execution, delivery or performance of this Agreement by the Corporation or any other Instrument by the Corporation or any Subsidiary, as applicable, other than (i) the consent of the CRAT, (ii) the consent of Phoenix as holder of the Fund Debenture, (iii) the consent of the Existing Debenture Holders, (iv) the approval of the Toronto Stock Exchange and the satisfaction of any conditions to such approval, (v) the filings required by applicable securities laws, and (vi) the registration of a financing statement under the Personal Property Security Act (Ontario) and the UCC, (the consents and approvals in clauses (i) through (vi) collectively, the “ Required Consents ”).

 

(g)                                  Enforceability. Each of this Agreement and the other Instruments constitutes, or upon execution and delivery will constitute, a valid and binding obligation of the Corporation and each Subsidiary which is a party thereto (as applicable) enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles.

 

(h)                                  No Work Orders. As at the Closing Date, no work orders, directions or notices have been issued and remain outstanding pursuant to any Applicable Law relating to the business of the Corporation or any Subsidiary or any part of the Secured Property or any environmental matters affecting the foregoing, except such orders, directions and notices that would not have a Material Adverse Effect. As at the Closing Date, neither the Corporation or any Subsidiary have received any notification from any Governmental Body, that has not been satisfied, that any work, repairs, construction or capital expenditures are required to be made in respect of the Secured Property or any part thereof as a condition of continued compliance with any Applicable Law or any Material Authorization issued thereunder.

 

(i)                                      Permits. The Corporation and each Subsidiary has all licenses, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted, except where the failure to have such license, permit approval or franchise would not have a Material Adverse Effect. All such licenses, permits, approvals and franchises are in good standing and no actions, proceedings, investigations or other steps of any kind are in process, pending, or to the knowledge of the Corporation, threatened, or would result in any such license, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation or any Subsidiary for any period of time, except where such termination, revocation, withdrawal, suspension or unavailability would not have a Material Adverse Effect. The Corporation and each Subsidiary is conducting its business in material compliance with all applicable laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on.

 

(j)                                      Financial Statements. Phoenix, on behalf of the Lenders, has been furnished with a copy of:

 

21

 

(i)                                      the audited consolidated financial statements of the Corporation and its Subsidiaries for its financial year ended March 31, 2004; and

 

(ii)                                   the unaudited consolidated financial statements of the Corporation and its Subsidiaries for the fiscal quarter ended September 30, 2004.

 

Such financial statements, including the notes thereto (the “ Financial Statements ”) have been prepared in accordance with generally accepted accounting principles and fairly, completely and accurately present the financial condition of the Corporation (including each Subsidiary) and the financial information presented therein in all material respects for the periods and as at the dates thereof. As at the Closing Date, the Corporation and each of the Subsidiaries has no outstanding liabilities (including Funded Indebtedness, Contingent Liabilities or otherwise) other than those disclosed in the Financial Statements and other than the indebtedness owed by the Corporation to the Existing Debenture Holders, to the CRAT, to Wistron, to Phoenix and trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms, except as previously disclosed in writing to Phoenix. Since the date of the March 31, 2004 Financial Statements and except as set forth in the September 30, 2004 Financial Statements, there has been no development which has had or would reasonably be expected to have a Material Adverse Effect upon the ability of the Corporation or any Subsidiary to perform its obligations under this Agreement or any other Transaction Document to which it is a party.

 

(k)                                   Non-Arm’s Length Transactions. During the period from March 31, 2004 through the Closing Date, none of the Corporation or Subsidiaries has entered into any transaction or agreement with any Affiliate other than on commercially reasonable terms and within the limitations of the other provisions hereof, except as disclosed in the Financial Statements or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available.

 

(l)                                      No Litigation. Except as has previously been disclosed in writing by the Corporation or its counsel to Phoenix or in any document filed by the Corporation with the Ontario Securities Commission that is publicly available, (i) as at the Closing Date, there is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal, or criminal), arbitration or other dispute settlement procedure, investigation or enquiry by any Governmental Body, or any similar matter or proceeding (collectively “proceedings” ) against or involving any of the Corporation or any Subsidiary (whether in progress or threatened) which, if determined adversely to the Corporation or Subsidiary would have or would reasonably be expected to have a Material Adverse Effect or have a material adverse effect upon its ability to perform any of the provisions of this Agreement or any other Transaction Document to which it is a party or which purports to affect the legality, validity and enforceability of this Agreement or any other Transaction Document; and (ii) as at the Closing Date, no event has occurred which would reasonably be expected to give rise to any proceedings and there is no judgment decree, injunction, rule, award or order of any Governmental Body outstanding against the Corporation or any Subsidiary which has or would reasonably be likely to have a Material Adverse Effect.

 

22

 

(m)                                No Default. As at the Closing Date, neither the Corporation nor any of the Subsidiaries are in default or breach (other than a breach for which the Corporation has received a waiver from Phoenix Enterprises LLC) under any material commitment or obligation (including, without limitation, obligations in relation to Funded Indebtedness) or under the terms and conditions relating to any Material Authorizations, except such defaults that would not have a Material Adverse Effect, and, to the best knowledge of the Corporation, as at the Closing Date, there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach; and as at the Closing Date, there are no proceedings in progress, pending or, to the knowledge of the Corporation, threatened which would result in the revocation, cancellation suspension or any adverse modification of any Material Authorization.

 

(n)                                  Hazardous Substances. Neither the Corporation nor any of the Subsidiaries are aware of any Hazardous Substances located at, on or under the Secured Property or the Premises, and the Secured Property, the Premises and the operations conducted thereat are not and have not been in breach of Environmental Law which has resulted or could result in the Secured Property being materially adversely affected. Neither the Corporation nor any Subsidiary has caused or permitted, nor has the Corporation or any Subsidiary the knowledge of the Release of any Hazardous Substance on, from, under or to the Secured Property or the Premises or of any Release from a facility owned or operated by