Exhibit 10.2

 

EXECUTION VERSION

 

LETTER OF CREDIT REIMBURSEMENT,

COMPENSATION AND SECURITY AGREEMENT

 

This LETTER OF CREDIT REIMBURSEMENT, COMPENSATION AND SECURITY AGREEMENT, dated
as of May 29, 2009 (as amended, supplemented or modified from time to time, this
“Agreement”), is made by and among PHILIP SASSOWER and SUSAN SASSOWER,
individuals (each individually, a “Secured Party” and, collectively, the
“Secured Parties”), XPLORE TECHNOLOGIES CORPORATION OF AMERICA, a Delaware
corporation (with its successors and permitted assigns, the “Borrower”), and
XPLORE TECHNOLOGIES CORP., a Delaware corporation (with its successors and
permitted assigns, the “Parent”; the Borrower and the Parent are herein
collectively referred to as the “Grantors” and, each individually, a “Grantor”).

 

Recitals

 

WHEREAS, the Borrower and Silicon Valley Bank, a California-chartered bank
(“Silicon”), are parties to that certain Loan and Security Agreement, dated as
of September 15, 2005 (as amended, supplemented and modified prior to the date
hereof, the “Original Loan Agreement”), pursuant to which Silicon has extended
certain credit accommodations to the Borrower;

 

WHEREAS, Silicon has agreed to enter into the Twelfth Amendment, dated as of the
date hereof (the “Twelfth Amendment”), to the Original Loan Agreement (the
Original Loan Agreement, as amended by the Twelfth Amendment, and as may be
further amended, amended and restated, supplemented or modified from time to
time, the “Loan Agreement”), to provide for additional availability to the
Borrower in the form of Non-Formula Loans (as defined in the Loan Agreement)
(the “Non-Formula Loans”), on a condition that the Secured Parties, as
Supporting Letter of Credit Applicants (as defined in the Twelfth Amendment),
cause an irrevocable standby letter of credit to be issued by Bank of America,
N.A., on or about the date hereof, for the account of the Secured Parties in
favor of Silicon, in the amount of $1,000,000 (the “Initial Letter of Credit”),
a copy of which Initial Letter of Credit is attached hereto as Exhibit A (as
such Initial Letter of Credit, or a letter of credit issued in replacement of
such Initial Letter of Credit by another bank rated A2 or better by Moody’s
Investors Service, Inc. (such replacement bank, together with Bank of America,
N.A., the “Issuing Bank”) for the account of the Secured Parties in favor of
Silicon, may be amended, supplemented, modified or extended from time to time,
the “Supporting Letter of Credit”);

 

WHEREAS, in order to induce the Secured Parties to cause the Issuing Bank to
issue the Supporting Letter of Credit, (a) the Borrower has agreed to
(i) reimburse the Secured Parties for all costs and expenses incurred by the
Secured Parties in connection with the issuance of the Initial Letter of Credit
and the entry into this Agreement and the Twelfth Amendment, and (ii) reimburse
the Secured Parties for all payments made by the Secured Parties to the Issuing
Bank in connection with any drawings made by Silicon under the Supporting Letter
of Credit; and (b)

 

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the Grantors have agreed to provide certain compensation to the Secured Parties
in connection with the issuance of the Supporting Letter of Credit; and

 

WHEREAS, to secure the Grantors’ obligations to the Secured Parties, each of the
Grantors have agreed to grant to the Secured Parties a security interest in the
Collateral.

 

NOW, THEREFORE, in consideration of the mutual promises contained herein and in
order to induce the Secured Parties to cause the Issuing Bank to issue the
Supporting Letter of Credit, the parties hereto agree as follows:

 

SECTION 1.   Definitions.  All terms defined in Article 1, 2A, 5, 8 or 9 of the
UCC, as in effect on the date of this Agreement, are used herein with the
meanings therein ascribed to them; such terms include “account”, “account
debtor”, “chattel paper”, “commercial tort claim”, “control”, “deposit account”,
“document”, “equipment”, “financial asset”, “fixtures”, “general intangibles”,
“goods”, “instrument”, “inventory”, “investment property”, “letter of credit”,
“letter-of-credit right”, “money”, “payment intangible”, “proceeds”, “promissory
note”, “securities account”, “security”, “security interest” and “supporting
obligation”. In addition, the term “deposit account” includes an account
evidenced by a certificate of deposit. The words and expressions defined in the
preamble, the recitals and the other Sections hereof shall have the meanings
given to such words and expressions in such preamble, recitals and Sections, and
the following words and expressions shall have the following meanings, in each
case unless the context otherwise requires:

 

“Account Receivable” means an “account” to the extent it represents a right to
payment of a monetary obligation, whether or not earned by performance (a) for
property that has been, or is to be, sold, leased, licensed, assigned, or
otherwise disposed of, or (b) for services rendered, or to be rendered,
including all accounts arising from sales or rendition of services made under
each of the Grantors’ names, trade names or styles or through any of such
Grantor’s properties or divisions, regardless of how such right is evidenced,
whether secured or unsecured (and whether or not specifically listed on
schedules furnished to the Secured Parties).

 

“Bank Account” means (a) a deposit, custody, or other account (whether, in any
case, time or demand or interest or non-interest bearing and whether maintained
at a branch or office located within or outside the United States of America) of
each of the Grantors, (b) all amounts from time to time credited to such
account, (c) all cash, financial assets and other investment property,
instruments, documents, chattel paper, general intangibles, accounts and other
property from time to time credited to such account or representing investments
and reinvestments of amounts from time to time credited to such account, and
(d) all interest, principal payments, dividends and other distributions payable
on or with respect to, and all proceeds of, (i) all property so credited or
representing such investments and reinvestments and (ii) such account.

 

“Contract” means (a) any agreement (whether bi-lateral or unilateral or
executory or non-executory and whether a person entitled to rights thereunder is
so entitled directly or as a third-party beneficiary), including an indenture,
lease or license, (b) any deed or other instrument of conveyance, and (c) any
certificate of incorporation, charter, bylaw, operating agreement or any other
organizational document.

 

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“Drawing Materials” means all bills of lading, dock warrants, dock receipts,
warehouse receipts and other documents (including those which are “documents”
under Section 7-201(2), or “documents of title” under Section 1-201(15), of the
UCC), drafts, certificates, agreements, and other records, required to make a
drawing under a letter of credit.

 

“EQUITY INTERESTS” MEANS, WITH RESPECT TO ANY PERSON, SHARES OF CAPITAL STOCK
OF, OR OTHER OWNERSHIP OR PROFIT INTERESTS IN, SUCH PERSON, WARRANTS, OPTIONS OR
OTHER RIGHTS FOR THE PURCHASE OR OTHER ACQUISITION FROM SUCH PERSON OF SUCH
SHARES OF CAPITAL STOCK OF, OR OTHER OWNERSHIP OR PROFIT INTERESTS IN, SUCH
PERSON, SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR SUCH SHARES OF CAPITAL
STOCK OF, OR OTHER OWNERSHIP OR PROFIT INTERESTS IN, SUCH PERSON, OR WARRANTS,
RIGHTS OR OPTIONS FOR THE PURCHASE OR OTHER ACQUISITION FROM SUCH PERSON OF SUCH
SHARES OF CAPITAL STOCK OF, OR OTHER OWNERSHIP OR PROFIT INTERESTS IN, SUCH
PERSON, WHETHER VOTING OR NONVOTING, AND WHETHER OR NOT SUCH SHARES, WARRANTS,
OPTIONS, RIGHTS OR OTHER INTERESTS ARE AUTHORIZED OR OTHERWISE EXISTING ON ANY
DATE OF DETERMINATION.

 

“Event of Default” means a breach by either of the Grantors of any
representation or warranty contained in this Agreement or a failure by either of
the Grantors to perform or comply with any covenant or agreement contained in
this Agreement.

 

“Intellectual Property” means (a) copyrights, rights in or licenses of
copyrights and marks subject to copyright protection, in whole or in part,
including, without limitation, those listed on Schedule II hereto, and all
renewals or extensions of any of the foregoing; (b) trade names, trademarks,
service marks, trade styles, designs, logos, indicia, corporate names and
fictitious business names, in each case, together with all associated goodwill,
including, without limitation, the trademark applications set forth on Schedule
II hereto; (c) (i) patents now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States of America, any State thereof or any other
country or any political subdivision thereof, including, without limitation,
those listed on Schedule II hereto, together with all the rights, benefits and
privileges derived therefrom, (ii) all design and utility patents, utility
models and registered designs (including all reissues, divisions, continuations,
continuations-in-part, reexaminations and extensions thereof), and (iii) all
proceeds of the foregoing; (d) designs, schemes, computer programs and all
intellectual property rights associated thereto (other than such programs and
rights in which, by their terms enforceable under applicable law, no security
interest may be granted); (e) all mask works or similar rights available for the
protection of semiconductor chips; and (f) other proprietary information.

 

“LIEN” MEANS ANY MORTGAGE, DEED OF TRUST, PLEDGE, SECURITY INTEREST,
HYPOTHECATION, ASSIGNMENT, DEPOSIT ARRANGEMENT, ENCUMBRANCE, LIEN (STATUTORY OR
OTHER), PREFERENCE OR OTHER SECURITY AGREEMENT OR PREFERENTIAL ARRANGEMENT,
CHARGE OR ENCUMBRANCE OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, ANY CONDITIONAL SALE OR OTHER TITLE RETENTION AGREEMENT, ANY
FINANCING LEASE HAVING SUBSTANTIALLY THE SAME ECONOMIC EFFECT AS ANY OF THE
FOREGOING, AND THE FILING OF ANY FINANCING STATEMENT UNDER THE UCC OR COMPARABLE
LAW OF ANY JURISDICTION TO EVIDENCE ANY OF THE FOREGOING), EXCEPT FOR REASONABLE
SECURITY INTERESTS IN PURCHASE-MONEY COLLATERAL (AS SUCH TERM IS DEFINED IN
SECTION 9-103 OF THE UCC) TO THE EXTENT SUCH SECURITY

 

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INTERESTS SECURE PURCHASE-MONEY OBLIGATIONS TO FINANCE ACQUISITIONS OF SUCH
PURCHASE MONEY COLLATERAL.

 

“Other Goods” means all goods other than inventory and equipment.

 

“Permitted Liens” shall mean the following:

 

(a)           mechanics’, materialmen’s or similar inchoate Liens arising or
incurred in the ordinary course of business relating to liabilities not yet due
and payable;

 

(b)           Liens for current taxes not yet delinquent, or the validity of
which is being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing foreclosure or enforcement of such
Liens and where adequate reserves are established and maintained in accordance
with generally accepted accounting principles;

 

(c)           Liens or pledges in connection with workmen’s compensation,
unemployment insurance or other social security obligations;

 

(d)           deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of alike nature incurred in the ordinary course of business;

 

(e)           Liens in favor of Silicon under (i) the Loan Agreement, (ii) that
certain Intellectual Property Security Agreement, dated as of September 15, 2005
(as amended, amended and restated, supplemented or modified from time to time),
between the Borrower and Silicon, (iii) that certain Security Agreement, dated
as of September 5, 2008 (as amended, amended and restated, supplemented or
modified from time to time), between the Parent and Silicon, and (iv) that
certain Intellectual Property Security Agreement, dated as of September 5, 2008
(as amended, amended and restated, supplemented or modified from time to time),
between the Parent and Silicon;

 

(f)            Liens in favor of Phoenix Venture Fund LLC, as collateral agent
(“Phoenix”), under the Security Agreement, dated as of September 5, 2008 (as
amended, amended and restated, supplemented or modified from time to time),
among the Parent, the Borrower and Phoenix;

 

(g)           Liens in favor of Wistron Corporation under the Turnkey Design and
Manufacturing Agreement, dated July 1, 2003, by and between the Borrower and
Wistron Corporation;

 

(h)           Liens consented to by the Secured Parties in writing; and

 

(i)            the following Liens evidenced by UCC filings on record with the
Secretary of State of the State of Delaware: (i) Lien in favor of CIT Bank
regarding all computer equipment and peripherals referenced in the Loan
Agreement #007139097-005 dated August 24, 2005, (ii) Lien in favor of
Susquehanna Patriot Commercial Leasing Corp. regarding all personal property
and/or equipment, and fixtures, which is the subject of the Equipment Lease
Agreement number

 

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22453001, and (iii) Lien in favor of Coactiv Capital Partners LLC regarding all
personal property and/or equipment, and fixtures, which is the subject of the
Equipment Lease Agreement number 22453002.

 

“Secured Obligations” means all obligations, liabilities and indebtedness
(whether actual or contingent, whether now existing or hereafter arising,
whether or not for the payment of money, and including, without limitation, any
obligation or liability to pay damages) which are due, owing, payable or
incurred or expressed to be due, owing, payable or incurred from or by the
Grantors to the Secured Parties hereunder (including, without limitation, the
Grantors’ indemnification obligations under Section 16 hereof and the interest
payable under Section 31 hereof), whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including
reasonable attorneys’ fees) or otherwise and WHETHER OR NOT AN ALLOWABLE CLAIM
AGAINST EITHER OR BOTH OF THE GRANTORS UNDER THE UNITED STATES BANKRUPTCY CODE
OR UNDER ANY OTHER UNITED STATES OR OTHER BANKRUPTCY OR INSOLVENCY LAW EXISTS OR
IS OTHERWISE ENFORCEABLE AGAINST EITHER OR BOTH OF THE GRANTORS, AND INCLUDING,
IN ANY EVENT, INTEREST AND ALL OTHER LIABILITIES ACCRUING OR ARISING AFTER THE
COMMENCEMENT BY OR AGAINST EITHER OR BOTH OF THE GRANTORS OF A PROCEEDING UNDER
ANY BANKRUPTCY OR INSOLVENCY LAW OR THAT WOULD HAVE SO ACCRUED OR ARISEN BUT FOR
THE COMMENCEMENT OF SUCH A PROCEEDING.

 

“UCC” means the Uniform Commercial Code as in effect in the State of New York or
in any other relevant jurisdiction from time to time.

 

SECTION 2.   Interpretation.  With respect to any term that is defined by
reference to any document that terminates, expires or is modified, for purposes
hereof, such term shall continue to have the original definition notwithstanding
any termination, expiration or modification of such document except to the
extent the parties may otherwise agree in accordance with the terms of such
document. The words “hereof”, “herein” and “hereunder”, and words of similar
import, when used herein, shall refer to such document as a whole and not to any
particular provision of such document, and Section, subsection, schedule and
exhibit references are to those contained in or attached to such document,
unless otherwise specified. The meanings given to terms defined herein shall
apply to both the singular and plural forms of such terms. Except as otherwise
specified herein, each reference herein to any agreement or other document shall
be deemed (a) to include all exhibits, annexes, schedules or other attachments
thereto and (b) to refer to such agreement or document as the same has been or
may be amended, amended and restated, supplemented or otherwise modified from
time to time, in accordance with the terms of such agreement or document (to the
extent such terms are applicable to any amendment, amendment and restatement,
supplement or modification of such agreement or document).

 

SECTION 3.   Covenant to Pay.  (a)  On the date hereof, as a condition precedent
to the execution by the Secured Parties of the Initial Letter of Credit and this
Agreement, the Borrower shall pay to the Secured Parties (a) the amount of
letter of credit fee referred to in Section 1(b) of the Initial Letter of
Credit, calculated on the basis of the total amount of the Initial Letter of
Credit, and (b) all fees and expenses of the Secured Parties, including all
legal fees, incurred

 

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prior to and including the date hereof in connection with the transactions
relating to the issuance of the Initial Letter of Credit and the entry into this
Agreement and the Twelfth Amendment.

 

(b)           The Borrower shall reimburse the Secured Parties, promptly on
demand (but in no event later than three (3) business days following such
demand), for all payments made by the Secured Parties in connection with any
drawings made by Silicon under the Supporting Letter of Credit, including,
without limitation, the payments referred to in Section 1(a) of the Initial
Letter of Credit.

 

(c)           The Borrower shall reimburse the Secured Parties, promptly on
demand (but in no event later than three (3) business days following such
demand), for all costs, expenses, commissions, fees, losses, interest, deposits,
charges and indemnification payments paid or made by the Secured Parties to the
Issuing Bank in connection with the Supporting Letter of Credit, including,
without limitation, those referred to in Section 1 (other than to the extent set
forth in Sections 1 and 2 hereof), Section 2, Section 3 and Section 4 of the
Initial Letter of Credit.

 

(d)           As compensation to the Secured Parties in connection with the
issuance of the Supporting Letter of Credit, the Borrower shall pay to the
Secured Parties, in cash, monthly, on the last business day of each month, a fee
of five percent (5%) per annum on any outstanding Non-Formula Loans.

 

(e)           As further compensation to the Secured Parties in connection with
the issuance of the Supporting Letter of Credit, the Borrower shall pay to the
Secured Parties, in cash, monthly, on the last business day of each month,
interest on the amount of any drawing made by Silicon under the Supporting
Letter of Credit (from the date of such drawing until the date the Borrower’s
obligation under Section 3(b) hereof to reimburse the Secured Parties for all
payments made by the Secured Parties in connection with such drawing have been
indefeasibly satisfied in full) at the rate per annum equal to the sum of
(i) five percent (5%) and (ii) the interest that applies to the Non-Formula
Loans under the terms of the Loan Agreement at the time of such drawing.

 

SECTION 4.   Issuance of Warrants.  On the date hereof, as a condition precedent
to the execution by the Secured Parties of the Initial Letter of Credit and this
Agreement, the Parent shall issue to the Secured Parties three-year warrants to
purchase Five Million (5,000,000) shares of common stock of the Parent, at the
exercise price of Ten Cents ($0.10) per share, pursuant to the Warrant in the
form attached hereto as Exhibit B.

 

SECTION 5.   Grant of Security.  As security for the payment of the Secured
Obligations, each of the Grantors hereby pledges, grants, assigns, mortgages,
hypothecates, transfers and delivers to the Secured Parties a continuing
security interest in all its right, title and interest in, to and under the
following property of such Grantor, whether now owned or hereafter acquired by
such Grantor (collectively, the “Collateral”):

 

(a)           all accounts (including Accounts Receivable);

 

(b)           all general intangibles (including the Intellectual Property);

 

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(c)           all inventory;

 

(d)           all equipment;

 

(e)           all Other Goods;

 

(f)            all instruments;

 

(g)           all investment property (including the Equity Interests);

 

(h)           all chattel paper;

 

(i)            all documents;

 

(j)            all letters of credit, letter-of-credit rights and Drawing
Materials;

 

(k)           all commercial tort claims (including the commercial claims
described in Schedule III hereto);

 

(l)            all Bank Accounts;

 

(m)          all fixtures;

 

(n)           all money;

 

(o)           all rights (contractual and otherwise and whether constituting
accounts, general intangibles or investment property or financial assets)
constituting, arising under, connected with, or in any way related to, any or
all Collateral;

 

(p)           all books, records, ledgercards, files, correspondence, computer
programs, tapes, disks and related data processing software (owned by such
Grantor or in which it has an interest) that at any time evidence or contain
information relating to any Collateral or are otherwise necessary or helpful in
the collection thereof or realization thereupon;

 

(q)           all goods and other property, whether or not delivered, (i) the
sale, lease or furnishing of which gives or purports to give rise to any
account, including all merchandise returned or rejected by or repossessed from
customers, or (ii) securing any accounts, including all of such Grantor’s rights
as an unpaid vendor or lienor, including stoppage in transit, replevin and
reclamation with respect to such goods and other properties;

 

(r)            all documents of title, policies and certificates of insurance,
securities, chattel paper and other documents or instruments evidencing or
pertaining to any Collateral;

 

(s)           all supporting obligations and other liens on real or personal
property, leases and other agreements and property that in any way secure or
relate to any Collateral, or are acquired for the purpose of securing and
enforcing any item thereof;

 

(t)            all claims (including the right to sue or otherwise recover on
such claims) (i) to items referred to in the definition of Collateral,
(ii) under warranties relating to any Collateral and (iii) against third parties
for (A)(1) loss, destruction, requisition, confiscation, condemnation, seizure,
forfeiture or infringement of, or damage to, any Collateral, (2) payments due or
to become due under leases, rentals and hires of any Collateral, (3) proceeds

 

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payable under or unearned premiums with respect to policies of insurance
relating to any Collateral and (B) breach of any Contract constituting
Collateral; and

 

(u)           all products and proceeds of all of the foregoing in whatever
form.

 

Each of the Grantors agrees that the Secured Parties’ security interest in the
Collateral shall at all times be a valid and enforceable against such Grantor
and all third parties, in accordance with the terms hereof, as security for the
Secured Obligations. Each of the Grantors hereby irrevocably authorizes the
Secured Parties at any time and from time to time to file in any filing office
in any UCC jurisdiction any initial financing statements and amendments thereto
that describe the Collateral and provide any other information required by
Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance
of any financing statement or amendment thereto.

 

SECTION 6.   Security Interest and Obligations Absolute.  This Agreement shall
be construed as a continuing, absolute, unconditional and irrevocable grant of a
security interest and shall remain in full force and effect until indefeasible
payment in full of all of the Secured Obligations to the Secured Parties. The
obligations, including the payment obligations, of the Grantors under this
Agreement shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances. The
liability of the Grantors under this Agreement shall be absolute and
unconditional irrespective of:

 

(A)           ANY LACK OF VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT, THE
SUPPORTING LETTER OF CREDIT OR ANY DOCUMENTS RELATING HERETO OR THERETO (THIS
AGREEMENT, THE SUPPORTING LETTER OF CREDIT AND SUCH DOCUMENTS, COLLECTIVELY, THE
“TRANSACTION DOCUMENTS”);

 

(B)           TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OCCURRENCE OR
CONDITION WHATSOEVER, INCLUDING WITHOUT LIMITATION, (I) ANY COMPROMISE,
SETTLEMENT, RELEASE, WAIVER, RENEWAL, EXTENSION, INDULGENCE OR MODIFICATION OF,
OR ANY CHANGE IN, ANY OF THE OBLIGATIONS OF THE GRANTORS CONTAINED HEREIN,
(II) THE ASSERTION OR EXERCISE BY THE SECURED PARTIES OF ANY RIGHTS OR REMEDIES
HEREUNDER, (III) THE EXTENSION OF THE TIME FOR PAYMENT BY THE BORROWER OF ANY
PAYMENTS OR OTHER SUMS OR ANY PART THEREOF OWING OR PAYABLE UNDER ANY OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT OR OF THE TIME FOR PERFORMANCE BY THE
GRANTORS OF ANY OTHER OBLIGATIONS UNDER OR ARISING OUT OF ANY TERMS OR
PROVISIONS OR THE EXTENSION OF THE RENEWAL OF ANY THEREOF, (IV) THE MODIFICATION
OR AMENDMENT (WHETHER MATERIAL OR OTHERWISE) OF ANY DUTY, AGREEMENT OR
OBLIGATION OF THE GRANTORS SET FORTH HEREIN, (V) THE RELEASE OR DISCHARGE OF THE
GRANTORS FROM THE PERFORMANCE OR OBSERVANCE OF ANY AGREEMENT, COVENANT, TERM OR
CONDITION CONTAINED IN ANY OF SUCH INSTRUMENTS BY OPERATION OF LAW; (VI) THE
EXISTENCE OF ANY CLAIM, SET-OFF, DEFENSE OR OTHER RIGHT THAT THE GRANTORS MAY
HAVE AT ANY TIME AGAINST THE SECURED PARTIES, THE ISSUING BANK OR ANY OTHER
PERSON OR ENTITY, WHETHER IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREIN OR IN ANY OTHER TRANSACTION DOCUMENT, OR ANY UNRELATED
TRANSACTION, (VII) ANY STATEMENT OR ANY OTHER DOCUMENT PRESENTED UNDER THE
SUPPORTING LETTER OF CREDIT PROVING TO BE FORGED, FRAUDULENT, INVALID OR
INSUFFICIENT IN ANY RESPECT OR ANY STATEMENT THEREIN BEING UNTRUE OR INACCURATE
IN ANY RESPECT, (VIII) PAYMENT BY THE ISSUING BANK UNDER THE SUPPORTING LETTER
OF CREDIT AGAINST PRESENTATION OF A DRAFT OR CERTIFICATE WHICH DOES NOT COMPLY
WITH THE TERMS OF THE SUPPORTING LETTER OF CREDIT, OR (IX) ANY OTHER
CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT SIMILAR TO ANY OF THE
FOREGOING; OR

 

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(C)           TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY EXCHANGE, RELEASE
OR NON-PERFECTION OF ANY COLLATERAL, OR ANY RELEASE OR AMENDMENT OR WAIVER OF OR
CONSENT TO DEPARTURE FROM ANY OTHER SECURITY AGREEMENT, FOR ALL OR ANY OF THE
SECURED OBLIGATIONS.

 

SECTION 7.   Grantor Remains Liable.  Anything herein to the contrary
notwithstanding, (a) each of the Grantors shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Parties of any of the rights hereunder shall not release either of the
Grantors from any of its duties under the contracts and agreements included in
the Collateral, and (c) the Secured Parties shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Secured Parties be obligated to perform
any of the duties of the Grantors thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.

 

SECTION 8.   Representations and Warranties.  Each of the Grantors represents
and warrants to the Secured Parties as follows:

 

(a)        It is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware, and is duly qualified to
transact business in the jurisdictions in which such qualification is necessary.
Its exact name is set forth in the introductory paragraph of this Agreement.

 

(b)        It has full power, right and authority to execute and deliver, and
perform its obligations, under this Agreement. The grant of the security
interest in the Collateral and this Agreement have been duly executed and
delivered by such Grantor, and this Agreement constitutes its legal, valid and
binding obligations enforceable against it in accordance with the terms hereof.

 

(c)        The execution, delivery and performance of this Agreement do not
violate the terms of the organizational documents or any other agreement by
which such Grantor is bound, or the provisions of any law, regulation or order
of any governmental authority applicable to such Grantor.

 

(d)        No consent of any other party and no approval of any governmental
authority is required which has not been obtained either (i) for the execution,
delivery and performance by such Grantor of this Agreement, (ii) for the pledge
by such Grantor of the Collateral pursuant to this Agreement, or (iii) for the
exercise by the Secured Parties of the rights provided for in this Agreement or
the remedies in respect of the Collateral pursuant to this Agreement.

 

(e)        There are no proceedings and there is no action, suit or proceeding
at law or in equity or by or before any governmental authority, arbitral
tribunal or other body now pending against such Grantor or, to the best
knowledge of such Grantor, threatened against it which questions the validity or
legality of or seeks damages in connection with this Agreement.

 

(F)         SUCH GRANTOR OWNS ITS COLLATERAL FREE AND CLEAR OF ANY LIEN, EXCEPT
FOR THE SECURITY INTEREST CREATED BY THIS AGREEMENT AND PERMITTED LIENS EXISTING
ON THE DATE HEREOF. NO EFFECTIVE FINANCING STATEMENT OR OTHER INSTRUMENT SIMILAR
IN EFFECT COVERING ALL OR ANY PART OF THE

 

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COLLATERAL IS ON FILE IN ANY RECORDING OFFICE, EXCEPT (I) FOR FINANCING
STATEMENTS FILED IN FAVOR OF THE SECURED PARTIES RELATING TO THIS AGREEMENT AND
(II) IN CONNECTION WITH PERMITTED LIENS.

 

(G)        ALL OF SUCH GRANTOR’S EQUIPMENT AND INVENTORY (I) WERE ACQUIRED IN
THE ORDINARY COURSE OF BUSINESS AND (II) ARE LOCATED AT THE PLACES SPECIFIED IN
SCHEDULE I HERETO. THE PRINCIPAL PLACE OF BUSINESS AND CHIEF EXECUTIVE OFFICE OF
SUCH GRANTOR AND THE OFFICE WHERE SUCH GRANTOR KEEPS ITS RECORDS CONCERNING
ACCOUNTS RECEIVABLE AND OTHER COLLATERAL ARE LOCATED AT THE ADDRESS SPECIFIED IN
SCHEDULE I HERETO. ALL ORIGINALS OF ALL CHATTEL PAPER WHICH EVIDENCE ACCOUNTS
RECEIVABLE THAT ARE NOT REQUIRED TO BE DELIVERED TO SILICON AND PHOENIX HAVE
BEEN DELIVERED TO THE SECURED PARTIES. NONE OF THE ACCOUNTS RECEIVABLE IS
EVIDENCED BY A PROMISSORY NOTE OR OTHER INSTRUMENT.

 

(H)        SUCH GRANTOR CONDUCTS NO BUSINESS UNDER ANY NAME OR TRADE NAME OTHER
THAN ITS PROPER CORPORATE NAME, WHICH IS THE NAME SET FORTH IN THE PREAMBLE
HERETO.

 

(I)         SUCH GRANTOR HAS EXCLUSIVE POSSESSION AND CONTROL OF ITS EQUIPMENT
AND INVENTORY.

 

(J)         SCHEDULE II HERETO SETS FORTH A COMPLETE AND CORRECT LIST OF ALL
PATENTS, TRADEMARKS AND COPYRIGHTS OWNED OR APPLIED FOR BY SUCH GRANTOR ON THE
DATE HEREOF. SUCH GRANTOR HAS THE RIGHT TO USE ALL ITS PATENTS, TRADEMARKS, AND
COPYRIGHTS AND ALL COMPUTER PROGRAMS AND OTHER SIMILAR OR RELATED RIGHTS, FREE
FROM RESTRICTIONS, WHICH ARE NECESSARY FOR THE OPERATION OF ITS BUSINESSES AS
PRESENTLY CONDUCTED.  THERE IS NOT PENDING OR, TO THE KNOWLEDGE OF SUCH GRANTOR,
THREATENED, ANY CLAIM OR LITIGATION AGAINST OR AFFECTING SUCH GRANTOR CONTESTING
THE VALIDITY OF ANY OF ITS PATENTS, TRADEMARKS OR COPYRIGHTS OR COMPUTER PROGRAM
OR OTHER RIGHT.

 

(K)        ALL KNOWN EXISTING COMMERCIAL TORT CLAIMS OWNED BY SUCH GRANTOR ARE
SET FORTH AND DESCRIBED IN SCHEDULE III HERETO.

 

SECTION 9.   Certain Covenants; Further Assurances. Each of the Grantors hereby
covenants and agrees as follows:

 

(a)        It shall not change its name or jurisdiction of incorporation or its
corporate structure, or merge or consolidate with or into any other person, or
dissolve or elect to dissolve, or become domesticated under the laws of any
other jurisdiction, or acquire any assets or enter into any transaction outside
of the ordinary course of business, without the prior written consent of the
Secured Parties.

 

(b)        It shall duly and promptly observe, perform and comply with all
covenants and undertakings on the part of such Grantor contained herein.

 

(c)        It shall not pledge, assign or transfer any of the Collateral, or
create or permit to exist any Lien upon or with respect to any of the
Collateral, or convey or otherwise dispose any of the Collateral, or attempt or
agree so to do, except for (i) the sale of finished Inventory in the ordinary
course of such Grantor’s business (other than the sale of any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis),
(ii) the grant of non-exclusive licenses and similar arrangements for the use of
property of such Grantor in the ordinary course of business, (iii) the sale of
obsolete or

 

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unneeded equipment in the ordinary course of such Grantor’s business,
(iv) Permitted Liens, (v) as expressly provided herein, or (vi) as consented to
by the Secured Parties in writing.

 

(d)            It shall furnish to the Secured Parties from time to time
statements and schedules further identifying and describing such Grantor’s
Collateral and such other reports in connection with such Collateral as the
Secured Parties may reasonably request, all in reasonable detail. Without
limiting the generality of the foregoing, (i) such Grantor shall, from time to
time, execute and deliver to the Secured Parties, in such form and manner as the
Secured Parties may reasonably require, solely for the Secured Parties’
convenience in maintaining records of such Grantor’s Collateral, such
confirmatory schedules of such Grantor’s Accounts Receivable, and such other
appropriate reports, designating, identifying and describing such Grantor’s
Accounts Receivable, as the Secured Parties may reasonably request; and (ii) if
any material commercial tort claim should hereafter arise (an “Additional Tort
Claim”), such Grantor shall promptly advise the Secured Parties of such
Additional Tort Claim in writing, supplementing Schedule III hereto, which
supplement shall constitute a grant by such Grantor to the Secured Parties of a
security interest in such Additional Tort Claim, on the terms, and subject to
the conditions, set forth in this Agreement, and such Grantor’s authorization to
file, or to amend, such financing statements as the Secured Parties may deem
necessary or advisable to perfect its security interest in such Additional Tort
Claim. In addition, upon the Secured Parties’ request, such Grantor shall
provide the Secured Parties with copies of agreements with, or purchase orders
from, such Grantor’s customers, of invoices to customers and proof of shipment
or delivery and such other documentation and information relating to its
Accounts Receivable and its other Collateral as the Secured Parties may from
time to time reasonably request, to the extent such Grantor maintains such
documentation in the ordinary course of its business. Failure to provide the
Secured Parties with any of the foregoing shall in no way affect, diminish,
modify or otherwise limit the Lien granted herein. Such Grantor hereby
authorizes the Secured Parties to regard its printed name or rubber stamp
signature on assignment schedules or invoices as the equivalent of a manual
signature by an authorized officer or agent of such Grantor.

 

(e)             It shall file all tax returns and pay or make adequate provision
for the payment of all taxes, assessments and other charges on or prior to the
date when due.

 

(f)             It shall promptly notify the Secured Parties, in writing, of any
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or any of its business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance.

 

(g)            It shall notify the Secured Parties, in writing, 45 days prior to
any change in the location of its chief executive office or the location of any
Collateral, or such Grantor’s opening or closing of any other place of business.

 

(h)            It shall maintain its corporate existence and its qualification
to do business and good standing in all states necessary for the conduct of its
business and the ownership of its property and maintain adequate assets,
trademarks, copyrights, licenses and patents, for the conduct of its business.

 

(i)              It shall promptly notify the Secured Parties, in writing, of
any violation of any law applicable to it which may materially and adversely
affect the Collateral or such Grantor’s business, assets, prospects, operations
or condition, financial or otherwise.

 

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(j)              It shall notify the Secured Parties, in writing, within five
(5) business days of the occurrence of such Grantor’s default under any note,
indenture, loan agreement, mortgage, lease or other agreement to which such
Grantor is a party or by which such Grantor is bound that is material to its
business, assets, prospects, operations or condition, financial or otherwise, or
any other default under any indebtedness.

 

(k)             It shall promptly notify the Secured Parties, in writing, of any
capital expenditure materially affecting such Grantor’s business, assets,
prospects, operations or condition, financial or otherwise.

 

(l)              It shall keep adequate records and books of account with
respect to such Grantor’s business activities in which proper entries are made
in accordance with generally accepted accounting principles for financial
reporting in the United States, applied on a consistent basis, reflecting all of
such Grantor’s financial transactions.

 

(m)            It shall, from time to time, at its expense, promptly execute or
otherwise authenticate and deliver all further instruments, documents and other
records and take all further action, that may be necessary or desirable, or that
the Secured Parties may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable the
Secured Parties to exercise and enforce its rights and remedies hereunder with
respect to such Grantor’s Collateral. Without limiting the generality of the
foregoing, such Grantor shall: (i) following an Event of Default, use
commercially reasonable efforts to mark conspicuously each document and
agreement included in such Grantor’s Collateral and, at the request of the
Secured Parties, each of its records pertaining to the Collateral with a legend,
in form and substance satisfactory to the Secured Parties, indicating that such
Collateral is subject to the security interest granted hereby; (ii) if any
Account Receivable shall be evidenced by a promissory note or other instrument
or chattel paper, deliver, subject to the rights of Silicon, such promissory
note or other instrument or chattel paper to the Secured Parties duly endorsed
and accompanied by duly executed instruments of transfer or assignment, all in
form and substance satisfactory to the Secured Parties; and (iii) authenticate
(if necessary) and file such financing or continuation statements, or amendments
thereto, and such other instruments, notices or other records, as may be
necessary, or as the Secured Parties may request, in order to perfect and
preserve the security interest granted or purported to be granted hereby.

 

SECTION 10.   Covenants as to Equipment, Inventory and Intellectual Property.
Each of the Grantors shall:

 

(A)           KEEP ITS EQUIPMENT AND INVENTORY (OTHER THAN ITS INVENTORY SOLD IN
THE ORDINARY COURSE OF BUSINESS) AT THE PLACES THEREFOR SPECIFIED IN SCHEDULE I
HERETO OR, UPON 30 DAYS’ PRIOR WRITTEN NOTICE TO THE SECURED PARTIES, AT SUCH
OTHER PLACES IN JURISDICTIONS WHERE ALL ACTION REQUIRED BY SECTION 9 HEREOF
SHALL HAVE BEEN TAKEN WITH RESPECT TO ITS EQUIPMENT AND INVENTORY;

 

(B)           PERMIT THE SECURED PARTIES OR ANY AGENT THEREOF TO HAVE ACCESS TO
ITS INVENTORY AND EQUIPMENT FOR PURPOSES OF INSPECTION DURING NORMAL BUSINESS
HOURS AND UPON REASONABLE NOTICE TO SUCH GRANTOR;

 

(C)           PROMPTLY NOTIFY THE SECURED PARTIES IN WRITING OF ANY MATERIAL
LOSS OR DAMAGE TO ITS INVENTORY OR EQUIPMENT;

 

12

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(D)           EXCEPT FOR COLLATERAL SECURING A PURCHASE-MONEY OBLIGATION
INCURRED IN COMPLIANCE WITH SECTION 9-103 OF THE UCC, NOT PERMIT ITS EQUIPMENT
TO BECOME A PART OF OR TO BE AFFIXED TO ANY REAL PROPERTY OF ANY PERSON;

 

(E)           PROTECT, DEFEND AND MAINTAIN THE VALIDITY AND ENFORCEABILITY OF
THE INTELLECTUAL PROPERTY, USE ITS REASONABLE BEST EFFORTS TO DETECT
INFRINGEMENTS OF THE INTELLECTUAL PROPERTY, PROMPTLY ADVISE THE SECURED PARTIES
IN WRITING OF MATERIAL INFRINGEMENTS DETECTED, AND NOT ALLOW ANY INTELLECTUAL
PROPERTY TO BE ABANDONED, FORFEITED OR DEDICATED TO THE PUBLIC WITHOUT THE
WRITTEN CONSENT OF THE SECURED PARTIES, WHICH SHALL NOT BE UNREASONABLY
WITHHELD, UNLESS SUCH GRANTOR DETERMINES THAT REASONABLE BUSINESS PRACTICES
SUGGEST THAT ABANDONMENT IS APPROPRIATE; AND

 

(F)            ADVISE THE SECURED PARTIES OF ALL ITS TRADEMARKS, PATENTS AND
COPYRIGHTS, OR APPLICATIONS FOR OR REGISTRATION OF THE SAME, CREATED OR OBTAINED
BY SUCH GRANTOR ON OR AFTER THE DATE OF THIS AGREEMENT.

 

SECTION 11.   COVENANTS AS TO ACCOUNTS RECEIVABLE. (A)  EACH OF THE GRANTORS
SHALL KEEP ITS PRINCIPAL PLACE OF BUSINESS AND CHIEF EXECUTIVE OFFICE AND THE
OFFICE WHERE IT KEEPS ITS RECORDS CONCERNING ITS ACCOUNTS RECEIVABLE, AT THE
LOCATION THEREFOR SPECIFIED IN SCHEDULE I HERETO OR, UPON 30 DAYS’ PRIOR WRITTEN
NOTICE TO THE SECURED PARTIES, AT SUCH OTHER LOCATIONS IN A JURISDICTION WHERE
ALL ACTION REQUIRED BY SECTION 9 SHALL HAVE BEEN TAKEN WITH RESPECT TO ITS
ACCOUNTS RECEIVABLE. SUCH GRANTOR SHALL HOLD AND PRESERVE SUCH RECORDS AND WILL
PERMIT REPRESENTATIVES OF THE SECURED PARTIES TO INSPECT AND MAKE ABSTRACTS FROM
SUCH RECORDS UPON REASONABLE NOTICE TO SUCH GRANTOR AND DURING NORMAL BUSINESS
HOURS.

 

(B)           EXCEPT AS OTHERWISE PROVIDED IN THIS SUBSECTION (B), SUBJECT TO
THE RIGHTS OF SILICON, EACH GRANTOR SHALL CONTINUE TO COLLECT, AT ITS OWN
EXPENSE, ALL AMOUNTS DUE OR TO BECOME DUE TO SUCH GRANTOR UNDER ITS ACCOUNTS
RECEIVABLE. IN CONNECTION WITH SUCH COLLECTIONS, SUCH GRANTOR MAY TAKE SUCH
ACTION AS SUCH GRANTOR MAY DEEM NECESSARY OR ADVISABLE TO ENFORCE COLLECTION OF
ITS ACCOUNTS RECEIVABLE; PROVIDED, HOWEVER, THAT, SUBJECT TO THE RIGHTS OF
SILICON, THE SECURED PARTIES SHALL HAVE THE RIGHT AT ANY TIME, UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT UPON WRITTEN NOTICE
TO SUCH GRANTOR OF ITS INTENTION TO DO SO, TO NOTIFY THE ACCOUNT DEBTORS OR
OBLIGORS UNDER ANY OF SUCH GRANTOR’S ACCOUNTS RECEIVABLE OF THE ASSIGNMENT OF
SUCH ACCOUNTS RECEIVABLE TO THE SECURED PARTIES AND TO DIRECT SUCH ACCOUNT
DEBTORS OR OBLIGORS TO MAKE PAYMENT OF ALL AMOUNTS DUE OR TO BECOME DUE TO SUCH
GRANTOR THEREUNDER DIRECTLY TO THE SECURED PARTIES AND, UPON SUCH NOTIFICATION
AND AT THE EXPENSE OF SUCH GRANTOR, TO ENFORCE COLLECTION OF ANY SUCH ACCOUNTS
RECEIVABLE, AND TO ADJUST, SETTLE OR COMPROMISE THE AMOUNT OR PAYMENT THEREOF,
IN THE SAME MANNER AND TO THE SAME EXTENT AS SUCH GRANTOR MIGHT HAVE DONE. AS
LONG AS AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, SUBJECT TO THE
RIGHTS OF SILICON, (I) ALL AMOUNTS AND PROCEEDS (INCLUDING INSTRUMENTS) RECEIVED
BY SUCH GRANTOR IN RESPECT OF ITS ACCOUNTS RECEIVABLE SHALL BE RECEIVED IN TRUST
FOR THE BENEFIT OF THE SECURED PARTIES HEREUNDER, SHALL BE SEGREGATED FROM OTHER
FUNDS OF SUCH GRANTOR AND SHALL BE FORTHWITH PAID OVER TO THE SECURED PARTIES IN
THE SAME FORM AS SO RECEIVED (WITH ANY NECESSARY ENDORSEMENT) TO BE APPLIED TO
THE SECURED OBLIGATIONS OR, IF THEY CANNOT BE SO APPLIED UNDER APPLICABLE LAW,
HELD AS CASH COLLATERAL, AS DETERMINED BY THE SECURED PARTIES, AND (II) SUCH
GRANTOR SHALL NOT ADJUST, SETTLE OR COMPROMISE THE AMOUNT OR PAYMENT OF ANY OF
ITS ACCOUNT RECEIVABLE, OR RELEASE WHOLLY OR PARTLY ANY ACCOUNT DEBTOR OR
OBLIGOR THEREOF, OR ALLOW ANY CREDIT OR DISCOUNT THEREON, OTHER THAN ANY
DISCOUNT ALLOWED FOR PROMPT PAYMENT.

 

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SECTION 12.   COVENANTS AS TO INSURANCE.  (A)   EACH POLICY FOR LIABILITY AND
PROPERTY DAMAGE INSURANCE SHALL PROVIDE FOR ALL LOSSES TO BE PAID ON BEHALF OF
THE SECURED PARTIES, SILICON, PHOENIX AND THE GRANTORS, AS THEIR RESPECTIVE
INTERESTS MAY APPEAR. EACH SUCH POLICY SHALL, IN ADDITION: (I) NAME THE SECURED
PARTIES AS INSURED PARTY THEREUNDER (WITHOUT ANY REPRESENTATION OR WARRANTY BY
OR OBLIGATION UPON THE SECURED PARTIES) AS THEIR INTERESTS MAY APPEAR; AND
(II) PROVIDE THAT AT LEAST 30 DAYS’ PRIOR WRITTEN NOTICE OF AMENDMENT TO OR
LAPSE AND AT LEAST 30 DAYS’ PRIOR WRITTEN NOTICE OF CANCELLATION SHALL BE GIVEN
TO THE SECURED PARTIES BY THE INSURER. EACH GRANTOR SHALL USE COMMERCIALLY
REASONABLE EFFORTS TO CAUSE EACH POLICY TO CONTAIN THE AGREEMENT BY THE INSURER
THAT ANY LOSS THEREUNDER SHALL BE PAYABLE TO THE SECURED PARTIES WHOSE RIGHTS
WITH RESPECT TO ANY LOSS THEREUNDER SHALL BE UNAFFECTED BY ANY ACTION, INACTION
OR BREACH OF REPRESENTATION AND WARRANTY BY SUCH GRANTOR. EACH GRANTOR SHALL, IF
SO REQUESTED BY THE SECURED PARTIES, DELIVER TO THE SECURED PARTIES ORIGINAL OR
DUPLICATE POLICIES OF SUCH INSURANCE AND, AS OFTEN AS THE SECURED PARTIES MAY
REQUEST, A REPORT OF A REPUTABLE INSURANCE BROKER WITH RESPECT TO SUCH
INSURANCE. FURTHER, EACH GRANTOR SHALL, AT THE REQUEST OF THE SECURED PARTIES,
DULY EXECUTE AND DELIVER INSTRUMENTS OF ASSIGNMENT OF SUCH INSURANCE POLICIES TO
COMPLY WITH THE REQUIREMENTS OF SECTION 8 AND CAUSE THE RESPECTIVE INSURERS TO
ACKNOWLEDGE NOTICE OF SUCH ASSIGNMENT.

 

(B)           REIMBURSEMENT UNDER ANY LIABILITY INSURANCE MAINTAINED BY A
GRANTOR PURSUANT TO THIS SECTION MAY BE PAID DIRECTLY TO THE PERSON WHO SHALL
HAVE INCURRED LIABILITY COVERED BY SUCH INSURANCE. IN CASE OF ANY LOSS INVOLVING
DAMAGE TO A GRANTOR’S EQUIPMENT OR INVENTORY WHEN SUBSECTION (C) OF THIS
SECTION IS NOT APPLICABLE, SUCH GRANTOR SHALL MAKE OR CAUSE TO BE MADE THE
NECESSARY REPAIRS TO OR REPLACEMENTS OF SUCH EQUIPMENT OR INVENTORY, AND ANY
PROCEEDS OF INSURANCE MAINTAINED BY SUCH GRANTOR PURSUANT TO THIS SECTION SHALL
BE PAID TO SUCH GRANTOR AS REIMBURSEMENT FOR THE COSTS OF SUCH REPAIRS OR
REPLACEMENTS.

 

(c)           Subject to the rights of Silicon, upon the occurrence and during
the continuation of any Event of Default, all insurance payments in respect of
such equipment or inventory shall be paid to the Secured Parties and applied to
payment of the amounts due under the Secured Obligations.

 

SECTION 13.   Attorney-in-Fact.  Each of the Grantors hereby irrevocably
appoints the Secured Parties as such Grantor’s attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such
Grantor, the Secured Parties or otherwise, to, after the occurrence and during
the continuance of an Event of Default, take any action and to execute any
instrument which the Secured Parties may deem necessary or advisable to
accomplish the purposes of this Agreement, subject to the rights of Silicon,
including, without limitation:

 

(A)           TO OBTAIN AND ADJUST INSURANCE REQUIRED TO BE PAID TO THE SECURED
PARTIES PURSUANT TO SECTION 12 HEREOF;

 

(B)           TO ASK, DEMAND, COLLECT, SUE FOR, RECOVER, COMPROMISE, RECEIVE AND
GIVE ACQUITTANCE AND RECEIPTS FOR MONEYS DUE AND TO BECOME DUE UNDER OR IN
RESPECT OF ANY OF THE COLLATERAL;

 

(C)           TO RECEIVE, ENDORSE, ASSIGN, AND COLLECT ANY AND ALL CHECKS,
NOTES, DRAFTS AND OTHER NEGOTIABLE AND NON-NEGOTIABLE INSTRUMENTS, DOCUMENTS AND
CHATTEL PAPER, IN CONNECTION WITH

 

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CLAUSE (A) OR (B) ABOVE, AND EACH GRANTOR WAIVES NOTICE OF PRESENTMENT, PROTEST
AND NON-PAYMENT OF ANY INSTRUMENT, DOCUMENT OR CHATTEL PAPER SO ENDORSED OR
ASSIGNED;

 

(D)           TO FILE ANY CLAIMS OR TAKE ANY ACTION OR INSTITUTE ANY PROCEEDINGS
WHICH THE SECURED PARTIES MAY DEEM NECESSARY OR DESIRABLE FOR THE COLLECTION OF
ANY OF THE COLLATERAL OR OTHERWISE TO ENFORCE THE RIGHTS OF THE SECURED PARTIES
WITH RESPECT TO ANY OF THE COLLATERAL;

 

(E)           TO SELL, TRANSFER, ASSIGN OR OTHERWISE DEAL IN OR WITH THE
COLLATERAL OR THE PROCEEDS OR AVAILS THEREOF, AS FULL AND EFFECTUALLY AS IF THE
SECURED PARTIES WERE THE ABSOLUTE OWNER THEREOF;

 

(F)            TO PERFORM OR CAUSE THE PERFORMANCE OF ANY OBLIGATION OF THE
GRANTORS HEREUNDER;

 

(G)           TO RECEIVE, OPEN AND DISPOSE OF ALL MAIL ADDRESSED TO EACH OF THE
GRANTORS AND TO NOTIFY POSTAL AUTHORITIES TO CHANGE THE ADDRESS FOR DELIVERY
THEREOF TO SUCH ADDRESS AS THE SECURED PARTIES MAY DESIGNATE; AND

 

(H)           TO TRANSMIT TO CUSTOMERS INDEBTED ON ACCOUNTS NOTICE OF THE
SECURED PARTIES’ INTEREST THEREIN AND TO NOTIFY CUSTOMERS INDEBTED ON ACCOUNTS
TO MAKE PAYMENT DIRECTLY TO THE SECURED PARTIES FOR THE GRANTORS’ ACCOUNT.

 

Each of the Grantors hereby ratifies and approves all acts (other than those
which result from the Secured Parties’ gross negligence or willful misconduct)
of the Secured Parties, as its attorney in-fact, pursuant to this Section, and
the Secured Parties, as its attorney in-fact, shall not be liable for any acts
of commission or omission, nor for any error of judgment or mistake of fact or
law (other than those which result from the Secured Parties’ gross negligence or
willful misconduct). This power, being coupled with an interest, is irrevocable
so long as this Agreement remains in effect. Each of the Grantors also
authorizes the Secured Parties, at any time after the occurrence and during the
continuance of an Event of Default, to communicate in its own name with any
party to any contract, agreement or instrument included in the Collateral with
regard to the assignment of such contract, agreement or instrument and other
matters relating thereto.

 

SECTION 14.   Secured Parties’ Duties.   The powers conferred on the Secured
Parties hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in their possession and the accounting for moneys
actually received by them hereunder, the Secured Parties shall not have any duty
as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.

 

SECTION 15.   Remedies.   Subject to the rights of Silicon, if any Event of
Default shall have occurred and not have been waived by the Secured Parties or
cured to the satisfaction of the Secured Parties:

 

(a)           The Secured Parties have the right to take the actions described
in the proviso of Section 11(b) and in Section 13 hereof.

 

(b)           The Secured Parties may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of

 

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a secured party available to such secured party upon debtor’s default under the
UCC (whether or not the UCC applies to the affected Collateral) and also may
(i) require the Grantors to, and each Grantor hereby agrees that it will at its
expense and upon the request of the Secured Parties forthwith, assemble all or
part of the Collateral as directed by the Secured Parties and make it available
to the Secured Parties at a place to be designated by the Secured Parties which
is reasonably convenient to the Secured Parties and the Grantors, (ii) to the
extent permitted by law, enter the premises where any of the Collateral is
located and take and carry away the same, by any of their representatives, with
or without legal process, to Secured Parties’ place of storage, and
(iii) without notice (except as specified in the next sentence), sell the
Collateral, or any part thereof, in one or more parcels at public or private
sale, at any of the Secured Parties’ offices or elsewhere, for cash, on credit
or for future delivery and upon such other terms as the Secured Parties may deem
commercially reasonable. Each of the Grantors agrees that, to the extent notice
of disposition is required by law, notice to the Grantors of at least ten
(10) business days prior to the earliest time of disposition set forth in such
notice shall constitute reasonable notification. The Secured Parties shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. The Secured Parties may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place it was so adjourned.

 

(c)           All cash proceeds received by the Secured Parties in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, to the extent required by applicable law, be held by the Secured
Parties as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Collateral Agent hereunder) to the payment
in full of the Secured Obligations. Any surplus of such cash or cash proceeds
held by the Secured Parties and remaining after payment in full of all the
Secured Obligations to the Secured Parties shall be paid over to the Grantors.
If the proceeds of the sale of the Collateral are insufficient to pay all of the
Secured Obligations, each of the Grantors agrees to pay upon demand any
deficiency to the Secured Parties.

 

(d)           The Secured Parties may use (and is hereby granted a license to
use), in connection with any assembly, preparation for disposition or
disposition of the Collateral, any of the trademarks, copyrights, patents,
technical processes, trade names, service marks or trade styles and other
Intellectual Property used by the Grantors, without payment or additional
compensation therefor.

 

(e)           Each of the Grantors recognize that the Secured Parties may be
unable to effect a public sale of all or part of the Collateral consisting of
the investment property by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, or in applicable Delaware or other states’
securities laws as now or hereafter in effect, unless registration or
qualification, as the case may be, is accomplished. To the extent permitted by
law, each of the Grantors acknowledges that the Secured Parties may resort to
one or more private sales to a single purchaser or a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
investment property for their own account, for investment and not with a view to
the distribution or resale thereof. To the extent permitted by law, each of the
Grantors agrees that private sales may be at prices and other terms less
favorable to the Grantors than if such investment property were sold at a public
sale and that the Secured Parties shall have no obligation to delay the sale of
any such portion of the Collateral for the period of time necessary

 

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to permit the issuer of such investment property to register or qualify such
investment property, even if such issuer would, or should, proceed to register
or qualify such investment property for public sale. Each of the Grantors agrees
that private sales made under the foregoing circumstances shall be deemed to
have been made in a “commercially reasonable” manner.

 

SECTION 16.   INDEMNIFICATION AND EXPENSES.  (A)  WITHOUT LIMITING ANY OF THE
GRANTORS’ OBLIGATIONS UNDER SECTION 3 HEREOF, EACH OF THE GRANTORS HEREBY AGREES
TO INDEMNIFY AND DEFEND THE SECURED PARTIES (INCLUDING, FOR THE PURPOSES OF THIS
SECTION, THEIR AGENTS, CONSULTANTS AND ADVISORS (EACH, AN “INDEMNIFIED PARTY”)),
FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES GROWING OUT OF OR
RESULTING FROM THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF
THIS AGREEMENT), EXCEPT CLAIMS, LOSSES OR LIABILITIES THAT ARE FINALLY
DETERMINED TO RESULT FROM AN INDEMNIFIED PARTY’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.

 

(B)           EACH OF THE GRANTORS SHALL, UPON DEMAND, PAY TO THE SECURED
PARTIES THE AMOUNT OF ANY AND ALL REASONABLE EXPENSES, INCLUDING THE FEES AND
OUT-OF-POCKET EXPENSES OR DISBURSEMENTS OF THEIR COUNSEL AND OF ANY EXPERTS AND
AGENTS, WHICH THE SECURED PARTIES MAY INCUR IN CONNECTION WITH (I) THE
NEGOTIATION OR PREPARATION OF, OR ANY CLOSING UNDER, AND THE PERFECTION OF
(INCLUDING ANY FILING OR RECORDING FEES) ANY AND ALL LIENS CONTEMPLATED BY, THIS
AGREEMENT, ANY AMENDMENTS AND MODIFICATIONS THERETO, AND TERMINATIONS THEREOF,
AND ANY OTHER RELATED DOCUMENTS, (II) THE CUSTODY, PRESERVATION, USE OR
OPERATION OF, OR THE SALE OF, COLLECTION FROM, OR OTHER REALIZATION UPON, ANY OF
THE COLLATERAL, AND (III) THE INTERPRETATION, PERFORMANCE OR ENFORCEMENT OF ANY
OF THE RIGHTS OF THE SECURED PARTIES. WITHOUT LIMITING IN ANY MANNER THE
GENERALITY OF THE FOREGOING, EACH OF THE GRANTORS SHALL PAY ALL REASONABLE
OUT-OF-POCKET COSTS AND EXPENSES OF THE SECURED PARTIES UPON FAILURE BY THE
GRANTORS TO PERFORM OR OBSERVE ANY OF THE PROVISIONS OF THIS AGREEMENT OR UPON
DEMAND IN CONNECTION WITH THE BANKRUPTCY OR OTHER INSOLVENCY PROCEEDING
INVOLVING A GRANTOR, IN EACH CASE, INCLUDING, WITHOUT LIMITATION, THE REASONABLE
FEES AND OUT-OF-POCKET EXPENSES OF COUNSEL FOR THE SECURED PARTIES AND OF ANY
CONSULTANTS OR EXPERT WITNESSES RETAINED BY THE SECURED PARTIES, WITH RESPECT TO
ANY ASPECT OF THE SECURED OBLIGATIONS OR OTHERWISE RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREBY. THE SECURED PARTIES SHALL NOT BE LIABLE TO THE GRANTORS FOR
DAMAGES AS A RESULT OF DELAYS, TEMPORARY WITHDRAWALS OF THE EQUIPMENT FROM
SERVICE OR OTHER CAUSES OTHER THAN THOSE CAUSED BY THE SECURED PARTIES’ GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.

 

(C)           THIS PROVISIONS OF THIS SECTION SHALL SURVIVE SATISFACTION OF THE
SECURED OBLIGATIONS AND TERMINATION OF THIS AGREEMENT.

 

SECTION 17.   Certain Waivers.   Each of the Grantors hereby waives, to the
extent the same may be waived under applicable laws: (a) notice of acceptance of
this Agreement; (b) all claims, causes of action and rights of such Grantor
against the Secured Parties on account of actions taken or not taken by the
Secured Parties in the exercise of the Secured Parties’ rights or remedies
hereunder or under applicable laws (unless such claims, causes of action and/or
rights arose from the gross negligence, fraud or willful default on the part of
the Secured Parties); (c) all claims of such Grantor for failure of the Secured
Parties to comply with any requirement of applicable laws relating to
enforcement of the Secured Parties’ rights or remedies hereunder, the
Transaction Documents, the agreements and documents relating hereto and thereto,
or under applicable laws; (d) all rights of redemption of such Grantor with
respect to the Collateral; (e) in the event the Secured Parties seek to
repossess any or all

 

17

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of the Collateral by judicial proceedings, any bond(s) or demand(s) for
possession which otherwise may be necessary or required; (f) presentment, demand
for payment, protest and notice of non payment and all exemptions; (g) any and
all other notices or demands which by applicable laws must be given to or made
upon such Grantor by the Secured Parties; (h) settlement, compromise or release
of the obligations of any person primarily or secondarily liable upon any of the
Secured Obligations; and (i) substitution, impairment, exchange or release of
any Collateral for any of the Secured Obligations.

 

SECTION 18.   Waivers and Amendments.  (a)  The provisions of this Agreement,
and the rights of the Secured Parties in relation to the Collateral and the
recovery of the Secured Obligations (whether arising under this Agreement or
under the general law), shall not be capable of being waived, amended or varied
otherwise than by an express waiver or amendment by the Secured Parties in
writing, and then such waiver, amendment or variation shall be effective only in
the specific instance and for the specific purpose for which given. Any failure
by the Secured Parties to exercise, or any delay in exercising, any of their
rights hereunder shall not operate as a waiver, amendment or variation of that
or any other right. Any defective or partial exercise of any of such rights
shall not preclude any other or further exercise of that or any other such
right; and no act or course of conduct or negotiation on the part of the Secured
Parties or on their behalf shall in any way preclude them from exercising any
such right or constitute a suspension or any variation or amendment of any such
right.

 

SECTION 19.   Notices.  All notices and other communications required or
permitted hereunder shall be in writing and shall be (a) mailed by registered or
certified mail, postage prepaid, (b) sent by facsimile, (c) delivered by
nationally recognized overnight courier service, or (d) otherwise delivered by
hand or by messenger, addressed, if to the Secured Parties, to:

 

Philip S. Sassower

c/o Phoenix Venture Fund LLC

110 East 59th Street, Suite 1901

New York, NY 10022

Facsimile: 212-319-4970,

 

or at such other address as the Secured Parties shall have furnished to the
Grantors in writing, or, if to the Grantors, to:

 

Xplore Technologies Corp

14000 Summit Drive, Suite 900

Austin, Texas 78728

Facsimile: 512-336-7791

Attention: Michael J. Rapisand

 

All notices shall be effective upon receipt.

 

SECTION 20.   Continuing Security Interest.   The security interest created
under this Agreement shall (a) remain in full force and effect until the payment
in full of the Secured Obligations, (b) be binding upon the Grantors, their
successors and permitted assigns, and (c) inure to the benefit of the Secured
Parties and their heirs and assigns. Upon the indefeasible

 

18

--------------------------------------------------------------------------------

 

payment in full of the Secured Obligations, the security interest granted hereby
shall automatically terminate and all rights to the Collateral shall revert to
the Grantors (and, upon such termination, the Secured Parties will, at the
Grantors’ expense, execute and deliver to the Grantors such documents as the
Grantors may reasonably request to evidence such termination); provided,
however, that the parties hereto agree that, if at any time all or any part of
any payment theretofore applied by any party to this Agreement is, or must be,
rescinded or returned for any reason whatsoever, including, without limitation,
the insolvency, bankruptcy or reorganization of a Grantor, this Agreement shall,
to the extent that such payment is or must be rescinded or returned, be deemed
to have continued in existence notwithstanding such application, and this
Agreement shall continue to be effective or be reinstated, as the case may be,
as though such application had not been made.

 

SECTION 21.   Governing Law; Jurisdiction; Waiver of Immunity, Etc.  (a)  This
Agreement shall be governed by, and construed in accordance with, the internal
laws (and not the law of conflicts) of the State of New York, except to the
extent that the perfection of the security interest hereunder or remedies
hereunder, in respect of any particular Collateral, are governed by the laws of
a jurisdiction other than the State of New York.

 

(b)           Each of the Grantors hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and such Grantor irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such federal court. Each of
the Grantors agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect
any right that the Secured Parties may otherwise have to bring any action or
proceeding relating to this Agreement against such Grantor or its properties in
the courts of any jurisdiction.

 

(c)           Each of the Grantors hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the Grantors hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

 

(d)           Each of the Grantors hereby irrevocably waives and agrees not to
claim immunity from suit, from the jurisdiction of any court, from attachment
prior to, or in aid of execution of, a judgment, or from execution of a
judgment.

 

SECTION 22.   Jury Trial Waiver.  EACH OF THE GRANTORS HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE COLLATERAL OR THE

 

19

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TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY). EACH OF THE GRANTORS ACKNOWLEDGES THAT THE SECURED PARTIES
HAVE BEEN INDUCED TO ACCEPT THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVER OF
RIGHT TO A JURY TRIAL BY SUCH GRANTOR. THIS WAIVER IS SEPARATELY GIVEN,
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH OF THE GRANTORS, AND SUCH
GRANTOR HEREBY ACKNOWLEDGES THAT NO REPRESENTATION OF FACT OR OPINION HAS BEEN
MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OR TO IN ANY WAY MODIFY OR NULLIFY
ITS EFFECT. THE SECURED PARTIES ARE HEREBY AUTHORIZED TO SUBMIT THIS AGREEMENT
TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER OF THIS AGREEMENT, THE
COLLATERAL OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR OVER THE
GRANTORS, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO A
TRIAL BY JURY. EACH OF THE GRANTORS REPRESENTS AND WARRANTS TO THE SECURED
PARTIES THAT SUCH GRANTOR HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS
OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
SUCH COUNSEL.

 

SECTION 23.   Joint and Several Obligations.   The obligations of the Grantors
hereunder shall be joint and several, and the Secured Parties, at their option,
may demand and exercise its rights hereunder against one of the Grantors or both
or any of them together.

 

SECTION 24.   Other Security.  This security is in addition to, and shall
neither be merged in, nor in any way exclude or prejudice, any other security
interest, right of recourse or other right whatsoever which the Secured Parties
may now or at any time hereafter hold or have (or would apart from this security
hold or have) as regards either Grantor or any other person in respect of the
Secured Obligations.

 

SECTION 25.   Rights Cumulative.  No right or remedy herein conferred upon the
Secured Parties is intended to be exclusive of any other right or remedy, and
every right or remedy, to the extent permitted by law, shall be cumulative and
in addition to every other right or remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The powers which this Agreement
confers on the Secured Parties may be exercised as often as the Secured Parties
think appropriate; the Secured Parties may, in connection with the exercise of
their powers, join or concur with any person in any transaction, scheme or
arrangement whatsoever; and each of the Grantors acknowledges that the powers of
the Secured Parties shall in no circumstances whatsoever be suspended, waived or
otherwise prejudiced by anything other than an express waiver or variation in
writing.

 

SECTION 26.   Severability.  Should any one or more of the provisions of this
Agreement be held to be invalid, illegal or unenforceable in any jurisdiction,
the same shall, as to such jurisdiction, be ineffective to the extent of such
invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the
invalidity, illegality or unenforceability of a particular provision in a
particular jurisdiction shall not render such provision invalid, illegal or
unenforceable in any other jurisdiction.

 

20

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SECTION 27.  Successors and Assigns; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
personal representatives, heirs, executors, administrators, successors and
permitted assigns. Neither Grantor shall be entitled to assign or transfer any
of its rights, benefits or obligations hereunder without the prior written
consent of the Secured Parties, and any attempted assignment or transfer by such
Grantor without such consent shall be null and void.

 

SECTION 28.  Survival of Agreements.  All agreements, representations and
warranties made herein shall survive the delivery of this Agreement.

 

SECTION 29.  Captions.  The captions of the various sections of this Agreement
have been inserted only for the purposes of convenience; such captions are not a
part of this Agreement and shall not be deemed in any manner to modify, explain,
enlarge or restrict any of the provisions of this Agreement.

 

SECTION 30.  Counterparts.  This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which together constitute one and the same
agreement.

 

SECTION 31.  Interest; Default Interest.  The interest payable hereunder shall
be calculated on the basis of a year of 365 or 366 days, as applicable, and for
the actual number of days elapsed. If any of the amounts payable by the Grantors
hereunder, including the amounts payable under Section 16 hereof, are not paid
when due, such amounts shall accrue interest, from the date such amounts became
due until they are paid in full, at the rate of five percent (5%) per annum. Any
interest hereunder shall be calculated on the basis of a year of 365 or 366
days, as applicable, and for the actual number of days elapsed. Any rate of
interest hereunder shall not exceed the maximum rate of interest permitted under
applicable law.

 

SECTION 32.  Discharge of Obligations.  Each of the Secured Parties acknowledges
and agrees that any payment made by either of the Grantors hereunder to one of
the Secured Parties shall discharge, to the extent of such payment, such
Grantor’s obligation to make such payment to the Secured Parties hereunder.

 

[SIGNATURES ON FOLLOWING PAGE.]

 

21

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IN WITNESS WHEREOF, the undersigned have executed this Letter of Credit
Reimbursement, Compensation and Security Agreement as of the date first written
above.

 

 

“Secured Parties”:

 

 

/s/ Philip Sassower

 

PHILIP SASSOWER

 

 

 

/s/ Susan Sassower

 

SUSAN SASSOWER

 

 

 

“Borrower”:

 

XPLORE TECHNOLOGIES CORPORATION OF AMERICA

 

By:

/s/ Michael J. Rapisand

 

 

 

 

Title:

Chief Financial Officer

 

 

 

“Parent”:

 

XPLORE TECHNOLOGIES CORP.

 

By:

/s/ Michael J. Rapisand

 

 

 

 

Title:

Chief Financial Officer

 

 

--------------------------------------------------------------------------------

 

SCHEDULE I

 

Place of Business and Locations of Collateral

 

Principal Place of Business and Chief Executive Office of the Parent:

 

Xplore Technologies Corp.

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

Principal Place of Business and Chief Executive Office of the Borrower:

 

Xplore Technologies Corporation of America

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

Locations of the Parent’s Equipment:

 

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

The Parent owns certain tooling assets that are in the possession of Wistron
Corporation (one of the Parent’s suppliers) and are physically located in
Taiwan.

 

Locations of the Borrower’s Equipment:

 

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

Locations of the Parent’s Inventory:

 

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

Locations of the Borrower’s Inventory:

 

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

--------------------------------------------------------------------------------

 

Location of Records Evidencing the Parent’s Accounts Receivable and other
Collateral:

 

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

Location of Records Evidencing the Borrower’s Accounts Receivable and other
Collateral:

 

14000 Summit Drive, Suite 900

Austin, Texas 78728

 

--------------------------------------------------------------------------------

 

SCHEDULE II

 

Intellectual Property

 

Patents

 

Patent No.

 

Type

 

Description

6,028,765

 

US

 

Removable Hand Grips For A Portable Pen Based Computer

 

 

 

 

 

6,101,087

 

US

 

Portable Pen Based Computer and Auxiliary Unit For Use With A Vehicular Docking
Station

 

 

 

 

 

6,426,872 B1

 

US

 

Portable Pen Based Computer With A Vehicular Docking Station

 

 

 

 

 

6,504,710 B2

 

US

 

Method of Interconnecting of a Hand-Held Auxiliary Unit, a Portable Computer and
a Peripheral Device

 

 

 

 

 

Patent Application 11/065,903

 

US

 

Apparatus providing multi-mode digital input

 

 

 

 

 

Patent Application 12/134,627

 

US

 

Electronic Enclosure Having Elastomeric Circuit Board Standoffs

 

 

 

 

 

Patent Application 12/134,558

 

US

 

Electronic Enclosure Fastening Belt

 

 

 

 

 

Patent Application 12/134,603

 

US

 

Configurable Computer System and Methods for use

 

 

 

 

 

525,452

 

CDN

 

Registered Trademark –Xplore

 

 

 

 

 

525,417

 

CDN

 

Registered Trademark – GeneSys

 

 

 

 

 

2,367,773

 

CDN

 

Removable hand grips for a portable pen-based computer.

 

 

 

 

 

Published CA Application 2,239,846

 

CDN

 

Portable pen-based computer with removable hand grips with vehicular docking
station.

 

--------------------------------------------------------------------------------

 

Copyrights

 

None

 

Trademarks

 

Description

 

Serial/Registration No.

 

File Date

 

 

 

 

 

 

 

WORKBOOK

 

77440530

 

4/4/08

 

 

 

 

 

 

 

XPLORE TECHNOLOGIES

 

77440522

 

4/4/08

 

 

--------------------------------------------------------------------------------

 

SCHEDULE III

 

Existing Commercial Tort Claims

 

Parent

 

On November 9, 2006, the Parent issued a Statement of Claim against Deloitte &
Touche LLP (“Deloitte”) in the Ontario Superior Court of Justice. In the
Statement of Claim, the Parent has alleged negligence against Deloitte with
respect to the auditing services provided to us in connection with its audit in
accordance with Canadian generally accepted accounting principles of the 2002,
2003 and 2004 audited financial statements. The Statement of Claim seeks damages
in the amount of Cdn. $4,070,000 for direct and indirect losses. On December 22,
2006, Deloitte filed an answer to the Statement of Claim. On March 28, 2008,
Deloitte filed an amended defense and counterclaim against the Parent, seeking
indemnification for damages, costs and expenses (including legal fees and
disbursements and personnel time) allegedly incurred by Deloitte in responding
to regulatory inquiries, requests, reviews or investigations relating to,
arising out of or associated with Deloitte’s review or audit engagements for or
during the Parent’s fiscal years 2002, 2003 and 2004.

 

Borrower

 

In March 2008, Typhoon Touch Technologies, Inc. (“Typhoon”) and Nova Mobility
Systems, Inc. (“Nova”) (collectively, the “Plaintiffs”) filed Plaintiffs’ First
Amended Complaint for Patent Infringement (the “Complaint”) against the Borrower
and several other defendants including Dell, Inc., in the United States District
Court for the Eastern District of Texas (the “Court”). The Complaint alleges
that the defendants manufacture, sell, offer for sale and/or import products
that infringe on two U.S. patents owned by Typhoon and exclusively licensed to
Nova. In April 2008, the Borrower filed its Answer, Defenses and Counterclaim in
response to the Complaint, denying the allegations of infringement and
requesting the Court to dismiss the Complaint and award judgment in favor of the
Borrower, including recovery of the Borrower’s attorneys’ fees and costs. In
May 2008, Plaintiffs filed Plaintiffs’ Reply to the Borrower’s Counterclaims in
which Plaintiffs deny any allegation that any claim relating to the patents is
invalid. The Court has not issued a scheduling order.

 

--------------------------------------------------------------------------------

 

EXHIBIT A

 

Copy of Initial Irrevocable Standby Letter of Credit

 

[See attached]

 

--------------------------------------------------------------------------------

 

EXHIBIT B

 

Form of Warrant

 

THIS SECURITY AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE
EXERCISE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION AND
REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM
UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER AND SUCH APPLICABLE STATE
SECURITIES LAWS.

 

WARRANT TO PURCHASE
SHARES OF

COMMON STOCK OF
XPLORE TECHNOLOGIES CORP.

 

No.: W    

 

Number of Warrant Shares: 5,000,000

 

 

 

Date of Issuance: May 29, 2009

 

 

 

FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, Xplore Technologies Corp., a corporation incorporated under the
laws of the State of Delaware (together with its successors and assigns, the
“Issuer”), hereby certifies that Philip Sassower and Susan Sassower or their
registered assigns are entitled to subscribe for and purchase, during the period
specified in this Warrant, up to 5,000,000 shares of Common Stock of the duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
of the Issuer, at an exercise price per share equal to $0.10, subject, however,
to the provisions and upon the terms and conditions hereinafter set forth.

 

This Warrant is issued pursuant to the terms of a Letter of Credit
Reimbursement, Compensation and Security Agreement, dated as of May 29, 2009,
among the Issuer, Xplore Technologies Corporation of America, a Delaware
corporation and a wholly-owned subsidiary of the Issuer, and Philip Sassower and
Susan Sassower.

 

Capitalized terms used in this Warrant and not otherwise defined herein shall
have the respective meanings specified in Section 8 hereof.

 

--------------------------------------------------------------------------------

 

1.                                       Expiration Date. This Warrant shall
expire at 5:00 p.m. (Austin, Texas time) on May 28, 2012 (the “Expiration
Date”).  On the Expiration Date, all rights of the Holder to purchase Common
Stock pursuant to this Warrant shall immediately terminate.

 

2.                                       Method of Exercise; Issuance of New
Warrant; Transfer and Exchange.

 

(a)                                  Time of Exercise.  The purchase rights
represented by this Warrant may be exercised by the Holder, in whole or in part,
at any time prior to the Expiration Date.

 

(b)                                 Method of Exercise.  The Holder hereof may
exercise this Warrant, in whole or in part, by the surrender of this Warrant,
with the exercise form in the form attached hereto as Exhibit A, duly executed,
at the principal office of the Issuer, and by the payment to the Issuer of an
amount of consideration therefor equal to the Warrant Price in effect on the
date of such exercise multiplied by the number of Warrant Shares with respect to
which this Warrant is then being exercised. Payment may be made by (i) certified
check payable to the Issuer’s order or (ii) wire transfer of funds to the
Issuer.

 

(c)                                  Net Issue Election.  The Holder may elect
to receive, without the payment by the Holder of any additional consideration,
shares equal to the value of this Warrant or any portion hereof by the surrender
of this Warrant or such portion, together with a duly executed notice of
exercise in the form attached hereto as Exhibit B, at the principal office of
the Issuer.  Thereupon, the Issuer shall issue to the Holder such number of
shares of Common Stock as is computed using the following formula:

 

X = Y (A-B)

A

 

Where

 

X =

 

the number of shares of Common Stock to be issued to the Holder pursuant to this
Section 2(c).

 

 

 

Y =

 

the number of shares of Common Stock covered by this Warrant in respect of which
the net issue election is made pursuant to this Section 2(c).

 

 

 

A =

 

the Per Share Market Value one share of Common Stock as at the time the net
issue election is made pursuant to this Section 2(c).

 

 

 

B =

 

the Exercise Price in effect under this Warrant at the time the net issue
election is made pursuant to this Section 2(c).

 

(d)                                 Issuance of Common Stock Certificates.  In
the event of any exercise of the rights represented by this Warrant in
accordance with and subject to the terms and conditions hereof, (i) certificates
for the Warrant Shares so purchased shall be dated the date of such exercise and
delivered to the Holder hereof within a reasonable time, not exceeding five
Trading Days after such exercise, and the Holder hereof shall be deemed for all
purposes to be the Holder of the Warrant Shares so purchased as of the date of
such exercise, and (ii) unless this Warrant has expired, a new Warrant
representing the number of Warrant Shares, if any, with respect to

 

2

--------------------------------------------------------------------------------

 

which this Warrant shall not then have been exercised shall also be issued to
the Holder hereof at the Issuer’s expense within such time.

 

(e)                                  Transferability of Warrant.  Subject to
Section 2(f), this Warrant may be transferred by a Holder without the consent of
the Issuer, subject to applicable law and the right of the Issuer to require
that the transferee be an “accredited investor” as defined in
Rule 501(a) promulgated under the Securities Act. If transferred pursuant to
this paragraph and subject to the provisions of subsection (f) of this
Section 2, this Warrant may be transferred on the books of the Issuer by the
Holder hereof, upon surrender of this Warrant at the principal office of the
Issuer, properly endorsed by the Holder executing an assignment in the form
attached hereto. This Warrant is exchangeable at the principal office of the
Issuer for Warrants for the purchase of the same aggregate number of Warrant
Shares.

 

(f)                                    Compliance with Securities Laws.

 

(i)                                     The Holder of this Warrant, by
acceptance hereof, acknowledges that this Warrant is being acquired by the
Holder as principal and solely for the Holder’s own account and not as a nominee
for any other party, and for investment, and that the Holder will not offer,
sell, pledge or otherwise dispose of this Warrant except pursuant to an
effective registration statement under the Securities Act, or an opinion of
counsel in a form reasonably satisfactory to the Issuer that such registration
is not required under the Securities Act, and in accordance with the rules and
regulations of all applicable securities laws.

 

(ii)                                  The Holder acknowledges and agrees that it
will comply with all applicable stock exchange or quotation system rules and any
applicable securities legislation, orders, rules or policy statements concerning
the purchase of Warrant Shares. All certificates representing Warrant Shares
issued upon exercise hereof shall be stamped or imprinted with a legend in
substantially the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN OPINION OF
COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ALL APPLICABLE
STATE SECURITIES LAWS.

 

3.                                       Shares Fully Paid; Covenants; Loss of
Warrants.

 

(a)                                  Shares Fully Paid.  The Issuer represents,
warrants, covenants and agrees that all Warrant Shares which may be issued upon
the exercise of this Warrant in accordance with the terms hereof will, at the
time of issuance, be duly authorized, validly issued, fully paid and
non-assessable and free from all taxes, liens and charges created by Issuer. The
Issuer further covenants and agrees that during the period within which this
Warrant may be exercised, the Issuer will at all times have authorized and
reserved for the purpose of the issue upon exercise of

 

3

--------------------------------------------------------------------------------

 

this Warrant a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.

 

(b)                                 Covenants.  The Issuer shall not by any
action including, without limitation, amending the Articles of the Issuer, or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be reasonably necessary or appropriate
to protect the rights of the Holder hereof against dilution (but only to the
extent specifically provided in Section 4 hereof) or impairment. Without
limiting the generality of the foregoing, the Issuer will (i) take all such
action as may be reasonably necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than such
restrictions as are expressly set forth herein and subject to applicable
securities laws) upon the exercise of this Warrant; and (ii) use its reasonable
best efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.

 

(c)                                  Loss, Theft, Destruction of Warrants.  Upon
receipt of evidence reasonably satisfactory to the Issuer of the ownership of
and the loss, theft, destruction or mutilation of any Warrant and, in the case
of any such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Issuer or, in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Issuer will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same number of
shares of Common Stock.

 

4.                                       Adjustment of Warrant Price.  The
Warrant Price and kind of Securities purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:

 

(a)                                  Recapitalization; Reorganization;
Reclassification; Consolidation; Merger or Sale.

 

(i)                                     In case the Issuer at any time prior to
the Expiration Date shall do any of the following (each, a “Triggering Event”): 
(A) consolidate with or merge into any other Person and the Issuer shall not be
the continuing or surviving corporation of such consolidation or merger, or
(B) permit any other Person to consolidate with or merge into the Issuer and the
Issuer shall be the continuing or surviving Person but, in connection with such
consolidation or merger, any Capital Stock of the Issuer shall be changed into
or exchanged for Securities of any other Person or cash or any other property,
or (C) transfer, sell or otherwise dispose all or substantially all of its
properties or assets to any other Person, then, and in the case of each such
Triggering Event, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant
shall be entitled, upon the exercise hereof at any time after the consummation
of such Triggering Event, to the extent this Warrant is not exercised prior to
such Triggering Event, to receive, and shall accept, at the Warrant Price in
effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the

 

4

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shares of Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such Holder would
have been entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments and increases (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in this Section 4.

 

(ii)                                  Notwithstanding anything contained in this
Warrant to the contrary, the Issuer will not, at any time prior to the
Expiration Date, effect any Triggering Event (other than a merger involving the
Issuer and one or more of its wholly-owned subsidiaries), unless, prior to the
consummation thereof, each Person (other than the Issuer) which as a result of
such Triggering Event may be required to deliver any Securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder,
(A) the obligations of the Issuer under this Warrant (and if the Issuer shall
survive the consummation of such Triggering Event, such assumption shall be in
addition to, and shall not release the Issuer from, any continuing obligations
of the Issuer under this Warrant) and (B) the obligation to deliver to such
Holder such Securities, cash or property as in accordance with the foregoing
provisions of this subsection (a).

 

(b)                                 Subdivision or Consolidation of Common
Stock.  If the Issuer, at any time prior to the Expiration Date, shall subdivide
or consolidate the outstanding shares of Common Stock (A) in case of subdivision
of shares, the Warrant Price shall be proportionately reduced (as at the
effective date of such subdivision) to reflect the increase in the total number
of shares of Common Stock outstanding as a result of such subdivision, or (B) in
the case of a consolidation of the outstanding shares of Common Stock, the
Warrant Price shall be proportionately increased (as at the effective date of
such consolidation) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such consolidation.

 

(c)                                  Certain Dividends and Distributions.  If
the Issuer, at any time prior to the Expiration Date, shall:

 

(i)                                     Stock Dividends.  Pay a stock dividend
in, or make any other distribution to its holders of Common Stock, the Warrant
Price shall be adjusted, as at the date of such payment or other distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such payment or other distribution, by a fraction (1) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution, and (2) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution (plus in the event that the
Issuer paid cash for fractional shares, the number of additional shares which
would have been outstanding had the Issuer issued fractional shares in
connection with said dividends); or

 

(ii)                                  Other Dividends.  Pay a cash dividend on,
or make any distribution of its assets upon or with respect to (including, but
not limited to, a distribution of its property as a dividend in liquidation or
partial liquidation or by way of return of capital), the Common Stock (other
than as described in clause (i) of this subsection (c)), then on the record date
for such payment or distribution, this Warrant shall represent a right to
acquire upon exercise, in addition

 

5

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to the number of Warrant Shares under this Warrant, and without payment of any
additional consideration therefor, the amount of such dividend or additional
stock or other Securities or property of the Issuer to which such Holder would
have been entitled upon such date if such Holder had exercised this Warrant
immediately prior thereto.

 

(d)         Adjustment of Warrant Price Upon Issuance of Additional Common
Stock. If the Issuer, at any time prior to the Expiration Date, shall issue
Additional Common Stock at a price per share, or with an exercise price or
conversion price (as the case may be), lower than the Warrant Price in effect at
such time, then the Warrant Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest one-hundredth of a cent) determined
in accordance with the following formula:

 

WP2 = (WP1 * (A + B)) / (A + C)

 

For purposes of the foregoing formula, the following definitions shall apply:

 

(A)                            “WP2” shall mean the Warrant Price in effect
immediately after such issue of Additional Common Stock;

 

(B)                              “WP1” shall mean the Warrant Price in effect
immediately prior to such issue of Additional Common Stock;

 

(C)                              “A” shall mean the number of shares of Common
Stock outstanding immediately prior to such issue of Additional Common Stock
(treating for this purpose as outstanding all shares of Common Stock issuable
upon conversion or exchange of all Convertible Securities outstanding
immediately prior to such issue);

 

(D)                             “B” shall mean the number of shares of Common
Stock that would have been issued if such Additional Common Stock had been
issued at a price per share equal to WP1; and

 

(E)                               “C” shall mean the number of such Additional
Common Stock issued in such transaction.

 

(e)                                  Outstanding Common Stock. With respect to
the making of adjustments in the Warrant Price, the number of shares of Common
Stock at any time outstanding shall not include any shares thereof then directly
or indirectly owned or held by or for the account of the Issuer or any of its
Subsidiaries.

 

(f)                                    Other Action Affecting the Common Stock.
In case the Issuer at any time prior to the Expiration Date shall take any
action affecting its shares of Common Stock, other than an action described in
any of the foregoing subsections (a) through (d) of this Section 4, inclusive,
and the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principle of this Section 4, then, the Warrant Price shall be adjusted in such
manner and at such time as the Board may in good faith determine to be equitable
in the circumstances.

 

6

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(g)                                 Form of Warrant after Adjustments.  The form
of this Warrant need not be changed because of any adjustments in the Warrant
Price or the number and kind of Securities purchasable upon the exercise of this
Warrant.

 

5.                                       Notice of Adjustments.  Whenever the
Warrant Price shall be adjusted pursuant to Section 4 hereof (for purposes of
this Section 5, an “adjustment”), the Issuer shall deliver notice to the Holder
of such adjustment and shall cause its Chief Financial Officer to prepare and
execute a certificate setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), the calculations made in connection
therewith and the Warrant Price after giving effect to such adjustment, and
shall cause copies of such certificate to be delivered to the Holder of this
Warrant promptly after each adjustment. Any failure of the Chief Financial
Officer to deliver such certificate shall not prejudice the rights of the Holder
in connection with the applicable adjustment. Any dispute between the Issuer and
the Holder with respect to the matters set forth in such certificate shall be
determined by the Issuer’s independent outside auditors or, if they are unable
to act, by such firm of independent chartered accountants as may be selected by
the Board, and any such determination shall be conclusive and binding on the
Issuer, the Holder and the transfer agent for the Common Stock. The firm
selected by the Issuer as provided in the preceding sentence shall be instructed
to deliver a written opinion as to such matters to the Issuer and such Holder
within thirty days after submission to it of such dispute.  The fees and
expenses of such accounting firm shall be borne equally by such Holder and the
Issuer.

 

6.                                       Fractional Shares.  No fractional
Warrant Shares will be issued in connection with any exercise hereof, but in
lieu of such fractional shares, the Issuer shall make a cash payment therefor
equal in amount to the product of the applicable fraction multiplied by the Per
Share Market Value then in effect.

 

7.                                       Rules Regarding Calculation of
Adjustment of Warrant Price.

 

(a)                                  No adjustment in the Warrant Price will be
required unless such adjustment would result in a change of at least 1% in the
prevailing Warrant Price; provided, however, that any adjustments which, except
for the provisions of this subsection would otherwise have been required to be
made, will be carried forward and taken into account in any subsequent
adjustment.

 

(b)                                 If the Issuer sets a record date to
determine the holders of Common Stock for the purpose of entitling them to
receive any dividend or distribution or sets a record date to take any other
action and thereafter and before the distribution to such shareholders of any
such dividend or distribution or the taking of any other action, legally
abandons its plan to pay or deliver such dividend or distribution or take such
other action, then no adjustment in the Warrant Price shall be made.

 

8.                                       Definitions.  For the purposes of this
Warrant, the following terms have the following meanings:

 

7

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“Additional Common Stock” means all shares of Common Stock and Convertible
Securities issued by the Issuer prior to the Expiration Date, except (i) the
Warrant Shares, (ii) Common Stock or Convertible Securities issued in connection
with a bona fide business acquisition of or by the Issuer, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise;
(iii) Common Stock (including Common Stock issued upon the conversion or
exercise of Convertible Securities) or Convertible Securities issued to
financial institutions, other financing sources, or lessors, vendors, suppliers
and other third party service providers in connection with commercial credit
arrangements, equipment financings, supply and materials purchases, third party
service procurement or similar transactions as approved by the Board;
(iv) Common Stock issued pursuant to the exercise of options and warrants
outstanding on the date of issuance of this Warrant; (v) Common Stock issued in
a bona fide firm commitment underwritten public offering, (vi) Common Stock
(including Common Stock issued upon the conversion or exercise of Convertible
Securities) or Convertible Securities issued to joint venture or strategic
partners pursuant to agreements authorized by the Board, (vii) Common Stock
(including Common Stock issued upon the conversion or exercise of Convertible
Securities) or Convertible Securities issued to employees, consultants, officers
or directors of the Issuer pursuant to compensatory stock purchase or stock
option plans, agreements or arrangements approved by the Board, (viii) Common
Stock (including Common Stock issued upon the conversion or exercise of
Convertible Securities) or Convertible Securities issued to underwriters,
brokers, dealers, finders or others in connection with fundraising (debt or
equity) activities, (ix) Common Stock issued upon conversion or exercise of
Convertible Securities outstanding on the date of issuance of this Warrant,
(x) Common Stock issued as dividends on any series of the Issuer’s preferred
stock, whether existing now or in the future, and (xi) Common Stock issued in
connection with a stock dividend or distribution covered by Section 4(c)(i) or
(ii).

 

“Articles of the Issuer” means the Certificate of Incorporation and by-laws of
the Issuer as in effect on the date of issuance of this Warrant, and as
hereafter from time to time amended, modified, supplemented or restated in
accordance with the terms hereof and thereof and pursuant to applicable law.

 

“Board” shall mean the Board of Directors of the Issuer.

 

“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 Stock” means (i) any and all shares, interests, participations or other
equivalents of or interests in (however designated) corporate stock, including,
without limitation, shares of preferred stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership,  (iii) all
membership interests or limited liability company interests in any limited
liability company, and (iv) all equity or ownership interests in any Person of
any other type.

 

“Common Stock” means the shares of Common Stock, par value $0.001 per share, of
the Issuer and any other shares of Capital Stock into which such stock may
hereafter be changed.

 

8

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“Convertible Securities” means evidences of indebtedness, Capital Stock or other
Securities which are or may be at any time convertible into or exchangeable or
exercisable for shares of Common Stock.  The term “Convertible Security” means
one of the Convertible Securities.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
similar Federal statute then in effect.

 

“Expiration Date” has the meaning specified in Section 1 hereof.

 

“Governmental Authority” means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or
instrumentality, whether Federal, state, provincial or local, and whether
domestic or foreign.

 

“Holder” mean the Person who shall from time to time own this Warrant.

 

“Issuer” means Xplore Technologies Corp., and its successors.

 

“Person” means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.

 

“Per Share Market Value” means on any particular date the average of the closing
bid and ask prices on a national securities exchange or quotation system which
on the date of determination constitutes the principal trading market for the
shares of Common Stock.

 

“Securities” means any debt or equity securities of the Issuer, whether now or
hereafter authorized, any instrument convertible into or exchangeable for
Securities or a Security, and any option, warrant or other right to subscribe
for, purchase or acquire any Security.

 

“Securities Act” means the Securities Act of 1933, as amended, or any similar
Federal statute then in effect.

 

“Security” means one of the Securities.

 

“Subsidiary” means any corporation a majority of whose outstanding Voting Stock
shall at the time be owned directly or indirectly by the Issuer or by one or
more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

 

“Trading Day” means a day on which the Common Stock is traded on a national
securities exchange or quotation system which on the date of determination
constitutes the principal trading market for the shares of Common Stock.

 

“Triggering Event” has the meaning specified in Section 4(a)(i) hereof.

 

“Voting Stock”, as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) having ordinary
voting power for the election

 

9

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of a majority of the members of the Board of Directors (or other governing body)
of such corporation, other than Capital Stock having such power only by reason
of the happening of a contingency.

 

“Warrant Price” means $0.10 per share.

 

“Warrant Shares” means shares of Common Stock issuable upon exercise of this
Warrant or any portion thereof, as the case may be, issued pursuant to the terms
hereof, or otherwise issuable pursuant to any other warrants of like tenor
issued pursuant to the provisions of hereof.

 

9.                                       Other Notices.                   In
case at any time:

 

(A)                              the Issuer shall make any distributions to the
holders of Common Stock; or

 

(B)                                the Issuer shall authorize the granting to
all holders of its Common Stock of rights to subscribe for or purchase any
shares of Common Stock of any class or of any Convertible Securities or other
rights; or

 

(C)                                there shall be any reclassification of the
Capital Stock of the Issuer; or

 

(D)                               there shall be any (i) consolidation or merger
involving the Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer’s property, assets or business (except a merger
or other reorganization in which the Issuer shall be the surviving corporation
and its Common Stock shall continue to be outstanding and unchanged and except a
consolidation, merger, sale, transfer or other disposition involving a
wholly-owned Subsidiary); or

 

(E)                                 there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Issuer or any partial liquidation
of the Issuer or distribution to holders of Common Stock;

 

then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place. 
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock,
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be.  Such notice shall be given at least twenty
days prior to the action in question and not less than twenty days prior to the
record date or the date on which the Issuer’s transfer books are closed in
respect thereto.

 

10.                                 Amendment and Waiver.  Any term, covenant,
agreement or condition in this Warrant may be amended, or compliance therewith
may be waived (either generally or in a

 

10

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particular instance and either retroactively or prospectively), by a written
instrument or written instruments executed by the Issuer and the Holder.

 

11.                                 Governing Law.  THIS WARRANT SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARDS TO ITS CONFLICT OF LAW PRINCIPLES.  THE HOLDER
HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY COURT WITHIN
THE STATE OF DELAWARE, IN CONNECTION WITH ANY MATTER BASED UPON OR ARISING OUT
OF THIS WARRANT OR THE MATTERS CONTEMPLATED HEREIN, AND AGREES THAT PROCESS
MAY BE SERVED UPON THE HOLDER IN ANY MANNER AUTHORIZED BY THE LAWS OF THE STATE
OF DELAWARE FOR SUCH PERSONS.

 

12.                                 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, (iv) five
(5) days following the date of mailing, if sent by registered or certified mail
(postage prepaid return receipt requested), or (v) actual receipt by the party
to whom such notice is required to be given.  The addresses for such
communications shall be with respect to the Holder of this Warrant or of Warrant
Shares issued pursuant hereto, addressed to such Holder at its last known
address or facsimile number appearing on the books of the Issuer maintained for
such purposes, or with respect to the Issuer, addressed to:

 

Xplore Technologies Corp.
14000 Summit Drive, Suite 900

Austin, Texas 78728

Attention: Michael J. Rapisand

Facsimile: (512) 336-7791

 

13.                                 Remedies.  The Issuer stipulates that the
remedies at law of the Holder of this Warrant in the event of any default or
threatened default by the Issuer in the performance of or compliance with any of
the terms of this Warrant are not and will not be adequate and that, to the
fullest extent permitted by law, such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.

 

14.                                 Successors and Assigns.  This Warrant and
the rights evidenced hereby shall inure to the benefit of and be binding upon
the successors and assigns of the Issuer, the Holder hereof and (to the extent
provided herein) the Holders of Warrant Shares issued pursuant hereto, and shall
be enforceable by any such Holder or Holder of Warrant Shares.

 

11

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15.                                 Modification and Severability.  If, in any
action before any court or agency legally empowered to enforce any provision
contained herein, any provision hereof is found to be unenforceable, then such
provision shall be deemed modified to the extent necessary to make it
enforceable by such court or agency.  If any such provision is not enforceable
as set forth in the preceding sentence, the unenforceability of such provision
shall not affect the other provisions of this Warrant, but this Warrant shall be
construed as if such unenforceable provision had never been contained herein.

 

16.                                 Headings.  The headings of the Sections of
this Warrant are for convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.

 

 

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IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year
first above written.

 

 

XPLORE TECHNOLOGIES CORP.

 

 

By:

 

 

 

Michael J. Rapisand

 

Chief Financial Officer

 

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EXHIBIT A

 

Form of Exercise

 

(to be executed by the Holder)

 

                                                The Holder hereby exercises its
rights to subscribe for and purchase          shares of Common Stock as defined
in the attached Warrant of XPLORE TECHNOLOGIES CORP. evidenced by the attached
Warrant and herewith makes payment of the Warrant Price, as defined in the
within Warrant, in the amount of $                     by way of:

 

                                                $                     certified
check payable to the Issuer’s order; or

 

                                                $                     wire
transfer of funds to the Issuer.

 

Please issue a certificate in the name of the Holder for the shares of Common
Stock in accordance with the instructions given below and issue a replacement
Warrant in the name of the Holder for the unexercised balance, if any, of the
right to purchase Warrant Shares evidenced by the within Warrant which were not
exercised hereby.

 

 

Dated:

 

 

 

 

 

 

Signature of Holder

 

Instructions for registration of shares

 

 

Social Security or Employer Identification

 

Number of Holder:

 

 

 

 

Address of Holder:

 

 

 

 

 

Street

 

 

 

 

 

City, State and Zip Code

 

 

A-1

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EXHIBIT B

 

NET ISSUE NOTICE OF EXERCISE

 

TO:

 

Xplore Technologies Corp

 

 

14000 Summit Drive, Suite 900

 

 

Austin, Texas 78728

 

 

facsimile number (512) 336-7791

 

 

Attention: Michael Rapisand

 

                                                1.   The undersigned hereby
elects to purchase                    shares of Common Stock as defined in the
attached Warrant of XPLORE TECHNOLOGIES CORP. pursuant to the terms of this
Warrant, and hereby elects under Section 2(c) of this Warrant to surrender the
right to purchase                shares of Common Stock pursuant to this Warrant
for a net issue exercise with respect to                  shares of Common
Stock.

 

                                                2.   Please issue a certificate
or certificates representing said shares of Common Stock in the name of the
undersigned or in such other name as is specified below:

 

 

 

 

 

(Name)

 

 

 

 

 

 

 

 

 

 

 

(Address)

 

 

ARTICLE I

 

 

 

 

 

 

(Signature)

 

 

 

 

 

Title:

 

 

 

 

 

 

(Date)

 

 

B-1

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ASSIGNMENT

 

FOR VALUE RECEIVED,                                    hereby sells, assigns and
transfers unto                                      the within Warrant and all
rights evidenced thereby and does irrevocably constitute and appoint
                          , attorney, to transfer the said Warrant on the books
of the within named corporation.

 

Dated:

Signature:

 

 

 

 

Address:

 

 

 

 

 

 

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED,                                    hereby sells, assigns and
transfers unto                                      the right to purchase
                   Warrant Shares evidenced by the within Warrant together with
all rights therein, and does irrevocably constitute and appoint
                                      , attorney, to transfer that part of the
said Warrant on the books of the within named corporation.

 

Dated:

Signature:

 

 

 

 

Address:

 

 

 

 

 

B-2

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