Exhibit 10.1


 


THIS NOTE AND THE SECURITIES ISSUABLE UPON
THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.  THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.


 


XTERO DATACOM INC.


 


CONVERTIBLE PROMISSORY NOTE


 


	
  $250,000

  	
   

  	
  Vancouver, British Columbia

  
	
   

  	
   

  	
  February 9, 2007

  



 


For
valued received, Xtero Datacom Inc., a private British Columbia corporation (the “Company”), the principal office of
which is located at Unit 110,
998 Harbourside Drive, North Vancouver, British Columbia  V7P 3T2, hereby promises to pay to Schmitt
Industries, Inc., an Oregon corporation (the “Holder”), or its registered
assigns, the sum of Two Hundred Fifty Thousand Dollars (US $250,000), so much
thereof as may be advanced, or any unpaid accrued interest thereon, as set
forth below, to be computed on each advance from the date of its disbursement,
on the earlier to occur of (i) December 31, 2008, or (ii) when
declared due and payable by the Holder upon the occurrence of an Event of
Default (as defined below). Payment for all amounts due hereunder shall be made
by wire transfer to the Holder’s account or by mail to the registered address
of the Holder.


 


The
following is a statement of the rights of the Holder of this Note and the
conditions to which this convertible promissory note (this “Note”) is subject:


 


1.                                       Definitions.  As used in this
Note, the following terms, unless the context otherwise requires, have the
following meanings:


 


(i) 
“Company” includes any person or entity that shall succeed to or assume the
obligations of the Company under this Note.


 


(ii) 
“Holder” shall mean any person or entity that shall at the time be the
registered holder of this Note.


 


2.                                       Borrowing and
Repayment.


 


2.1                                 Borrowing.  The Company may from time to time during the
term of this Note borrow from Holder specific sums of money, up to and
including a total of US $250,000, in 


 


1

















 


accordance with the accomplishment of
certain milestones as set forth in Exhibit A attached hereto.


 


2.2                                 Repayment.  All payments
shall be made in lawful money of the United States of America at the principal
office of the Holder, or at such other place or account as the Holder hereof
may from time to time designate in writing to the Company.  Payment shall be credited first to Costs (as
defined below), if any, then to accrued interest due and payable, and the
remainder applied to principal.  Prepayment
of principal, together with accrued interest, may not be made without Holder’s
written consent prior to July 1, 2007. 
If the Holder does not give notice that it intends to exercise its
exclusive right to negotiate as provided for under Section 12 hereof by July 1,
2007, then the Company may prepay all or part of the principal amount and
accrued interest at any time after July 1, 2007.  If the Holder gives notice of its intent to
negotiate under Section 12 by July 1, 2007, then prepayment of the
principal, together with accrued interest, may not be made without the Holder’s
written consent prior to September 1, 2007 or such other date as may be
mutually agreed to.  The Company hereby
waives demand, notice, presentment, protest and notice of dishonor.


 


3.                                       Security.  This Note is
secured under the Pledge and Guaranty Agreement (the “Pledge and Guaranty
Agreement”) relating to 1,500,000 shares of fully paid and nonassessable shares
of common stock of the Company (the “Common Stock”), among the Holder and certain
shareholders of the Company of even date herewith and attached hereto as Exhibit B. 
These shareholders are guarantying the obligations of the Company
hereunder only to the extent of the shares pledged as collateral under the
Pledge and Guaranty Agreement.


 


4.                                       Indemnity; Costs, Expenses and Attorneys’ Fees.
 The Company shall
indemnify and hold Holder harmless from loss, cost, liability and legal or
other expense, including attorney’s fees of Holder’s counsel, which Holder may
directly or indirectly suffer or incur by reason of the failure of the Company
to perform any of its obligations under this Note, any agreement executed in
connection herewith or therewith any grant of or exercise of remedies with
respect to any collateral at any time securing any obligations evidenced by
this Note, or any agreement executed in connection herewith (collectively, “Costs”).


 


5.                                       Interest.


 


5.1                                 On December 31, 2007 and December 31, 2008, the Company shall
pay interest at the rate of eight percent (8%) per annum (the “Initial Interest
Rate”) on the principal of this Note outstanding during the period beginning on
the date of the advance or advances of principal and ending on the date that
the principal amount of this Note becomes due and payable.  If the principal amount of this Note is not
paid in full when such amount becomes due and payable, interest at the Initial
Interest Rate plus three percent (3%) shall continue to accrue on the balance
of any unpaid principal until such balance is paid.


 


5.2                                 The Holder shall
have the option to receive the payment of accrued interest in cash or in Common
Stock.  If the Holder elects by giving
written notice to the Company to have the accrued interest converted into
Common Stock, the number of Conversion Shares (as defined in Section 7.1)
into which the accrued interest is converted shall be 


 


2

















 


determined by dividing the accrued interest
to the date of conversion by the Conversion Price (as defined in Section 7.1)
in effect at the time of conversion.  The
initial Conversion Price shall be equal to Cdn $0.25.  The procedure for conversion of unpaid
accrued interest into shares of Common Stock shall be governed in general by
the provisions of Section 7.2 hereof to the extent applicable.


 


6.                                       Events of Default.  If any of the events specified in this Section 6
shall occur (herein individually referred to as an “Event of Default”), the
Holder may, so long as such condition exists, declare the entire principal and
unpaid accrued interest hereon immediately due and payable, by notice in
writing to the Company:


 


(i) 
Default in the payment of the principal and unpaid accrued interest of this
Note when due and payable if such default is not cured by the Company within
ten (10) days after the Holder has given the Company written notice of
such default;


 


(ii) 
Any breach by the Company of any representation, warranty, or covenant in this
Note; provided, that, in the event of any such breach, to the extent such
breach is susceptible to cure, such breach shall not have been cured by the
Company within twenty (20) days after the earlier to occur of (a) written
notice to the Company of such breach, and (b) the Company’s knowledge of
such breach;


 


(iii) 
If the Company becomes insolvent, makes any assignment in bankruptcy or makes
any other assignment for the benefit of creditors, makes any proposal under the
Bankruptcy and Insolvency Act (Canada) or any comparable law, seeks relief
under the Companies’ Creditors Arrangement Act (Canada), the Winding Up Act
(Canada) or any other bankruptcy, insolvency or analogous law, is adjudged
bankrupt, files a petition or proposal to take advantage of any act of
insolvency, consents to or acquiesces in the appointment of a trustee,
receiver, receiver and manager, interim receiver, custodian, sequestrator or
other person with similar powers of itself or of all or any substantial portion
of its assets, or files a petition or otherwise commences any proceeding
seeking any reorganization, arrangement, composition or readjustment under any
applicable bankruptcy, insolvency, moratorium, reorganization or other similar
law affecting creditors’ rights or consents to, or acquiesces in, the filing of
such a petition; or


 


(iv) 
If, within sixty (60) days after the commencement of an action against the
Company (and service of process in connection therewith on the Company) seeking
any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such action
shall not have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within sixty (60) days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.


 


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7.                                       Conversion


 


7.1                                 Voluntary Conversion.  In addition to the right of the
Holder, at its option, to convert accrued interest into shares of Common
Stock pursuant to Section 5.2 hereof, the Holder has the right, at its
option, at any time prior to payment in full of the principal balance of this
Note, to convert this Note (including principal and accrued interest to the
date of conversion) in accordance with the provisions of Section 7.2
hereof, in whole or in part, into shares of Common Stock.  The number of shares of Common Stock into
which this Note may be converted (“Conversion Shares”) shall be determined by
dividing the aggregate principal amount together with all accrued but unpaid
interest to the date of conversion by the Conversion Price (as defined below)
in effect at the time of such conversion. 
The initial Conversion Price shall be equal to Cdn $0.25.  If an Event of Default has occurred, the
Holder may, so long as the Event of Default has not been cured, convert this
Note (including principal and accrued interest to the date of conversion) in
accordance with the provisions of this Section 7.1 and Section 7.2
hereof, provided, however, the Conversion Price shall be equal to Cdn $0.10,
subject to adjustments pursuant to Section 8 hereof.


 


7.2                                 Conversion Procedure.


 


7.2.1                        Notice of Conversion Pursuant to Section 7.1.
 Before the Holder
shall be entitled to convert this Note into shares of Common Stock, it shall
surrender this Note at the office of the Company and shall give written notice
by mail, postage prepaid, to the Company at its principal corporate office, of
the election to convert the same pursuant to Section 7.1, and shall state
therein the name or names in which the certificate or certificates for shares
of Common Stock are to be issued.  The
Company shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Common Stock to which the Holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of this Note, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.


 


7.2.2                        Mechanics and Effect of Conversion.  No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of the Company issuing any
fractional shares to the Holder upon the conversion of this Note, the Company
shall pay to the Holder the amount of outstanding principal that is not so
converted, such payment to be in the form as provided below. Upon the
conversion of this Note pursuant to Section 7.1 above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the Company. At
its expense, the Company shall, as soon as practicable thereafter, issue and
deliver to the Holder at such principal office a certificate or certificates
for the number of shares of such Common Stock to which the Holder shall be
entitled upon such conversion (bearing such legends as are required by
applicable securities laws in the opinion of counsel to the Company), together
with any other securities and property to which the Holder is entitled upon
such conversion under the terms of this Note, including a check payable to the
Holder for any cash amounts payable as described above. In the event of any
conversion of this Note pursuant to Section 7.1 above, such conversion
shall be deemed to have been made immediately prior to the closing of the
issuance and sale of such Common Stock and on and after such date the Holder
entitled to receive the shares of such Common Stock issuable upon such
conversion shall be treated for all purpose as 


 


4

















 


the record Holder of
such shares.  Upon conversion of this
Note, the Company shall be obligated to pay the Holder, within ten (10) days
after the date of such conversion, any interest accrued and unpaid or
unconverted to and including the date of such conversion.


 


8.                                       Conversion Price Adjustments.


 


8.1                                 Adjustments for Stock Splits and Subdivisions.  If the Company should at any time or from
time to time after the date of issuance hereof fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as “Common Stock Equivalents”) without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of such
dividend distribution, split or subdivision if no record date is fixed), the
Conversion Price of this Note shall be appropriately decreased so that the
number of shares of Common Stock issuable upon conversion of this Note shall be
increased in proportion to such increase of outstanding shares.


 


8.2                                 Adjustments for Reverse Stock Splits.  If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for this Note shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
hereof shall be decreased in proportion to such decrease in outstanding shares.


 


8.3                                 Notices of Record Date, etc.  The Company will
mail to the Holder at least ten (10) days prior to the earliest date
specified therein, a notice specifying (i) the record date for the purpose
of dividends, distributions or rights as described in Section 8.3.1, and
the amount and character of such dividend, distribution or right; and (ii) the
date on which any reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up as described in Section 8.3.2
or 8.3.3, as the case may be, is expected to become effective and the record
date for determining stockholders entitled to vote thereon, upon the occurrence
of the following events (as applicable):


 


8.3.1                        Any taking by the
Company of a record of the holders of any class of securities of the Company
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend payable out of earned surplus at the
same rate as that of the last such cash dividend theretofore paid) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right;


 


8.3.2                        Any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any transfer of all or substantially all of the
assets of the Company to any other person or any consolidation or merger
involving the 


 


5

















 


Company; or


 


8.3.3                        Any voluntary or
involuntary dissolution, liquidation or winding up of the Company.


 


8.4                                 Reservation of Stock Issuable Upon Conversion.  The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the Note such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of the Note; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of the entire outstanding principal amount of this Note, in addition
to such other remedies as shall be available to the Holder, the Company will
use its best efforts to take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.


 


9.                                       Representations and Warranties of the Company.  The Company hereby represents and warrants to the Holder that:


 


9.1           Organization, Good Standing and Qualification.  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the province of British Columbia and has all requisite
corporate power and authority to carry on its business as now conducted.  The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on its business or properties.


 


9.2                                 Capitalization and Voting Rights.


 


(a)                                  The authorized
capital of the Company consists solely of 100,000,000 Class “A” Voting
Common Shares without par value and 50,000,000 Class “B” Non-Voting
Preferred Shares with a par value of Cdn $1.00 each.


 


(b)                                 The outstanding
shares of capital stock of the Company are owned by the shareholders and in the
numbers specified in Exhibit C hereto.


 


(c)                                  The outstanding
shares of capital stock of the Company are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of applicable securities laws or
pursuant to valid exemptions therefrom.


 


(d)                                 Except for the
conversion privileges of this Note, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock
except for those common shares to be issued upon conversion of debt to common
shares and other financial obligations to those individuals or companies
specified in Exhibit C hereto. 
The Company is not a party or subject to any agreement or understanding,
and, to the best of the 


 


6

















 


Company’s knowledge, there
is no agreement or understanding between any persons and/or entities, that
affects or relates to the voting or giving of written consents with respect to
any security or by a director of the Company except for those common shares to
be issued upon conversion of debt to common shares and other financial
obligations to those individuals or companies specified in Exhibit C
hereto.


 


9.3                                 Subsidiaries.  The
Company does not own or control, directly or indirectly, any interest in any
other corporation, association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar arrangement.


 


9.4                                 Authorization.  All
corporate action on the part of the Company, its officers, directors and shareholders
necessary for the authorization, execution and delivery of this Note, the
performance of all obligations of the Company hereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of this Note and the
Common Stock issuable upon conversion of this Note has been taken, and this
Note constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors’ rights generally,
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.


 


9.5                                 Valid Issuance of Common Stock.  The
Common Stock issuable upon conversion of this Note has been duly and validly
reserved for issuance and, upon issuance, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer
other than restrictions on transfer under this Note, the Constating Documents (as defined
below) and under applicable
securities laws.


 


9.6                                 Governmental Consents.  No
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, provincial or local
governmental authority on the part of the Company is required in connection
with the consummation of the transactions contemplated by this Note.


 


9.7                                 Offering.  Subject in part to the truth
and accuracy of the Holder’s representations set forth in Section 10 of
this Agreement, the issuance of this Note is exempt from the registration
requirements of any applicable securities laws, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.


 


9.8                                 Litigation.  There is no action, suit,
proceeding or investigation pending or, to the Company’s knowledge, currently
threatened against the Company that questions the validity of this Note, or the
right of the Company to enter into this Note, or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company. 
The Company is not a party to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or 


 


7

















 


investigation
by the Company currently pending or that the Company intends to initiate.


 


9.9                                 Patents and Trademarks.  To
its knowledge, the Company has sufficient title and ownership of or licenses to
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted without any conflict with or infringement of the rights of others,
except for such items as have yet to be conceived or developed or that are
expected to be available for licensing on reasonable terms from third parties.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative agency,
that would interfere with the use of his or her best efforts to promote the
interests of the Company or that would conflict with the Company’s business as
proposed to be conducted. Neither the execution nor delivery of this Note, nor
the carrying on of the Company’s business by the employees of the Company,
will, to the Company’s knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated.


 


9.10                           Compliance With Other Instruments.  The
Company is not in violation or default of any provision of its articles or
bylaws (the “Constating Documents”), or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound, or, to
the best of its knowledge, of any provision of any statute, rule or
regulation applicable to the Company. The execution, delivery and performance
of this Note, and the consummation of the transactions contemplated hereby,
will not result in any such violation or be in conflict with or constitute,
with or without the passage of time and giving of notice, either a default
under any such provision, instrument, judgment, order, writ, decree or contract
or an event that results in the creation of any lien, charge or encumbrance
upon any assets of the Company or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any material permit, license, authorization, or
approval applicable to the Company, its business or operations or any of its
assets or properties.


 


9.11                           Agreements; Action.


 


9.11.1                  There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.


 


9.11.2                  There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of Cdn
$10,000, or (ii) the license of any patent, copyright, trade secret or
other proprietary right to or from the Company, or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company’s products or services.


 


8

















 


9.11.3                  The Company has not (i) declared or paid
any dividends or authorized or made any distribution upon or with respect to
any class or series of its capital stock, (ii) except as disclosed in
writing to the Holder, incurred any indebtedness for money borrowed or any
other liabilities individually in excess of Cdn $1,000 or, in the case of
indebtedness and/or liabilities individually less than Cdn $1,000, in excess of
Cdn $2,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights.


 


9.11.4                  The Company is not a party to and is not
bound by any contract, agreement or instrument, or subject to any restriction
under the Constating Documents that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.


 


9.12                           Permits.  The Company has all
franchises, permits, licenses, and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects, or
financial condition of the Company, and the Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.


 


9.13                           Environmental and Safety Laws.  To
the best of its knowledge, the Company is not in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of its knowledge, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation.


 


9.14                           Registration Rights.  The
Company has not granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity.


 


9.15                           Corporate Documents.  The
Constating Documents of the Company are in the form previously provided to the
Holder.


 


9.16                           Title to Property and Assets.  The
Company owns its property and assets free and clear of all mortgages, liens,
loans and encumbrances.  With respect to
the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of any liens, claims or encumbrances.


 


9.17                           Minute Books.  The
minute books of the Company provided to the Holder contain a complete summary
of all meetings of directors and shareholders since the time of incorporation
and reflect all transactions referred to in such minutes accurately in all
material respects.


 


9.18                           Financial Statements. 
Promptly upon their availability, the Company agrees to deliver to the
Holder its unaudited financial statements (balance sheet and profit and loss
statement and, if prepared, statement of stockholders’ equity and statement of
cash flows 


 


9

















 


including notes thereto) at December 31, 2006
and for the nine months then ended and at March 31, 2007 and for the
fiscal year then ended (collectively, the “Financial Statements”).  The Financial Statements have been prepared
in accordance with Canadian generally accepted accounting principles (“Canadian
GAAP”) applied on a consistent basis throughout the periods indicated and with
each other, except that unaudited Financial Statements may not contain all
footnotes required by generally accepted accounting principles.  The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject to normal year-end adjustments.
Except as set forth in the Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 2006 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under  Canadian GAAP to be
reflected in the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company.


 


10.                                 Representations and Warranties of the Holder.  The Holder hereby
represents and warrants that:


 


10.1                           Authorization.  The Holder has full power and authority to
enter into this Note, and the Note constitutes its valid and legally binding
obligation, enforceable in accordance with its terms except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting enforcement of creditors’ rights
generally, and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies.


 


10.2                           Purchase
Entirely for Own Account.  This Note
is made with the Holder in reliance upon the Holder’s representation to the
Company that this Note and the Common Stock issuable upon conversion thereof
(collectively, the “Securities”) will be acquired for investment for the Holder’s
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Holder has no present intention
of selling, granting any participation in, or otherwise distributing the
same.  By executing this Note, the Holder
further represents that it is purchasing the Note and the Securities, if any,
as principal and it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.


 


10.3                           Disclosure
of Information.  The Holder believes
it has received all the information it considers necessary or appropriate for
deciding whether to purchase this Note. 
The Holder further represents that it has had an opportunity to ask
questions and receive answers from the Company regarding the terms and conditions
of the offering of this Note and the business, properties, prospects and
financial condition of the Company.


 


10.4                           Investment
Experience.  The Holder acknowledges
that it is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in this Note.  The Holder also represents
it has not been organized for the purpose of acquiring this Note.


 


10

















 


10.5                           U.S.
Securities Exemption - Accredited Investor. 
The Holder is an “accredited investor” within the meaning of U.S.
Securities and Exchange Commission (“SEC”) Rule 501 of Regulation D, as
presently in effect.


 


10.6                           Canadian
Securities Exemption - Accredited Investor. The Holder is an “accredited
investor” as defined in National Instrument 45-106 – Prospectus and
Registration Exemptions (“NI 45–106”) such that one or more of the categories
set forth in Exhibit D correctly and in all respects describes it, and the
Holder has so indicated by checking the box opposite each category on such Exhibit D
which so describes it and the Holder acknowledges that by signing this Note it
is certifying that the statements made by checking the appropriate accredited
investor categories are true and correct and it was not created or formed or
used solely for the purpose of purchasing or holding the Note as an “accredited
investor” as described in paragraph (m) of the definition of “accredited
investor” as set forth in NI 45-106.


 


10.7                           Restricted
Securities.  The Holder understands
that the Securities it is purchasing are characterized as “restricted
securities” under the applicable Canadian and U.S. securities laws inasmuch as
they are being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under applicable securities laws,
only in certain limited circumstances.


 


10.8                           Legends.  The Holder understands that
the certificates evidencing the Securities may bear one or more legends,
including one in substantially the following form:


 


“These securities have not been registered
under the Securities Act of 1933, as amended. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to a valid exemption of such Act.”


 


11.                                 Covenants of the Company.  The
Company hereby covenants and agrees, so long as this Note remains unpaid or the
Holder owns Common Stock, as follows:


 


11.1                           Basic Financial Information.  The
Company will furnish the following reports to the Holder:


 


11.1.1                  As soon as practicable after the end of each
fiscal year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries,
if any, as at the end of such fiscal year, and consolidated statements of
income and cash flows of the Company and its subsidiaries, if any, for such
year, prepared in accordance with Canadian GAAP consistently applied.


 


11.1.2                  As soon as practical after the end of each
month and in any event within fifteen (15) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of
such month and consolidated statements of income and cash 


 


11

















 


flows
of the Company and its subsidiaries, for each month and for the current fiscal
year of the Company to date, all subject to normal year-end accounting
adjustments, prepared in accordance with Canadian GAAP consistently applied.


 


11.2                           Compliance with
Requirements of Government Authorities.  The Company and its subsidiaries shall duly
observe and conform to all valid requirements of governmental authorities
relating to the conduct of their respective businesses or to their respective
properties or assets.


 


11.3                           Maintenance of
Corporate Existence, etc.  The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and
other rights in or to use patents, processes, licenses, trademarks, trade names
or copyrights owned or possessed by it or any subsidiary and deemed by the
Company to be necessary to the conduct of their respective businesses.


 


11.4                           Indebtedness.  The
Company shall not, without the prior approval of the Holder, incur any
indebtedness in excess of Cdn $50,000, other than trade credit, bank financing
or convertible debt incurred for financing business operations, each incurred
in the ordinary course of business, but only so long as this Note remains
unpaid (without regard to whether the Holder owns Common Stock).


 


11.5                           Use of Loan Proceeds.  The
money advanced by the Holder to the Company pursuant to this Note shall be used
by the Company for general operations, working capital and prosecution of
patents, all as agreed to in advance by the Holder.


 


11.6                           Issuance of Additional Shares.  The
Company shall not, without the Holder’s prior written consent, issue, other
than to unaffiliated third parties at arm’s length, any shares of Common Stock
at a price less than Cdn $0.25 per share so long as any principal or interest
accrued on this Note remains unpaid.


 


11.7                           Termination of
Covenants.  The covenants set forth in this Section 11 shall terminate and be
of no further force and effect after the closing of the first sale of Common
Stock of the Company to the public effected pursuant to a registration
statement declared effective by the SEC or pursuant to a prospectus receipted
by applicable Canadian regulatory authorities.


 


12.                                 Exclusive Right to Negotiate.  The
Company and the Holder acknowledge that it is contemplated that field testing
of the Company’s product will be conducted during the period from April to
May 2007, with the goal of determining its commercial viability.  The Company agrees to disclose to the Holder
the results of the testing promptly as they become available.  The Holder shall have a period of 30 days
after the final results of the testing are disclosed to the Holder to notify
the Company that it intends to negotiate with the Company regarding the financing
and commercialization of the Xtero product. 
Following the giving of such notice by the Holder, the Holder shall have
the exclusive right for a period of 90 days after the final results of the
testing are disclosed to the Holder to negotiate with the Company regarding the
financing and commercialization of the Xtero product, including but not limited
to alternatives such as a joint venture and/or equity funding, provided that
such period shall expire on September 1, 2007.  


 


12

















 


The Company and the Holder agree to conduct
any such negotiations in good faith and agree that the period during which the
Holder has the exclusive right to negotiate with the Company may be extended by
mutual agreement of the Company and the Holder.


 


13.                                 Assignment.  Subject to the restrictions on transfer
described in Section 15 below, the rights and obligations of the Company
and the Holder shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties.


 


14.                                 Waiver and Amendment.  Any provision of
this Note may be amended, waived or modified only upon the written agreement of
the Company and the Holder.


 


15.                                 Transfer of Note or Securities Issuable on Conversion Hereof.  With respect to any offer, sale or other
disposition of this Note or securities into which such Note may be converted,
the Holder will give written notice to the Company prior thereto, describing
briefly the manner thereof, together with a written opinion of the Holder’s
counsel, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any law then in
effect).  Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify the Holder that it may sell
or otherwise dispose of this Note or such securities, all in accordance with
the terms of the notice delivered to the Company.  Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
all applicable securities laws, unless in the opinion of counsel for the
Company such legend is not required.  The
Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.


 


16.                                 Notices.  All notices
required or permitted hereunder shall be in writing and shall be deemed
effectively given (a) upon personal delivery to the party to be notified; (b) when
sent by confirmed telex or facsimile if sent during normal business hours of
the recipient; if not, then on the next business day; (c) five days (5) after
having been sent by registered or certified mail, return receipt requested,
postage prepaid; or (d) one (1) day after deposit with an overnight
courier, specifying next-day delivery, with written verification of receipt.
All communications shall be sent to the party at the address as set forth
herein or at such other address as such party may designate by ten (10) days
advance written notice to the other party hereto.


 


17.                                 No Stockholder Rights.  Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote
or to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company; and no dividends or
interest shall be payable or accrued in respect of this Note or the interest
represented hereby or the Conversion Shares obtainable hereunder until, and
only to the extent that, this Note shall have been converted.


 


18.                                 Governing Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
Oregon, excluding that body of law relating to conflict of laws.


 


13

















 


IN
WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day
of February, 2007.


 


	
   

  	
  XTERO
  DATACOM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/

  	
   

  
	
   

  	
   

  	
   David S. Peachey, President

  



 


 


Acknowledged and Agreed to:


 


SCHMITT INDUSTRIES, INC.


 


 


	
  By:

  	
       /s/

  	
   

  
	
   

  	
  Wayne
  A. Case, President

  
	
   

  	
  February 12,
  2007

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address:

  
	
   

  	
   

  
	
  2765 NW Nicolai Street

  
	
  Portland, Oregon 97210

  



 


14

















 


NOTICE OF
CONVERSION


 


(To Be Signed
Only Upon Conversion of Note)


 


	
  To:

  	
  Xtero Datacom Inc.

  
	
   

  	
  Suite 2000,
  1066 West Hastings Street

  
	
   

  	
  Vancouver,
  British Columbia V6E 3X2

  



 


The undersigned, the holder of the foregoing Note,
hereby surrenders such Note for conversion into shares of Common Stock of Xtero
Datacom Inc., to the extent of
$                      
unpaid principal amount of such Note, and requests that the certificate for such
shares be issued in the name of, and delivered to, Schmitt Industries, Inc.,
whose address is 2765 NW Nicolai Street, Portland, Oregon 97210.


 


 


	
  Dated:
                                        ,
  200  

  	
   

  
	
   

  	
   

  
	
   

  	
  Schmitt
  Industries, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  



 


15
















 


EXHIBIT A


 


MILESTONES AND ADVANCES


 


1.                                       First Advance:  $125,000 US Dollars to be made by the Holder
to the Company concurrently with the execution of the Note.


 


2.                                       Milestones for
Further Advances:


 


a.                                       25 Beta units
completed and ready for shipment by February 10, 2007.


 


b.                                      Finalization of
all Beta sites by February 15, 2007.


 


c.                                       Install 25 Beta
units by February 28, 2007.


 


d.                                      If the Milestones
set forth in sections 2 (a) to (c) are accomplished then upon the
delivery of written notice by the Company to the Holder, the Holder will
advance an additional $75,000 US Dollars to the Company by March 15, 2007.


 


e.                                       The delivery of a
written report by the Company to the Holder by May 31, 2007 regarding the
operational results of the performance of the 25 Beta units in the field for a
60 to 90 day period.


 


f.                                         If the milestone
set forth in section 2(e) is accomplished then upon the delivery of
written notice by the Company to the Holder, the Holder will advance an
additional $50,000 US Dollars to the Company by June 15, 2007.


 

















 


EXHIBIT B


 


PLEDGE AND GUARANTY AGREEMENT


 


This PLEDGE AND
GUARANTY AGREEMENT (this “Agreement”), dated as of February 9, 2007, is
among David S. Peachey and Trevor Nelson (the “Pledgors”) and Schmitt
Industries, Inc., an Oregon corporation (the “Secured Party”).


 


RECITALS


 


A.                                   Xtero
Datacom Inc., a private British Columbia corporation (the “Company”) executed
and delivered a promissory note of even date to the Secured Party in the
principal amount of US $250,000 (the “Note”).


 


B.                                     The
Pledgors wish to guaranty the obligations of the Company under the Note but
only to the extent of the collateral identified in Section 1 below.


 


C.                                     The
parties wish to enter into this Agreement to secure payment of the Note.


 


AGREEMENT


 


The parties agree
as follows:


 


SECTION 1.                                                        GUARANTY
AND GRANT OF SECURITY INTEREST


 


The Pledgors
hereby guaranty the Obligations (as defined in Section 2 hereof) and grant
to the Secured Party a security interest in a total of 1,500,000 shares (the “Shares”)
of the common stock of the Company and all proceeds of the Shares, provided,
however, that the guaranty set forth in this Section 1 is limited to the
Shares and is no recourse to the Shareholders.


 


SECTION 2.                                                        OBLIGATIONS


 


The obligations
secured by this Agreement (the “Obligations”) are the obligations of the
Company in the Note and of the Pledgors in this Agreement, including without
limitation the obligation of the Company to make all payments on the Note.


 


SECTION 3.                                                        DELIVERY
OF CERTIFICATES FOR SHARES


 


The Pledgors have
delivered to the Secured Party stock certificates nos.
       evidencing the Shares (the “Certificates”),
together with stock powers endorsed in blank, to hold subject to the terms of
this Agreement.


 


SECTION 4.                                                        CARE
OF CERTIFICATES


 


The Secured Party
shall take reasonable care in the custody and preservation of the 


 

















 


Certificates.  On performance in full of all obligations
secured by this Agreement, the Secured Party shall deliver the Certificates to
the Pledgors, together with the stock power endorsed by the Pledgors in blank.


 


SECTION 5.                                                        PLEDGORS’
REPRESENTATIONS AND WARRANTIES


 


The Pledgors
represent and warrant to the Secured Party that:


 


(a)                                  The
Pledgors are the owner of the Shares, free and clear of liens, encumbrances, or
other matters that might affect title to the Shares;


 


(b)                                 The
authorized capital stock of the Company consists of
             shares
of common stock, Cdn
$           par value, of
which             
Shares are outstanding, validly issued, fully paid, and nonassessable; and


 


(c)                                  The
Pledgors have full power to transfer the Shares, and on that transfer, the
transferee shall take title to the Shares, free and clear of any claims, liens,
encumbrances, or security interests, through the Secured Party.


 


SECTION 6.                                                        COVENANTS
OF PLEDGORS WITH RESPECT TO SHARES


 


The Pledgors agree
that:


 


(a)                                  The
Pledgors shall not allow or grant any other lien or security interest with
respect to the Shares;


 


(b)                                 The
Pledgors shall procure, execute, and deliver from time to time any
endorsements, assignments, financing statements, and other writings deemed
necessary or appropriate by the Secured Party to perfect, maintain, and protect
the Secured Party’s security interest in the Shares and its priority; and


 


(c)                                  The
Pledgors shall not transfer or attempt to transfer, whether by sale, gift, or
otherwise, any ownership interest in the Shares without the Secured Party’s
prior written approval.


 


SECTION 7.                                                        AUTHORIZED
ACTION BY SECURED PARTY; PROXY


 


The Pledgors
irrevocably appoint the Secured Party as attorney-in-fact and grant the Secured
Party a proxy to do (but the Secured Party shall not be obligated and shall
incur no liability to the Pledgors or any third party for failure to do so),
after and during the continuance of an Event of Default (as defined in Section 9),
any act that the Pledgors are obligated by this Agreement to do and to exercise
the rights and powers that the Pledgors might exercise with respect to the
Shares.  With respect to voting the
Shares, this section constitutes an irrevocable appointment of a proxy, coupled
with an interest, which shall continue until all obligations secured under this
Agreement are performed in full.


 

















 


SECTION 8.                                                        VOTING
SHARES; CUSTODY OF CERTIFICATES


 


8.1                                 Subject
to Section 6, as long as no Event of Default has occurred, the Pledgors
shall be entitled to vote the Shares.


 


8.2                                 If
at any time or from time to time, with respect to the Shares, the Pledgors
receive or become entitled to receive any dividend or any other distribution,
whether in securities or other property, for any reason, including, without
limitation, liquidation, stock split, spin-off, split-up, reclassification,
combination of shares, or the like, or in the event of any reorganization,
consolidation, or merger, the Pledgors shall immediately deliver to the Secured
Party all such dividends or other distributions, in pledge, as additional
security under this Agreement. Notwithstanding the above, the Pledgors may
retain a cash dividend as long as no Event of Default exists.  The Pledgors shall immediately notify the Company
to deliver all such dividends or distributions directly to the Secured
Party.  The Secured Party may endorse, in
the name of the Secured Party or the Pledgors, any and all instruments by which
any payment on the obligations may be made and may take any action that the
Secured Party may deem appropriate from time to time, in the Secured Party’s
name or in the name of Pledgors, to enforce collection of the obligations. For
this purpose, the Pledgors appoint the Secured Party as their attorney-in-fact,
under a power coupled with an interest, with full power of substitution.


 


SECTION 9.                                                        EVENTS
OF DEFAULT


 


Any one or more of
the following events constitutes an event of default (“Event of Default”):


 


(a)                                  The
failure by the Company to pay when due any amount due under the Note or the
failure of the Company to perform any other obligation under the Note;


 


(b)                                 A
breach of or the failure to perform any of the terms of this Agreement,
including, without limitation, the representations and warranties contained in Section 5
and the covenants contained in Section 6; or


 


(c)                                  The
occurrence of a default under any agreement of the Company evidencing an
obligation of the Company for borrowed money.


 


SECTION 10.                                                  REMEDIES
ON DEFAULT


 


On the occurrence
of any Event of Default, the Secured Party may, in its sole discretion, with or
without further notice to the Pledgors, and in addition to all rights and
remedies at law or in equity or otherwise:


 


(a)                                  Declare
the entire balance of the Note immediately due and payable;


 


(b)                                 Register
in the Secured Party’s name any or all of the Shares;


 


(c)                                  Exercise
the Secured Party’s proxy rights with respect to all or a portion of the 


 

















 


Shares, in which
event the Pledgors agree to deliver promptly to the Secured Party further
evidence of the grant of the proxy in any form requested by the Secured Party;
and


 


(d)                                 Sell
or otherwise dispose of the Shares in accordance with Section 11.


 


SECTION 11.                                                  SALE
ON DEFAULT


 


The Pledgors
acknowledge that the Shares are restricted, unregistered stock that is
difficult to value and for which no public market exists.  The Pledgors acknowledge that the Shares are
not listed for trading on any stock exchange. 
Without limiting rights and remedies otherwise available to the
Pledgors, the parties agree that compliance with the following steps shall
satisfy requirements of a commercially reasonable sale:


 


(a)                                  The
sale may be either a public or a private sale, at the Secured Party’s
discretion, and it may be for all or any portion of the Shares;


 


(b)                                 The
Secured Party shall set a date for public sale of the Shares, or a date after
which a private sale may occur, which date shall be not less than 30 days after
the date the notice of the sale is given to the Pledgors, and the Secured Party
shall send written notification to the Pledgors in advance regarding the date
and the time of the public sale or the date after which a private sale may
occur;


 


(c)                                  Any
public sale shall take place at a site in Oregon selected by the Secured Party;


 


(d)                                 Immediately
on request, the Pledgors shall provide the Secured Party with information
requested by the Secured Party for compliance with state or federal securities
laws; and


 


(e)                                  At
any sale of any of the Shares, the Secured Party may restrict the prospective
bidders or purchasers to persons or entities who, by certain representations
made by them, would render registration of the sale under state or federal
securities laws unnecessary.


 


SECTION 12.                                                  ASSIGNMENT


 


The rights and
obligations of the Pledgors and the Secured Party shall be binding upon and
benefit the successors, assigns, heirs, administrators and transferees of the
parties.


 


SECTION 13.                                                  WAIVER AND AMENDMENT


 


Any provision of this Agreement may be
amended, waived or modified only upon the written agreement of the Pledgors and
the Secured Party.


 

















 


SECTION 14.                                                  ATTORNEYS
FEES


 


If any
arbitration, suit, or action is instituted to interpret or enforce the
provisions of this Agreement, to rescind this Agreement, or otherwise with
respect to the subject matter of this Agreement, the party prevailing on an
issue will be entitled to recover with respect to such issue, in addition to
costs, reasonable attorney fees incurred in the preparation, prosecution, or
defense of such arbitration, suit, or action as determined by the arbitrator or
trial court, and if any appeal is taken from such decision, reasonable attorney
fees as determined on appeal.


 


SECTION 15.                                                  GOVERNING LAW


 


This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon, excluding that
body of law relating to conflict of laws.


 


The parties enter
into this Agreement as of the date first written above.


 


 


	
  PLEDGORS:

  	
  SECURED PARTY:

  
	
   

  	
   

  	
   

  
	
   

  	
  Schmitt
  Industries, Inc.,

  
	
  /s/ Trevor Nelson

  	
   

  	
  an Oregon corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ David Peachey

  	
   

  	
  By:

  	
       /s/
  Wayne A. Case

  	
   

  
	
   

  	
   

  	
   

  	
  Wayne A. Case,
  President

  
	
   

  	
   

  	
   

  	
  February 12, 2007

  
	
   

  	
   

  	
   

  	
   

  



 

















 


EXHIBIT C


 


COMPANY SHAREHOLDERS


 


(List
of Company’s stockholders omitted. 
Registrant agrees to furnish supplementally


a
copy of this omitted Exhibit to the Commission upon request.)


 

















 


EXHIBIT
D


 


To be completed by the
Holder all Subscribers that are an Accredited Investor under NI 45-106


 


The Holder is subject to
the securities legislation of British Columbia and is an “accredited investor”,
as such term is defined in section 1.1 of National Instrument 45-106, and the
Holder falls within one or more of the following categories (please check one
or more, as applicable):


 


	
  o

  	
   

  	
  (a)

  	
   

  	
  a Canadian financial
  institution, or a Schedule III bank;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (b)

  	
   

  	
  the Business
  Development Bank of Canada incorporated under the Business
  Development Bank of Canada Act (Canada);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (c)

  	
   

  	
  a subsidiary of any
  person referred to in paragraphs (a) or (b), if the person owns all of the
  voting securities of the subsidiary, except the voting securities required by
  law to be owned by directors of that subsidiary;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (d)

  	
   

  	
  a person registered
  under the securities legislation of a jurisdiction of Canada as an adviser or
  dealer, other than a person registered solely as a limited market dealer
  under one or both of the Securities Act (Ontario)
  or the Securities Act (Newfoundland and
  Labrador);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (e)

  	
   

  	
  an individual
  registered or formerly registered under the securities legislation of a
  jurisdiction of Canada as a representative of a person referred to in
  paragraph(d);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (f)

  	
   

  	
  the Government of
  Canada or a jurisdiction of Canada, or any crown corporation, agency or
  wholly-owned entity of the Government of Canada or a jurisdiction of Canada;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (g)

  	
   

  	
  a municipality, public
  board or commission in Canada and a metropolitan community, school board, the
  Comité de gestion de la taxe scolaire de l’île de Montréal or an
  intermunicipal management board in Québec;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (h)

  	
   

  	
  any national, federal,
  state, provincial, territorial or municipal government of or in any foreign
  jurisdiction, or any agency of that government;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (i)

  	
   

  	
  a pension fund that is
  regulated by either the Office of the Superintendent of Financial
  Institutions (Canada) or a pension commission or similar regulatory authority
  of a jurisdiction of Canada;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (j)

  	
   

  	
  an individual who,
  either alone or with a spouse, beneficially owns, directly or indirectly,
  financial assets having an aggregate realizable value that before taxes, but
  net of any related liabilities, exceeds $1,000,000;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (k)

  	
   

  	
  an individual whose
  net income before taxes exceeded $200,000 in each of the 2 most recent
  calendar years or whose net income before taxes combined with that of a
  spouse exceeded $300,000 in each of the 2 most recent calendar years and who,
  in either case, reasonably expects to exceed that net income level in the
  current calendar year;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (l)

  	
   

  	
  an individual who,
  either alone or with a spouse, has net assets of at least $5,000,000;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (m)

  	
   

  	
  a person, other than
  an individual or investment fund, that has net assets of at least $5,000,000
  as shown on its most recently prepared financial statements;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (n)

  	
   

  	
  an investment fund
  that distributes or has distributed its securities only to

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (i)                                     a person that is or was an accredited
  investor at the time of the distribution,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (ii)                                  a person that acquires or acquired
  securities in the circumstances referred to in sections 2.10 [Minimum amount investment],
  and 2.19 [Additional investment in investment funds]

  



 

















 


	
   

  	
   

  	
   

  	
   

  	
  of NI 45-106; or 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (iii)                               a person described in paragraph
  (i) or (ii) that acquires or acquired securities under section 2.18
  [Investment fund reinvestment] of NI
  45-106;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (o)

  	
   

  	
  An investment fund
  that distributes or has distributed securities under a prospectus in a
  jurisdiction of Canada for which the regulator or, in Québec, the securities
  regulatory authority, has issued a receipt;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (p)

  	
   

  	
  a trust company or
  trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable
  legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on
  behalf of a fully managed account managed by the trust company or trust
  corporation, as the case may be;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (q)

  	
   

  	
  a person acting on
  behalf of a fully managed account managed by that person, if that person

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (i)            is registered or authorized to carry on business
  as an adviser or the equivalent under the securities legislation of a
  jurisdiction of Canada or a foreign jurisdiction, and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (ii)           in Ontario, is purchasing a security that is not a
  security of an investment fund;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (r)

  	
   

  	
  a registered charity
  under the Income Tax Act (Canada) that, in
  regard to the trade, has obtained advice from an eligibility adviser or an
  adviser registered under the securities legislation of the jurisdiction of
  the registered charity to give advice on the securities being traded;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (s)

  	
   

  	
  an entity organized in
  a foreign jurisdiction that is analogous to any of the entities referred to
  in paragraphs (a) to (d) or paragraph (i) in form and function;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (t)

  	
   

  	
  a person in respect of
  which all of the owners of interests, direct, indirect or beneficial, except
  the voting securities required by law to be owned by directors, are persons
  that are accredited investors;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (u)

  	
   

  	
  an investment fund
  that is advised by a person registered as an adviser or a person that is
  exempt from registration as an adviser; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (v)

  	
   

  	
  a person that is
  recognized or designated by the securities regulatory authority or, except in
  Ontario and Québec, the regulator as

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (i)            an accredited investor, or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (ii)           an exempt purchaser in Alberta or
  British Columbia after NI 45-106 comes into force.

  



 


For the purposes of this Exhibit D,
the following definitions are included for convenience:


 


“bank” means a bank named in Schedule I or II
of the Bank Act (Canada);


 


“Canadian
financial institution” means


 


(a)                                  an association governed by the Cooperative Credit Associations Act (Canada) or a central
cooperative credit society for which an order has been made under section 473(1) of
that Act, or


 


(b)                                 a bank, loan corporation, trust company,
trust corporation, insurance company, treasury branch, credit union, caisse
populaire, financial services cooperative, or league that, in each case, is
authorized by an enactment of Canada or a jurisdiction of Canada to carry on
business in Canada or a jurisdiction of Canada;


 





















 


“director” means (a) a member of the board of
directors of a company or an individual who performs similar functions for a
company, and (b) with respect to a person that is not a company, an
individual who performs functions similar to those of a director of a company;


 


“eligibility
advisor” means


 


(a)                                  a person that is registered as an
investment dealer or in an equivalent category of registration under the
securities legislation of the jurisdiction of a purchaser and authorized to
give advice with respect to the type of security being distributed, and


 


(b)                                 in Saskatchewan or Manitoba, also means a
lawyer who is a practicing member in good standing with a law society of a
jurisdiction of Canada or a public accountant who is a member in good standing
of an institute or association of chartered accountants, certified general
accountants or certified management accountants in a jurisdiction of Canada
provided that the lawyer or public accountant must not


 


(i)                                     have a professional, business or personal
relationship with the issuer, or any of its directors, executive officers,
founders, or control persons, and


 


(ii)                                  have acted for or been retained
personally or otherwise as an employee, executive officer, director, associate
or partner of a person that has acted for or been retained by the issuer or any
of its directors, executive officers, founders or control persons within the
previous 12 months;


 


“financial
assets” means


 


(a)                                  cash,


 


(b)                                 securities, or


 


(c)                                  a contract of insurance, a deposit or an
evidence of a deposit that is not a security for the purposes of securities
legislation;


 


“foreign
jurisdiction”
means a country other than Canada or a political subdivision of a country other
than Canada;


 


“fully
managed account”
means an account of a client for which a person makes the investment decisions
if that person has full discretion to trade in securities for the account
without requiring the client’s express consent to a transaction;


 


“investment
fund” has the
same meaning as in National Instrument 81-106 – Investment Fund Continuous
Disclosure;


 


“jurisdiction” means a province or territory of Canada
except when used in the term “foreign jurisdiction”;


 


“person” includes (a) an individual, (b) a
corporation, (c) a partnership, trust, fund and an association, syndicate,
organization or other organized group of persons, whether incorporated or not,
and (d) an individual or other person in that person’s capacity as a
trustee, executor, administrator or personal or other legal representative;


 


“regulator” means


 


(a)                                  the Executive Director, as defined under section 1
of the Securities Act (British Columbia); and


 


(b)                                 such other person as is referred to in
Appendix D of National Instrument 14-101 – Definitions;


 





















 


“related liabilities” means


 


(a)                                  liabilities incurred or assumed for the
purpose of financing the acquisition or ownership of financial assets, or


 


(b)                                 liabilities that are secured by financial
assets;


 


“Schedule III bank” means an authorized foreign bank named in Schedule III of the Bank Act (Canada);


 


“securities legislation” means


 


(a)                                  for British Columbia, the Securities Act (British Columbia) and the regulations, rules and
forms under such Act and the blanket rulings and orders issued by the British
Columbia Securities Commission; and


 


(b)                                 for other Canadian jurisdictions, such
other statutes and instruments as are listed in Appendix B of National
Instrument 14-101 – Definitions;


 


“securities
regulatory authority” means


 


(a)                                  the British Columbia Securities
Commission; and


 


(b)                                 in respect of any local jurisdiction
other than British Columbia, means the securities commission or similar
regulatory authority listed in Appendix C of National Instrument 14-101 –
Definitions;


 


“spouse” means, an individual who,


 


(a)                                  is married to another individual and is
not living separate and apart within the meaning of the Divorce Act
(Canada), from the other individual,


 


(b)                                 is living with another individual in a
marriage-like relationship, including a marriage-like relationship between
individuals of the same gender, or


 


(c)                                  in Alberta, is an individual referred to
in paragraph (a) or (b), or is an adult interdependent partner within the
meaning of the Audit Interdependent Relationships Act
(Alberta);


 


“subsidiary” means an issuer that is controlled
directly or indirectly by another issuer and includes a subsidiary of that
subsidiary;


 


“voting
security” means a
security of an issuer that:


 


(a)                                  is not a debt security; and


 


(b)                                 carries a voting right either under all
circumstances or under some circumstances that have occurred and are
continuing.


 


An issuer is considered
to be affiliated with another issuer if:


 


(a)                                  one of them is the subsidiary of the
other; or


 


(b)                                 each of them is controlled by the same
person.


 





















 


A person is considered
to beneficially own securities that:


 


(a)                                  for the purposes of Saskatchewan, British
Columbia, Nova Scotia, Newfoundland and Labrador, Prince Edward Island,
Northwest Territories and Nunavut securities law, are beneficially owned by


 


(i)                                     an issuer controlled by that person; or


 


(ii)                                  an affiliate of that person or an
affiliate of an issuer controlled by that person;


 


(b)                                 for the purposes of Alberta securities
law, are beneficially owned by


 


(i)                                     a company controlled by that person or an
affiliate of that company;


 


(ii)                                  an affiliate of that person; or


 


(iii)                               through a trustee, legal representative,
agent or other intermediary of that person.


 


A person (first person)
is considered to control another person (second person) if:


 


(a)                                  the first person, directly or indirectly,
beneficially owns or exercises control or direction over securities of the
second person carrying votes which, if exercised, would entitle the first
person to elect a majority of the directors of the second person, unless that
first person holds the voting securities only to secure an obligation,


 


(b)                                 the second person is a partnership, other
than a limited partnership, and the first person holds more than 50% of the
interests of the partnership, or


 


(c)                                  the second person is a limited
partnership and the general partner of the limited partnership is the first
person.