Document:

Exhibit 10.7

 

XPLORE TECHNOLOGIES
CORP.,

 

XPLORE
TECHNOLOGIES CORPORATION OF AMERICA,

 

PHOENIX
ENTERPRISES LLC,

 

PHOENIX
VENTURE FUND LLC

 

AND

 

EACH OF THE LENDERS LISTED

ON SCHEDULE 1 ATTACHED
HERETO

 

 

 

EXCHANGE AND PURCHASE AGREEMENT

 

April 21, 2006

 

 

 

EXCHANGE AND PURCHASE AGREEMENT

 

THIS EXCHANGE AND
PURCHASE AGREEMENT (this “Agreement”) is made as of the 21st day of
April, 2006, by and among Xplore Technologies Corp.,
a corporation incorporated under the laws of Canada (the “Corporation”), Xplore Technologies Corporation of America, a corporation
incorporated under the laws of Delaware and a wholly-owned subsidiary of the
Corporation (the “Xplore America” and together with the Corporation, the
“Borrowers”), Phoenix Enterprises LLC,
a limited liability company organized under the laws of the State of New York (“Phoenix
Enterprises”), Phoenix Venture Fund LLC,
a limited liability company organized under the laws of the State of Delaware (“Phoenix
Fund” and together with Phoenix Enterprises, “Phoenix”) and each of
the other lenders listed on Schedule 1 attached to this Agreement
(each such lender, a “Lender”
and collectively, the “Lenders”).

 

WHEREAS, pursuant to the
terms of a debenture purchase agreement dated November 5, 2002, as amended
(the “November 2002 Agreement”), between the Corporation, Phoenix
Enterprises, Phoenix Enterprises Family Fund, LLC (the “Family Fund”),
The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the “Trust”
and together with Phoenix Enterprises and the Family Fund, the “Phoenix
Group”) and each of the other lenders listed on Schedule 1 thereto
(the Phoenix Group and each such lender collectively, the “November 2002
Lenders”), the November 2002 Lenders purchased from the Company, and
the Company issued to the November 2002 Lenders, secured debentures in the
aggregate principal amount of $5,000,000 (the “November 2002 Debentures”);

 

WHEREAS, pursuant to the
terms of a debenture purchase agreement dated December 6, 2002, as amended
(the “December 2002 Agreement”), between the Corporation, Phoenix
Enterprises and each of the other lenders listed on Schedule 1 thereto
(Phoenix Enterprises and each such lender collectively, the “December 2002
Lenders”), the December 2002 Lenders purchased from the Company, and
the Company issued to the December 2002 Lenders, secured debentures in the
aggregate principal amount of $1,000,000 (the “December 2002 Debentures”);

 

WHEREAS, pursuant to the
terms of a debenture purchase agreement dated as of April 9, 2003, as
amended (the “April 2003 Agreement”), between the Corporation,
Phoenix Enterprises and each of the other lenders listed on Schedule 1
thereto (Phoenix and each such lender collectively, the “April 2003
Lenders”), the April 2003 Lenders purchased from the Company, and the
Company issued to the April 2003 Lenders, secured debentures in the
aggregate principal amount of $1,000,000 (the “April 2003 Debentures”);

 

WHEREAS, pursuant to the
terms of a debenture purchase agreement dated as of April 28, 2003, as
amended (the “Second April 2003 Agreement”), between the
Corporation, Phoenix Enterprises and each of the other lenders listed on Schedule 1
thereto (Phoenix Enterprises and each such lender collectively, the “Second April 2003
Lenders”), the Second April 2003 Lenders purchased from the Company,
and the Company issued to the Second April 2003 Lenders, secured
debentures in the aggregate principal amount of $1,000,000 (the “Second April 2003
Debentures”);

 

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WHEREAS, pursuant to the
terms of a debenture purchase agreement dated as of December 17, 2004, as
amended (the “December 2004 Agreement”), between the Corporation,
Phoenix Fund and each of the other lenders listed on Schedule 1 thereto
(Phoenix Fund and each such lender collectively, the “December 2004
Lenders”), the December 2004 Lenders purchased from the Company, and
the Company issued to the December 2004 Lenders, secured debentures in the
aggregate principal amount of $5,000,000 (the “December 2004 Debentures);

 

WHEREAS, pursuant to the
terms of a debenture purchase agreement dated as of September 15, 2005
(the “September 2005 Agreement”), between the Corporation, Xplore
America, Phoenix Fund and each of the other lenders listed on Schedule 1
thereto (Phoenix Fund and each such lender collectively, the “September 2005
Lenders”), the September 2005 Lenders purchased from the Company and
Xplore America, and the Company and Xplore America issued to the September 2005
Lenders, secured debentures in the aggregate principal amount of $5,000,000
(the “September 2005 Debentures);

 

WHEREAS, pursuant to the
terms and conditions of a debenture purchase agreement dated as of April 20,
2006 (the “April 2006 Agreement”), between the Corporation, Xplore
America, Phoenix Fund and each of the other lenders listed on Schedule 1
thereto (Phoenix Fund and each such lender collectively, the “April 2006
Lenders”), the April 2006 Lenders have agreed to purchase from the
Company and Xplore America in their sole discretion, and the Company and Xplore
America have agreed to issue to the April 2006 Lenders, secured debentures
up to the aggregate principal amount of $5,000,000 (the “April 2006
Debentures”); and

 

WHEREAS, the Board of
Directors of the Corporation has approved a recapitalization of the Corporation
pursuant to which approximately $19.1 million of indebtedness (which includes
all of the outstanding principal and accrued and unpaid interest under the
Existing Debentures assuming $1 million of outstanding principal amount of April 2006
Debentures) will be exchanged for approximately 56.2 million Preferred Shares
of the Corporation at the rate of one (1) Preferred Share for each
USD$0.34 of principal of Existing Debentures and accrued but unpaid interest
(net of applicable withholding taxes, if any) outstanding on such Debentures as
of the Closing Date (the “Recapitalization”).

 

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

 

ARTICLE 1.

RECAPITALIZATION

 

Section 1.1.                                   The
Recapitalization

 

(a)                                  Subject
to the terms and conditions of this Agreement, on the Initial Closing Date, the
Corporation, Xplore America and the Lenders shall consummate the
Recapitalization pursuant to which each issued and outstanding Existing
Debenture held by a Lender shall be exchanged for such number of Series A
Convertible Preferred Shares of the Corporation (the “Preferred Shares”)
as determined by dividing the outstanding principal and accrued but unpaid
interest (net of applicable withholding taxes, if any,) owing on such

 

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Debenture
by US$0.34 (the “Exchange Rate”). By way of example, Schedule 1
attached hereto sets forth the number of Preferred Shares to be issued to each
Lender in exchange for such Lender’s outstanding Debentures assuming the
Initial Closing Date is May 24, 2006. The rights and preferences of the
Preferred Shares are set out in the Articles of Amendment annexed hereto as Exhibit A.
The Borrowers and Lenders acknowledge and agree that Exchange Rate represents
the fair market value of such security.

 

(b)                                 Each
of the Lenders acknowledges and agrees that (i) the Existing Debentures
exchanged pursuant to the terms and conditions this Agreement shall be
cancelled as of the Initial Closing Date and that the Borrowers shall have no
further obligation to the Lenders to make any payments of principal or interest
under such Existing Debentures or the Existing Debenture Agreements; and (ii) the
Lenders will, at the Borrowers’ written request and expense, execute and
deliver to the Borrowers such documents and instruments and take such other
action as the Borrowers may reasonably request, at the Borrowers’ expense,
to evidence or effect the release of any liens arising out of or made in
connection with the Existing Debentures.

 

Section 1.2.                                   Closing

 

Subject to the terms and
conditions of this Agreement, the closing of the Recapitalization (the “Initial
Closing”) shall occur on the date when all of the conditions set forth in
Sections 5.1 have been satisfied in full (or waived in writing) or at such
later time and place as may be mutually agreed upon by the Corporation and
Phoenix (the “Initial Closing Date”).

 

Section 1.3.                                   Effect
on Existing Debentures

 

As of the Initial Closing
Date, by virtue of the Recapitalization and without any action of the part of
the Lenders each issued and outstanding Existing Debenture held by the Lenders
immediately prior to the Initial Closing Date shall be exchanged for such
number of fully paid and nonassessable Preferred Shares as determined by
dividing (A) the outstanding principal amount and accrued but unpaid
interest (net of applicable withholding taxes, if any) owing on such Existing
Debenture as of the Closing Date by (B) the Exchange Rate, and each such
Existing Debenture the Debentures shall then be deemed to be paid in full.

 

Section 1.4.                                   Exchange
of Preferred Shares for Existing Debentures

 

At or prior to the
Initial Closing Date, the Corporation shall deposit with Equity Transfer
Services Inc. certificates representing the Preferred Shares to be issued
pursuant to Section 1.3 in exchange for the Existing Debentures as
described in Section 1.3.

 

Section 1.5.                                   Fees
and Expenses

 

(a)                                  The
Borrowers acknowledge and agree that they will be, jointly and severally,
responsible for and will promptly pay or reimburse each Lender on demand for
all reasonable fees, expenses and other out-of-pocket expenses paid or incurred
by such Lender, its representatives and consultants relating to the
negotiation, preparation and review of this Agreement and the other Instruments
and related agreements and all other matters pertaining to the transactions
hereby contemplated, including, without limitation, all reasonable fees,
expenses

 

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and
other out-of-pocket expenses paid or incurred by such Lender for legal advice
and services in connection with such transactions.

 

(b)                                 The
Borrowers acknowledge and agree that they will be responsible for and will
promptly pay all such reasonable fees (including, but not limited to, legal
fees), expenses and other out-of-pocket expenses whether or not the
transactions hereunder are completed and even if it is the Lenders who
terminate this Agreement pursuant to Section 5.2.

 

Section 1.6.                                   Bridge
Financing.

 

In the event that the
Borrowers have not drawn the full $5,000,000 made available by the April 2006
Lenders pursuant to the terms of the April 2006 Agreement prior to the
Initial Closing Date, the Corporation may issue to Phoenix and/or its
assignee(s), and Phoenix and/or its assignee(s) may purchase from the
Corporation, in Phoenix’s sole discretion, Preferred Shares equal to the
difference of $5,000,000 and the aggregate principal amount of debentures
issued under the April 2006 Agreement at the purchase price of $0.34 per
Preferred Share. Such purchases shall be made in increments of at least
$500,000 and shall occur (each a “Subsequent Closing”) on such date
(each a “Subsequent Closing Date”), at such time and place, as may be
mutually agreed upon by the Corporation and Phoenix; provided, that all of such closings shall take place prior
to June 30, 2006.

 

ARTICLE 2.

INTERPRETATION

 

Section 2.1.                                   Defined
Terms

 

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

 

“Affiliate”
means, in respect of any corporation, any Person which, directly or indirectly,
controls or is controlled by or is under common control with the Corporation;
and for the purpose of this definition, “control” (including, with correlative
meanings, the terms “controlled by” and “under common control with”) means the
power to direct, or cause to be directed, the management and policies of such
Person whether through the ownership of Voting Shares or by contract or
otherwise.

 

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

 

“Articles
of Amendment” means
the Articles of Amendment to the Corporation’s Articles of Incorporation
establishing the rights and preferences of preferred shares of the Corporation
issuable in series and the Preferred Shares.

 

“Business
Day” means any day other than Saturday, Sunday or a day on
which chartered banks are closed for business in New York, New York.

 

“Capital
Lease Obligations” means, as to any Person, the obligation of
such Person to pay rent or other liquidated amounts under a lease of (or other
agreement conveying the right to

 

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use) real or
personal property, which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person under
generally accepted accounting principles and, for purposes of this Agreement,
the amount of such obligations shall in each case be the capitalized amount
thereof, determined in accordance with generally accepted accounting
principles.

 

“Closing”
means either the Initial Closing or a Subsequent Closing, as the context
requires.

 

“Closing
Date” means the Initial Closing date or a Subsequent Closing
Date, as the context requires.

 

“Common
Shares” means the
common shares, no par value, of the Corporation.

 

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

 

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

 

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

 

5

 

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

 

“Exchange Rate” has the meaning ascribed to
such term in Section 1.1.

 

“Existing Debenture Agreements” means (i) the
November 2002 Debenture Agreement, (ii) the December 2002
Debenture Purchase Agreement, (iii) the April 2003 Debenture Purchase
Agreement, (iv) the Second April 2003 Debenture Purchase Agreement, (v) the
December 2004 Debenture Purchase Agreement, (vi) the September 2005
Debenture Purchase Agreement; and (vii) the April 2006 Debenture
Purchase Agreement.

 

“Existing Debentures” means (i) the November 2002
Debentures, (ii) the December 2002 Debentures, (iii) the April 2003
Debentures, (iv) the Second April 2003 Debentures, (v) the December 2004
Debentures, (vi) the September 2005 Debentures and (vii) the April 2006
Debentures.

 

“Existing Debenture Holders” means those
Persons in their capacity as lenders under (i) the November 2002
Debenture Agreement, (ii) the December 2002 Debenture Agreement, (iii) the
April 2003 Debenture Agreement, (iv) the Second April 2003
Debenture Agreement, (v) the December 2004 Debenture Agreement, (vi) the
September 2005 Debenture Agreement and (vii) the April 2006
Debenture Agreement.

 

“Funded
Indebtedness” means, with respect to any Person at any
particular time, any of the following amounts determined in accordance with
generally accepted accounting principles on a consolidated basis at such time:

 

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

 

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

 

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

 

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

 

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

 

(vi)                              any
of the foregoing amounts in respect of any Subsidiary of the Person whose
accounts are not required under generally accepted accounting principles to be

 

6

 

consolidated
with the accounts of such Person, including (without limitation) the aggregate
outstanding amount of the obligations at such time.

 

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

 

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

 

“Hazardous
Substance” means any substance or combination of substances
which is or may become hazardous, toxic, injurious or dangerous to
persons, property, air, land, water, flora, fauna or wildlife, and includes but
is not limited to any contaminants, pollutants, dangerous substances, liquid
wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous
wastes, hazardous materials or hazardous substances as defined in or pursuant
to any Environmental Laws or Environmental Orders pursuant thereto.

 

“Instrument”
means this Agreement, the Articles of Amendment and any other agreement or
instrument (whether now existing, presently arising or created in future)
executed and delivered in connection with transactions contemplated by this
Agreement.

 

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

 

“Initial
Closing” has the
meaning ascribed to as such term in Section 1.2.

 

“Initial
Closing Date” has the
meaning ascribed to as such term in Section 1.2.

 

“Material
Adverse Effect” means any change or effect that is materially
adverse to the business, financial condition, or results of operations of such
Person and its Subsidiaries, taken as a whole, other than any change or effect
relating to general political, financial or economic conditions or the state of
financial markets in general.

 

“Material
Authorization” means, with respect to any Person, any
approval, permit, license or similar authorization (including any trademark,
trade name or patent) from, and any filing or registration with, any
Governmental Body or other Person required by such Person to

 

7

 

own its property
and assets or to carry on its business as presently carried on by it or as
contemplated hereunder to be carried on by it in each jurisdiction in which it
does so or is contemplated to do so or where the failure to have such approval,
permit, license, authorization, filing or registration would have a Material
Adverse Effect upon such Person or upon its ability to perform its
obligations under any of the Instruments.

 

“Order”
means any order, notice, direction, report, recommendation or decision rendered
by any Governmental Body or other regulatory agency.

 

“Permitted
Encumbrances” means:

 

(i)                                     Encumbrances
for taxes, assessments or governmental charges incurred in the ordinary course
of business that are not yet due and payable or the validity of which is being
actively and diligently contested in good faith by the Corporation or any
Subsidiary, as applicable, provided reserves reasonably deemed adequate
therefor by the Corporation or Subsidiary, as applicable, with respect thereto
are maintained on the books of the Corporation or the Subsidiary, as
applicable, in accordance with generally accepted accounting principles;

 

(ii)                                  construction,
mechanics’, carriers’, warehousemen’s and materialmen’s liens and liens in
respect of vacation pay, workers’ compensation, employment insurance or similar
statutory obligations, provided the obligations secured by such liens are not
yet due and payable and, in the case of construction liens, which have not yet
been filed or for which the applicable has not received written notice of an
Encumbrance;

 

(iii)                               Encumbrances
arising from court or arbitral proceedings, provided that the claims secured
thereby are being contested in good faith by the Corporation or any Subsidiary,
provided reserves reasonably deemed adequate by the Corporation or Subsidiary,
as applicable, with respect thereto are maintained on the books of the
Corporation or Subsidiary in accordance with generally accepted accounting
principles, execution thereon has been stayed and continues to be stayed;

 

(iv)                              good
faith deposits made in the ordinary course of business to secure the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money), leases, surety, customs, performance bonds and other similar
obligations;

 

(i)                                     deposits
to secure statutory obligations or in connection with any matter giving rise to
an Encumbrance described in (ii) above;

 

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

 

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

 

8

 

(iv)                              Encumbrances
in favor of the Existing Debenture Holders pursuant to the Existing Debenture
Agreements;

 

(v)                                 Encumbrances
pursuant to Purchase Money Security Interests;

 

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

 

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

 

(viii)                        Encumbrances
granted to SVB under the SVB Loan Agreement;

 

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

 

(x)                                   the
Encumbrances listed under the heading “Permitted Encumbrances” in Schedule 2.1.

 

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

 

“Preferred Shares” has the meaning ascribed
to such term in Section 1.1.

 

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

 

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

 

“Receiver”
means one or more of a receiver, receiver-manager or receiver and manager of
all or a portion of the undertaking, property and assets of the Corporation
appointed by Phoenix pursuant to this Agreement or by or under any judgment or
order of a court.

 

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

 

“Subsequent
Closing” has the
meaning ascribed to as such term in Section 1.6.

 

“Subsequent
Closing Date” has the
meaning ascribed to as such term in Section 1.6.

 

9

 

“Subsidiary”
means a corporation controlled by the Corporation, as the term “control” is
defined in the Business Corporations Act
(Ontario) as in effect at the date hereof and without reference to any
amendments thereto after the date hereof and includes the corporations set out
in Schedule 3.1(p) hereto.

 

“SVB
Loan Agreement” means that Loan and Security Agreement, dated
as of September 15, 2005, as amended, between Silicon Valley Bank (“SVB”) and Xplore America.

 

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

 

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

 

“Wistron  Intercreditor
Agreement” means that
Intercreditor, Trade Credit Restructuring and Security Agreement, dated as of November 24,
2004 by and among the Corporation, the U.S. Subsidiary, Phoenix Enterprises
LLC, Phoenix, the Philip S. Sassower 1996 Charitable Remainder Annuity Trust
and Wistron Corporation (“Wistron”).

 

Section 2.2.                                   Interpretation

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

(g)                                 Time
is of the essence hereof.

 

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

 

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

 

Section 2.3.                                   Invalidity
of Provisions

 

Each of the provisions
contained in this Agreement is distinct and severable and a declaration of
invalidity, illegality or unenforceability of any such provision or part thereof
by a court of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof or thereof.

 

Section 2.4.                                   Day
Not A Business Day

 

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

 

Section 2.5.                                   Governing
Law

 

This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
excluding that body of law relating to conflicts of law. Any suit, action,
proceeding or litigation arising out of or relating to this Agreement shall be
brought and prosecuted in such federal or state court or courts located within
the State of New York as provided by law. The parties hereby irrevocably and
unconditionally consent to the jurisdiction of each such court or courts
located within the State of New York and to service of process by registered or
certified mail, return receipt requested, or by any other manner provided by
applicable law, and hereby irrevocably and unconditionally waive any right to
claim that any suit, action, proceeding or litigation so commenced has been commenced
in an inconvenient forum.

 

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

 

Section 3.1.                                   General
Representations and Warranties of the Borrowers

 

The Corporation and
Xplore America, jointly and severally, represent and warrant to each Lender as
follows:

 

(a)                                  Incorporation and Status. Each of the Corporation and Xplore
America is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the corporate power and capacity to own
its properties and assets and to carry on its

 

11

 

businesses
as presently carried on by it or as contemplated hereunder to be carried on by
it and holds all Material Authorizations.

 

(b)                                 Power and Capacity. Subject to receipt of all Required
Consents and the filing of the Articles of Amendment, each of the Corporation
and Xplore America has the corporate power and capacity to enter into this
Agreement and each Instrument to which it is a party and to do all acts and
things as are required or contemplated hereunder or thereunder to be done,
observed and performed by it.

 

(c)                                  Due Authorization. Subject to receipt of all Required
Consents and the filing of the Articles of Amendment, each of the Corporation
and Xplore America has taken all necessary corporate action to authorize the
execution, delivery and performance of each of this Agreement and each
Instrument to which it is a party.

 

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

 

(e)                                  No Consents Required. No authorization, consent or approval
of, or filing with or notice to, any Person (including any Governmental Body)
is required in connection with the execution, delivery or performance of this
Agreement by the Corporation or Xplore America or any other Instrument by the
Corporation or Xplore America, as applicable, other than (i) the consent
of the Corporation’s shareholders
entitled to vote on the Recapitalization and related transactions, (ii) the
approval of the Toronto Stock Exchange and the satisfaction of any conditions
to such approval, (iii) the filing of the Articles of Amendment and any
other filings required by applicable securities laws, and (iv) any other
consents or approvals set forth on Schedule 3.1(e) (the
consents and approvals in clauses (i) through (iv) collectively, the “Required Consents”).

 

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

 

12

 

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

 

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

 

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

 

(i)                                     the
audited consolidated financial statements of the Corporation and its Subsidiaries
for its financial year ended March 31, 2005; and

 

(ii)                                  the
unaudited consolidated financial statements of the Corporation and its
Subsidiaries for the fiscal quarter ended December 31, 2005.

 

Such financial
statements, including the notes thereto (the “Financial Statements”) have been prepared in accordance with
generally accepted accounting principles and fairly, completely and accurately
present the financial condition of the Corporation (including each Subsidiary)
and the financial information presented therein in all material respects for
the periods and as at the dates thereof. The Corporation and each of the
Subsidiaries has no outstanding liabilities (including Funded Indebtedness,
Contingent Liabilities or otherwise) other than those disclosed in the
Financial Statements and other than the indebtedness owed by the Corporation to
the Existing Debenture Holders, to Wistron, to SVB and trade or business
obligations subsequently incurred in the ordinary course of business, which
such trade and business obligations are currently in good standing in
accordance with their respective terms. Since December 31, 2005 Financial
Statements, there has been no development which has had or would reasonably be
expected to have a Material Adverse Effect upon the Corporation or any
Subsidiary that has not been publicly disclosed in any document filed by the
Corporation with the Ontario Securities Commission that is publicly available.

 

13

 

(j)                                     Non-Arm’s Length Transactions. During the period from March 31,
2005 through the date hereof, none of the Corporation or Subsidiaries has
entered into any transaction or agreement with any Affiliate other than on
commercially reasonable terms and within the limitations of the other
provisions hereof, except as disclosed in the Financial Statements or in any
document filed by the Corporation with the Ontario Securities Commission that
is publicly available.

 

(k)                                  No Litigation. There is no court, administrative, regulatory
or similar proceeding (whether civil, quasi-criminal, or criminal), arbitration
or other dispute settlement procedure, investigation or enquiry by any
Governmental Body, or any similar matter or proceeding (collectively “proceedings”) against or involving any of the Corporation or any
Subsidiary (whether in progress or threatened) which, if determined adversely
to the Corporation or Subsidiary would have or would reasonably be expected to
have a Material Adverse Effect or have a material adverse effect upon its ability
to perform any of the provisions of this Agreement or any other Instrument
which purports to affect the legality, validity and enforceability of this
Agreement or any other Instrument. No event has occurred which would reasonably
be expected to give rise to any proceedings and there is no judgment decree,
injunction, rule, award or order of any Governmental Body outstanding against
the Corporation or any Subsidiary which has or would reasonably be likely to
have a Material Adverse Effect.

 

(l)                                     No Default. Neither the Corporation nor any of the
Subsidiaries are in default or breach (other than any breach for which the
Corporation has received a written waiver from Phoenix) under any material
commitment or obligation (including, without limitation, obligations in
relation to Funded Indebtedness) or, under the terms and conditions relating to
any Material Authorizations, and, to the best knowledge of the Borrowers, there
exists no state of facts which, after notice or the passage of time or both,
would constitute such a default or breach; and there are no proceedings in
progress, pending or, to the knowledge of the Borrowers, threatened which would
result in the revocation, cancellation suspension or any adverse modification
of any Material Authorization.

 

(m)                               Hazardous Substances. Neither the Corporation nor any of the
Subsidiaries are aware of any Hazardous Substances located at, on or under the
Premises, and the Premises and the operations conducted thereat are not and
have not been in breach of any Environmental Law which has resulted or could
result in a Material Adverse Effect. Neither the Corporation nor any Subsidiary
has caused or permitted, nor does the Corporation or any Subsidiary have any
knowledge of the Release of any Hazardous Substance on, from, under or to the
Premises or of any Release from a facility owned or operated by third parties,
including previous owners, for which the Corporation or any Subsidiary may have
liability and which has resulted or could result in the Premises being adversely
affected. Neither the Corporation nor any of the Subsidiaries has been charged
with or convicted of an offence for non-compliance with any Environmental Law
or has been fined or otherwise sentenced or have settled any prosecution short
of conviction; and neither the Corporation nor any Subsidiary has received any
notice of judgment or commencement of proceedings of any nature or experienced
any search and seizure or are under investigation related to a breach or
alleged breach of any Environmental Law.

 

14

 

(n)                                 All Material Information Supplied. The Borrowers have
provided to Phoenix all information which the Borrowers, acting reasonably,
determined was material relating to the financial condition, business, assets
and results of operations (including forecasts and budgets) of the Corporation
and the Subsidiaries, taken as a whole, and all such information (including all
publicly available documents filed by the Corporation with the Ontario
Securities Commission), taken as a whole (other than forecasts and budgets) is
true, accurate and complete in all material respects and omits no material fact
necessary to make such information not misleading in light of the circumstances
in which such information was made and there has been no change in such
information, taken as a whole, that would have or would reasonably be likely to
have a Material Adverse Effect. The forecasts and budgets provided to Phoenix,
at the time presented, were prepared prudently and upon reasonable assumptions
(which assumptions remain reasonable at the date hereof), the forecasts and
budgets were, as at the date presented, reasonable and attainable as at such
date, such forecasts and budgets have not, as of the date hereof, changed or
been amended or updated, except for such changes, amendments or updates which
have been provided to Phoenix in writing.

 

(o)                                 Taxes and Claims. The Borrowers have:

 

(i)                                     delivered
or caused to be delivered all required income tax returns, sales, property,
franchise and value-added tax returns and other tax returns to the appropriate
Governmental Body; and

 

(ii)                                  withheld
and collected all Taxes required to be withheld and collected by them and
remitted such Taxes when due to the appropriate Governmental Body,

 

and no material
assessment, appeal or claim is, as far as the Borrowers are aware, being
asserted or processed with respect to such claim, Taxes or obligations, except
as previously disclosed to Phoenix in writing.

 

(p)                                 Authorized and Issued Capital.

 

(i)                                     Schedule 3.1(p)
accurately describes the authorized and issued share capital of the Corporation
and each of the Subsidiaries. The Corporation has no Subsidiaries except as set
forth in Schedule 3.1(p). Except as contemplated by the
Recapitalization or as otherwise set out in Schedule 3.1(p), there
are no agreements, options, warrants, rights of conversion or other rights
pursuant to which the Corporation or any of the Subsidiaries is or may become
obligated to issue any shares or any securities convertible into, or
exchangeable for, shares.

 

(ii)                                  The
Preferred Shares, when issued and delivered in accordance with the terms set
forth in this Agreement, will be validly issued, fully paid and nonassessable
and free of restrictions on transfer (other than restrictions on transfer under
applicable securities laws) and free and clear of all Encumbrances, other than
Encumbrances created or imposed as a result of any action or inaction by a
Lender. The Common Shares issuable upon conversion of the Preferred Shares have
been duly reserved for issuance, and upon issuance in accordance with the terms
of the Articles of Amendment, will be validly issued, fully paid and
nonassessable and free of restrictions on transfer (other than restrictions on
transfer under applicable securities

 

15

 

laws)
and free and clear of all Encumbrances, other than Encumbrances created or
imposed as a result of any action or inaction by a Lender.

 

(q)                                 Insurance. The Corporation and each of the Subsidiaries
insures with reputable insurance companies all of its property and other assets
of an insurable nature against fire and other casualties in the same manner and
to the same extent as such insurance is carried by prudent corporations
carrying on a similar business and owning similar property and maintains with
reputable insurance corporations adequate insurance against business
interruption with respect to any rental properties or properties under
construction and liability on account of damage to persons or property, and
under all applicable worker’s compensation laws, in the same manner and to the
same extent as such insurance is carried by prudent corporations carrying on a
similar business and owning similar property.

 

(r)                                    Funded Indebtedness. Schedule 3.1(r)
sets forth a complete and accurate list of all Funded Indebtedness of each of
the Corporation and the Subsidiaries on the date hereof and accurately
describes the security therefor and the dollar amount thereof.

 

(s)                                  Directors and Officers Insurance. The
Corporation has a directors’ and officers’ insurance policy in place to the
same extent as such insurance is carried by prudent public corporations and the
premiums on such insurance policy are paid to date.

 

(t)                                    Solvency. None of the Corporation or any of the Subsidiaries
has committed an act of bankruptcy, proposed a compromise or arrangement to its
creditors generally, had any petition for a receiving order in bankruptcy filed
against it, taken any proceeding to have itself declared bankrupt or wound-up
or taken any proceeding to have a Receiver appointed over it or any part of
its assets.

 

(u)                                 Articles, Memorandum, By-Laws, Etc. True and complete copies
of the articles of incorporation (including all amendments thereto), memorandum
of association and by-laws and all other organizational documents of each of
the Borrowers in effect on the date hereof have been delivered to Phoenix on
behalf of the Lenders on or prior to the date hereof. Other than the Articles
of Amendment, there are outstanding no applications or filings which would
alter in any way the organizational documents or corporate status of any of the
said corporations. The respective minute books of the Borrowers contain all
by-laws and resolutions of the respective directors and shareholders of the
Borrowers currently in effect and the corporate and other records of the
Borrowers have been maintained in all material respects in accordance with all
Applicable Law.

 

(v)                                 Location of Business and Assets. The only locations at which
the Corporation and the Subsidiaries have any place of business or material
assets are as set forth in Schedule 3.1(v).

 

(w)                               Title. Subject only to the Permitted Encumbrances, the
Corporation and each Subsidiary has good and marketable title to all of its
undertaking, property and assets, free and clear of any Encumbrances and no
person has any agreement or right to acquire its interest in any of such
properties out of the ordinary course of business.

 

16

 

(x)                                   Employment Matters. Except as is disclosed in Schedule 3.1(x),
neither the Corporation nor any Subsidiary is a party to or is bound by any:

 

(i)                                     written
or oral contract or commitment for the employment of any senior management
employee or officer;

 

(ii)                                  written
contract or commitment for the employment of any employee or officer providing
for an annual salary (including benefits) of in excess of $100,000 or a payment
on termination of in excess of six months salary and benefits.

 

(iii)                               oral
contract or commitment for the employment of any employee or officer, except
for contracts of indefinite hire terminable by the Corporation without cause on
reasonable notice;

 

(iv)                              contract
with or commitment to any trade union, council of trade unions, employee
bargaining agent or affiliated bargaining agent (collectively called “labor
representatives”) and the
Borrowers have not conducted negotiations with respect to any such future
contracts or commitments; no labor representatives hold bargaining rights with
respect to any employees of the Corporation or any Subsidiary; no labor
representatives have applied to have the Corporation or any Subsidiary declared
a related employer pursuant to the applicable labor legislation; and, to the
knowledge of either of the Borrowers, there are no current or threatened
attempts to organize or establish any trade union or employee association with
respect to the Corporation or any Subsidiary; or

 

(v)                                 there
is no bonus, pension, multi-employer, profit sharing, deferred compensation,
retirement, disability, health insurance or similar benefit plan, with respect
to any of its employees or others (including without limitation any agreements
in respect of employee share ownership plans), other than Canada Pension Plan,
the Ontario Health Insurance Plan and other similar health plans established
and administered by any other governmental authority or workers’ compensation
insurance provided pursuant to statute.

 

The Corporation
and each of the Subsidiaries has paid all sums due to its employees and its
independent contractors and has observed in all material respects the
provisions of (i) all agreements binding upon it or (ii) any pension,
bonus, profit sharing, compensation, retirement, deferred compensation, illness
or other plan, agreement, trust, fund or arrangement for the benefit of or with
its employees, directors, officers or shareholders and (iii) all
Applicable Laws and regulations respecting employment, including, but not
limited to, labor standards legislation and regulations and legislation and
regulations prohibiting discrimination; and there is no complaint, civil action
or other proceeding in process alleging a violation of any such agreement,
plan, trust, fund, arrangement, law or regulation.

 

None of the
Corporation nor any Subsidiary has received any remedial order or notice of
offence under any Applicable Laws and regulations respecting employment, and
each of the Corporation and the Subsidiaries has performed all of its financial
or monetary obligations under such laws and regulations towards its employees
and independent contractors, and there are no facts which may give rise to
a claim for which the Corporation or any Subsidiary might be held liable under
the provisions of the said laws or regulations.

 

17

 

(y)                                 Intellectual Property. The Corporation and each Subsidiary
owns all right title and interest in or to, or have valid and enforceable
rights to use all of the Intellectual Property including the trade marks, trade
or brand names, corporate names and service marks set out in Schedule 3.1(y),
free and clear of all Encumbrances except Permitted Encumbrances. Neither the
Corporation nor any Subsidiary uses or owns any trade marks, trade or brand
names, corporate names or service marks except as set out in Schedule 3.1(y).
The conduct of the business of, and the use of the Intellectual Property by,
the Corporation and the Subsidiaries does not, nor to the Borrowers’ knowledge,
will the proposed conduct of the business and the proposed use of the
Intellectual Property, infringe (and neither the Corporation nor any
Subsidiary, except as previously disclosed to Phoenix in writing, has received
any notice, complaint, threat or claim alleging infringement of) any patent,
trade mark, trade name, copyright, industrial design, trade secret or other
propriety right of any other Person. The Intellectual Property which is not
owned by the Corporation or the Subsidiaries is being used with the consent of,
and in accordance with, the consent or license from, the rightful owner thereof.
The Corporation and each of the Subsidiaries has taken all commercially
reasonable steps to establish, preserve and protect its rights in the
Intellectual Property which is material to the Corporation or such Subsidiary.

 

(z)                                   Disclosure Restricted. Each of the statements contained in Section 5.1
is true and correct except as set forth in the specific disclosure schedule qualifying
such statement or in any document filed by the Corporation with the Ontario
Securities Commission and that is publicly available. The disclosure in any
disclosure schedule shall qualify only the corresponding statement.

 

Section 3.2.                                   Representations
and Warranties of Lenders

 

Each Lender, severally
and not jointly, represents and warrants to the Borrowers as follows:

 

(a)                                  Authorization. Such Lender is an individual, corporation,
limited partnership or limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of formation,
and each Lender has full power and authority to enter into this Agreement and
has duly authorized, executed and delivered the same. This Agreement, when
executed and delivered by a Lender, will constitute valid and legally binding
obligations of such Lender, enforceable in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and any other laws of general application affecting
enforcement of creditors’ rights generally, or (ii) as limited by laws
relating to the availability of a specific performance, injunctive relief, or
other equitable remedies.

 

(b)                                 Disclosure of Information. Such Lender has had an
opportunity to discuss the Borrowers’ business, management, financial affairs
and the terms and conditions of the Exchange with the Borrowers’ management and
has had an opportunity to review the Borrowers’ facilities. Such Lender
understands that such discussions, as well as any other written information
delivered by the Borrowers to such Lender, were intended to describe the
aspects of the Borrowers’ business which it believes to be material. Such
Lender has had all of its questions related to the Borrowers and the
Recapitalization answered by the Borrowers.

 

18

 

(c)                                  Experience; Speculative Nature of Investment. Such Lender
has substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Corporation so that it
is capable of evaluating the merits and risks of its investment in the
Corporation and has the capacity to protect its own interests. Such Lender
acknowledges that its investment in the Corporation is highly speculative and
entails a substantial degree of risk and such Lender is in a position to lose
the entire amount of such investment.

 

(d)                                 Investment. Such Lender is acquiring the Preferred Shares
for investment for its own account, not as a nominee or agent, and not with a
view to, or for resale in connection with, any distribution thereof. By
executing this Agreement, such Lender further represents that it does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Preferred Shares.

 

(e)                                  Restricted Securities. Such Lender understands that the
Preferred Shares and Common Shares issuable upon conversion of the Preferred
Shares have not been registered under the U.S. Securities Act of 1933, as amended
(the “Securities Act”),
or qualified for distribution in any province or territory of Canada and are
issued pursuant to a specific exemption from the registration provisions of the
Securities Act and the registration and prospectus requirements of the Securities
Act (Ontario), the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of such Lender’s
representations as expressed herein. Such Lender is an “accredited investor”
within the meaning of Section 1.1 of Natural Instrument 45-106 and such
Lender, which is resident in the United States, is also an “accredited investor”
within the meaning of Regulation D, Rule 501(a), promulgated by the U.S.
Securities and Exchange Commission. If such Lender is resident in or otherwise
subject to the securities laws of a jurisdiction other than the Province of
Ontario or the United States, the issuance by the Corporation, and the
acquisition by such Lender, of the Preferred Shares and Common Shares issuable
upon conversion of the Preferred Shares is in full compliance with all
applicable securities laws, statutes, regulations, policy statements and orders
in such jurisdiction and no authorization, consent of, or filing with or notice
to, any person is required in connection therewith.

 

(f)                                    Legends. Such Lender understands that the Preferred Shares
and Common Shares issuable upon conversion of the Preferred Shares (each, for
purposes of this paragraph, a security) may bear the following legend and
any other legends that may be required by applicable securities law and
stock exchange rules:

 

THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAS BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP OR OTHER COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION) IN A FORM REASONABLY
SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE

 

19

 

REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.

 

UNLESS PERMITTED
UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY SHALL NOT TRADE THIS
SECURITY BEFORE [INSERT DATE THAT IS FOUR MONTHS AND ONE DAY AFTER DATE OF
ISSUANCE].

 

(g)                                 No Public Market. Such Lender understands that no public
market now exists for any of the Preferred Shares issued by the Corporation and
that the Corporation has made no assurances that a public market will ever
exist for the Preferred Shares.

 

(h)                                 Additional Representations.

 

(i)                                     Such
Lender is the beneficial and registered owner of the Existing Debentures held
by it free and clear of all Encumbrances;

 

(ii)                                  Such
Lender has good and sufficient power, authority and right to transfer the legal
and beneficial title and ownership of the Existing Debentures held by it to the
Corporation free and clear of all Encumbrances;

 

(iii)                               There
is no contract, option or any other right binding upon such Lender requiring it
to sell, transfer, assign, pledge, charge, mortgage or in any other way dispose
of or encumber any of the Existing Debentures held by it other than pursuant to
the provisions of this Agreement;

 

(iv)                              The
execution and delivery of this Agreement and the other Instruments to which
such Lender is a party and the performance by such Lender of its respective
obligations hereunder or thereunder does not and will not, in a material way,
contravene, breach or result in any default under (A) if such Lender is
not a natural person, the articles, memorandum of association, by-laws, or
other organizational documents of such Lender, or (B) any mortgage, lease,
agreement or other legally binding instrument, license, permit to which such
Lender is a party or by which such Lender or any of its properties or assets may be
bound, or (C) any Applicable Law; and

 

(v)                                 No
authorization, consent or approval of, or filing with or notice to, any Person
(including any Governmental Body) is required by the Lenders in connection with
the execution, delivery or performance of this Agreement or any other
Instrument by such Lender, other than those which shall be obtained on or prior
to the Closing Date.

 

Section 3.3.                                   Survival
of Representations and Warranties

 

The representations and
warranties made by the Borrowers in this Article 3 and the covenants of
the Borrowers made under this Agreement shall survive the Initial Closing and
any Subsequent Closing. The statements made in any certificate hereafter
delivered by the Corporation or any of the Subsidiaries to the Lenders shall be
deemed to constitute representations and warranties made by the party
delivering the same.

 

20

 

ARTICLE 4.

COVENANTS OF THE CORPORATION

 

Section 4.1.                                   General
Covenants

 

So long as 10% of the
Preferred Shares issued pursuant to this Agreement remain outstanding, the
Corporation covenants and agrees as follows:

 

(a)                                  Securities Compliance. Subject to the representations and
warranties of the Lenders in Section 3.2(e) being true and correct on
the date of issuance of the Preferred Shares, the Corporation shall take all
necessary action and proceedings as may be required and permitted by
Applicable Law, rule and regulation for the legal and valid issuance of
the Preferred Shares to be acquired by the Lenders hereunder and the issuance
of the Common Shares upon conversion of the Preferred Shares.

 

(b)                                 Books and Reserves. The Corporation shall (i) maintain,
and cause its Subsidiaries to maintain, at all times, true and complete books,
records and accounts in which true and correct entries shall be made of its
transactions in accordance with GAAP consistently applied and consistent with
those applied in the preparation of the Financial Statements (to the extent
same are consistent with GAAP), and (ii) by means of appropriate quarterly
entries, reflect in its accounts and in all financial statements, proper
liabilities and reserves for all taxes and proper reserves for depreciation,
renewals and replacements, obsolescence and amortization of its properties and
bad debts, all in accordance with GAAP consistently applied, as above
described, and all subject to normal year end adjustments.

 

(c)                                  Ordinary Course of Business. The Corporation shall and shall
cause each of the Subsidiaries to operate its businesses only in the ordinary
course and will use and cause the Subsidiaries to use commercially reasonable
efforts to preserve its business, organization, goodwill and relationships with
Persons having business dealings with them.

 

(d)                                 To Pay Certain Debts. The Corporation shall and shall cause
each of the Subsidiaries to punctually pay and discharge every obligation, the
failure to pay or discharge of which would reasonably be likely to result in
any Encumbrance or right of distress, forfeiture, termination or sale and
provide to Phoenix, on behalf of the Lenders, when required by Phoenix, on
behalf of the Lenders, acting reasonably, satisfactory evidence of such payment
and discharge, but the Corporation may, on giving the Lenders such security (if
any) as Phoenix, on behalf of the Lenders, may require, refrain from
paying or discharging any obligation the liability for which is being contested
in good faith.

 

(e)                                  To Maintain Corporate Existence. The Corporation shall and
shall cause each Subsidiary to:

 

(i)                                     create
an annual business plan, approved by the Board of Directors of the Corporation
(the “Annual Business Plan”), and
immediately notify Phoenix, on behalf of the Lenders of any material deviation
from the Annual Business Plan;

 

(ii)                                  maintain
its corporate existence;

 

21

 

(iii)                               use
commercially reasonable efforts to preserve all its rights, licenses, powers,
privileges, franchises and goodwill;

 

(iv)                              observe
and perform all of its obligations and comply with all conditions under
leases, licenses and other agreements to which it is a party;

 

(v)                                 carry
on and conduct its business in a proper and efficient manner so as to preserve
and protect its assets and properties and income therefrom;

 

(vi)                              observe
and conform to all Applicable Laws and of any Governmental Body having
jurisdiction over the Corporation or any Subsidiary;

 

(vii)                           repair
and keep in repair and good order and condition all property the use of which
is necessary or advantageous in connection with its business;

 

(viii)                        pay
all Taxes levied, assessed or imposed upon it or its property as and when the
same become due and payable save and except where it contests in good faith the
validity thereof;

 

(ix)                                forthwith
notify Phoenix, on behalf of the Lenders, of any default (or event, condition
or occurrence which with the giving of notice and/or the lapse of time would
constitute a default) in connection with any indebtedness, Funded Indebtedness
or Contingent Liability in an amount exceeding $300,000;

 

(x)                                   use
commercially reasonable efforts to collect all accounts receivable in the
ordinary course of business;

 

(xi)                                retain
auditors approved by the Audit Committee of the Board of Directors of the
Corporation; and

 

(xii)                             at
its cost and expense, upon the request of Phoenix, on behalf of the Lenders,
duly execute and deliver, or cause to be duly executed and delivered, to
Phoenix, on behalf of the Lenders, such documents and do or cause to be done
such acts as may be necessary or desirable in the reasonable opinion of
Phoenix, on behalf of the Lenders, to carry out the purposes of this Agreement.

 

(f)                                    To Insure. The Corporation shall keep and maintain insurance
in such amounts as is carried by prudent corporations carrying on a similar
business and owning similar property, and against loss or damage by fire and
such other risks as Phoenix, on behalf of the Lenders, may from time to
time specify, acting reasonably, with reputable insurers. The Corporation
shall, whenever from time to time requested by Phoenix, on behalf of the
Lenders, provide Phoenix, on behalf of the Lenders, satisfactory evidence of
such insurance and any renewal thereof which shall at all times be subject to
charging clauses in a form approved by Phoenix, on behalf of the Lenders,
and shall cause the Lenders to be shown as loss payees under the policy or
policies. Evidence satisfactory to Phoenix, on behalf of the Lenders, of the
renewal of every policy of insurance shall be left with Phoenix, on behalf of
the Lenders, at least seven (7) days before the termination thereof. Each
policy of insurance shall be in form and substance

 

22

 

acceptable
to Phoenix, on behalf of the Lenders, acting reasonably, and shall not be
subject to any co-insurance clause.

 

(g)                                 Notice of Litigation and Damage. The Corporation will promptly
give written notice to Phoenix, on behalf of the Lenders, of all claims or
proceedings pending or threatened against any of the Corporation or
Subsidiaries which may give rise to uninsured liability in excess of
$300,000 or which may have a material adverse effect on the business or
operations of the Corporation or Subsidiaries and will supply Phoenix, on
behalf of the Lenders, with all information reasonably requested in respect of
any such claim.

 

(h)                                 To Furnish Proofs. The Corporation shall forthwith on the
happening of any loss or damage furnish or cause to be furnished at their
expense all necessary proofs and do all necessary acts to enable each Lender to
obtain payment of the insurance monies, which, in the sole discretion of the
Lenders, may be applied in reinstating the insured property or be paid to
the Corporation or any Subsidiary or be applied in payment of the monies owing
hereunder, whether due or not then due, or paid partly in one way and partly in
another.

 

(i)                                     Financial Statement Presentation. In any
press release, or public disclosure document required by securities regulatory
authorities, that contains the Corporation’s quarterly or annual financial
statements, subject to compliance with applicable securities law and other
regulatory requirements, such financial statements shall be prepared in
accordance with Canadian GAAP and, if requested by Phoenix, contain a note
reconciliation to U.S. generally accepted accounting principles (“US GAAP”).

 

(j)                                     Preferred Shares. The Corporation shall not
issue any additional Preferred Shares (other than Preferred Shares issued as
dividends or issued pursuant to Section 1.6) without the prior written
consent of Phoenix on behalf of the Lenders.

 

Section 4.2.                                   Financial
Covenants.

 

So long as 10% of the Preferred
Shares issued pursuant to this Agreement remain outstanding, the Corporation
covenants and agrees as follows:

 

(a)                                  Budget. The Corporation shall not, and shall cause its
Subsidiaries not to, expend any funds nor incur any expenses except as provided
for in the budget delivered to Phoenix, on behalf of the Lenders (the “Budget”), which shall also included a
detailed income statement, balance sheet and statement of cash flows. The
Borrowers and Phoenix, on behalf of the Lenders, hereby agree that aggregate
expenditures, if any, exceeding the total budgeted amount by 5% or less shall
be deemed to be within the Budget.

 

(b)                                 Financial Statements and Other Reports. The Corporation will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that quarterly financial statements are not required to have
footnote disclosures). The Corporation will deliver or cause to be delivered
each of the financial statements and other reports described below to Phoenix,
on behalf of the Lenders and, if requested by a Lender or Phoenix, to each
Lender directly, in addition to copies

 

23

 

of any
other financial statements prepared by the Corporation for filing with
securities commissions and other regulatory authorities.

 

(i)                                     Monthly Financials. As soon as available and in any event
within forty-five (45) days after the end of each month, the Corporation will
deliver or cause to be delivered its consolidated balance sheet, as at the end
of such month, and the related consolidated statements of loss and deficit and
cash flows for such month, and for the period from the beginning of the then
current fiscal year of the Corporation to the end of such month, along with a
comparison to the operating budget for such quarter.

 

(ii)                                  Quarterly Financials; Other Quarterly Reports. As soon as
available and in any event within forty-five (45) days after the end of each
fiscal quarter, the Corporation will deliver or cause to be delivered (A) its
consolidated balance sheet, as at the end of such fiscal quarter, and the
related consolidated statements of income, shareholders’ equity, loss and
deficit (or income) and cash flows for such fiscal quarter and for the period
from the beginning of the then current fiscal year of the Corporation to the
end of such quarter, along with a comparison to the operating budget for such
quarter, (B) a copy of its consolidating financial statements for such
fiscal quarter, but only if material to an understanding of the Corporation’s
operations and financial condition, and (C) a schedule of investments
made by the Corporation or any of its Subsidiaries since the date such
information was last provided to Lenders.

 

(iii)                               Year-End Financials. As soon as available and in any event
within ninety (90) days after the end of each fiscal year of the Corporation,
the Corporation will deliver or cause to be delivered (A) its consolidated
balance sheet, as at the end of such year, and the related consolidated
statements of loss and deficit (or income), cash flows, and shareholders’
equity for such fiscal year, (B) a copy of its consolidating financial
statements for such fiscal year, but only if material to an understanding of
the Corporation’s operations and financial condition, and (C) a report
with respect to the financial statements received pursuant to this Subsection from
certified public accountants nationally recognized in the United States or
Canada, selected by the Corporation.

 

(iv)                              Other Weekly/Monthly Reports. As soon as
available, and in any event within four (4) Business Days after the end of
each week, the Corporation will deliver or cause to be delivered (A) a
report of sales booked by the Corporation during such week, (B) a report
of pending and projected order activity as of the end of such week, and (C) a
report providing detailed accounts receivable as of the end of such week. As
soon as available, and in any event within ten (10) days after the end of
each month, the Corporation will deliver or cause to be delivered a report
providing detailed accounts payable aging information as of the end of such
month.

 

(c)                                  Compliance Certificates.         Together
with each delivery of financial statements of the Corporation or its
Subsidiaries (other than those financial statements delivered pursuant to Section 4.2(b)(iv)),
the Corporation or the Subsidiary, as the case may be, will deliver or cause
to be delivered to Phoenix, on behalf of the Lenders and, if requested by a
Lender or Phoenix, to each Lender directly a fully and properly completed
compliance certificate substantially in the form attached hereto as Exhibit C
(each, a “Compliance Certificate”)
signed

 

24

 

by the
chief executive officer, chief operating officer or chief financial officer of
the Corporation or such Subsidiary.

 

Section 4.3.                                   Registration
Rights.

 

The Corporation intends
to complete a corporation migration to the United States. If a migration of the
Corporation to the U.S. is consummated and the Company’s equity securities are
subsequently listed or quoted for trading in the United States under the
Securities and Exchange Act of 1934, as amended, the Corporation shall enter
into a registration rights agreement, in form and substance reasonably
satisfactorily to Phoenix, on behalf of the Lenders, with respect to the Common
Shares issuable upon conversion of the Preferred Shares. Such registration
rights agreement shall provide, along with other customary terms and
conditions, that (i) holders of more than 50% of the Preferred Shares then
outstanding may request two demand and unlimited S-3 registrations with
respect to the Common Shares issuable upon conversion of the Preferred Shares,
subject to minimum proceeds limitations and other standard conditions; (ii) the
holders of Preferred Shares shall be entitled to “piggy-back” registration
rights on registrations of the Corporation, subject to pro rata underwriters’
cutback along with other participating stockholders prior to any cutback of
Corporation shares; and (iii) the Corporation will pay registration
expenses other than stock transfer taxes, underwriters’ discounts and commissions.

 

Section 4.4.                                   Survival
of Covenants.

 

The covenants made by the
Borrowers in Articles 4 and 6 of this Agreement shall survive the Initial
Closing and any Subsequent Closing, and subject to the terms hereof, shall
continue until the expiration of the applicable statute of limitations; provided, that the covenants made by the
Borrowers in Sections 4.1 and 4.2 shall survive so long as 10% of the Preferred
Shares issued pursuant to this Agreement remain outstanding.

 

ARTICLE 5.

CONDITIONS TO CLOSING

 

Section 5.1.                                   Conditions
to Lenders’ Obligations at Closing

 

The obligation of the
Lenders to effect the Initial Closing and any Subsequent Closing are subject to
the satisfaction or waiver in writing in whole or in part by Phoenix, on
behalf of the Lenders of each of the following conditions:

 

(a)                                  Regulatory Approval. The Corporation shall
have obtained and delivered to Phoenix, on behalf of the Lenders, the approval
of the Toronto Stock Exchange and all other applicable regulatory authorities
with respect to the transactions contemplated hereby, each in form and
substance satisfactory to Phoenix.

 

(b)                                 Consent of the Board. The Corporation shall
have obtained and delivered to Phoenix, on behalf of the Lenders, unanimous
written consents or resolutions of the Board of Directors authorizing and
approving the Corporation’s issuance of the Preferred Shares and the Common
Shares issuable upon conversion of the Preferred Shares.

 

25

 

(c)                                  Approval of Shareholders. The Corporation’s
shareholders shall have approved the Articles of Amendment and filing thereof
in accordance with Applicable Law and authorized the Corporation to consummate
the Recapitalization.

 

(d)                                 Articles of Amendment. The Articles of
Amendment have been filed with the Director appointed under the Canada Business
Corporations Act.

 

(e)                                  Legal Opinion. The Lenders shall have
received a legal opinion of McCarthy Tétrault LLP, regarding the validity and
enforceability of this Agreement, the issuance of the Preferred Shares and such
other matters as Phoenix may reasonably require, in form and
substance reasonably satisfactory to the Lenders.

 

(f)                                    Accuracy of Representations and Warranties and Performance of Covenants.
The representations and warranties of the Borrowers contained herein
shall be true and correct in all material respects as of the Initial Closing
Date and any Subsequent Closing Date except that to the extent such
representations and warranties are qualified by materiality, such
representations and warranties shall be true and correct in all respects. In
addition, the Borrowers shall have complied with all covenants and agreements
herein agreed to be performed or caused to be performed by it at or prior to
the Initial Closing Date and any Subsequent Closing Date. At the Initial
Closing Date and any Subsequent Closing Date, the Borrowers shall have
delivered to Phoenix, on behalf of the Lenders, a certificate, substantially in
the form attached hereto as Exhibit D, confirming the facts
with respect to each of the representations and warranties, confirming that all
such covenants and agreements have been performed and confirming that all
conditions set forth in this Section 5.1 have been satisfied or waived.

 

(g)                                 Consents. All consents, permits, agreements, confirmations
and acknowledgements, as required or necessary to be obtained in order to
effectively complete the transactions contemplated herein, including without
limitation, the Required Consents, shall have been obtained.

 

(h)                                 Payment of Fees. The Borrowers shall have paid to Phoenix
all fees and expenses referred to in Section 1.5.

 

(i)                                     Receipt of Closing Documentation. All documentation relating
to the due authorization and completion of the issuance of the Preferred Shares
provided for herein and the due execution and delivery of all other
Instruments, and all actions and proceedings taken on or prior to the Closing
Date in connection with the performance by the Borrowers of their respective
obligations hereunder shall be satisfactory to Phoenix, on behalf of the
Lenders, and Phoenix, on behalf of the Lenders, shall have received copies of
all such documentation or other evidence as it may reasonably request in
order to establish the consummation of the transactions contemplated hereby and
the taking of all corporate proceedings in connection therewith in compliance
with these conditions, in form and substance satisfactory to Phoenix, on
behalf of the Lenders.

 

(j)                                     Deliveries.

 

(i)                                     The
Corporation shall have and caused the Subsidiaries to have executed and
delivered to the Lenders, such other undertakings as they may reasonably
request

 

26

 

regarding
the taking of actions and delivery of documents following the Initial Closing
Date or any Subsequent Closing Date necessary or desirable to give effect to
the terms and conditions of this Agreement; and

 

(ii)                                  The
Corporation shall have executed and delivered to each Lender certificates
representing the Preferred Shares being received by such Lender in connection
with this Agreement.

 

(k)                                  No Litigation. There shall not be any
litigation challenging or seeking damages in connection with the transaction
contemplated by this Agreement.

 

(l)                                     No Statute, etc. There shall not be any
statute, rule, regulation, injunction, order or decree, enacted, enforced,
promulgated, entered, issued or deemed applicable to this Agreement or the
transactions contemplated hereby by any Governmental Body prohibiting or
enjoining the transactions contemplated by this Agreement.

 

(m)                               No Material Adverse Change. There shall have been no change
with respect to the Corporation and the Subsidiaries taken as a whole that has
had a Material Averse Effect.

 

(n)                                 Trust Agreements. The Trust Agreements
executed and delivered by the Lenders pursuant to Section 5.2(e) shall
be in form and substance reasonably acceptable to the Lenders.

 

Section 5.2.                                   Conditions
to Borrowers’ Obligations at Closing

 

The obligation of the Borrowers to effect the Initial
Closing or any Subsequent Closing are subject to the satisfaction or waiver in
writing in whole or in part by the Borrowers of each of the following
conditions:

 

(a)                                  Regulatory Approval. The Corporation shall
have obtained the approval of the Toronto Stock Exchange and all other
applicable regulatory authorities with respect to the transactions contemplated
hereby.

 

(b)                                 Approval of Shareholders. The Corporation’s
shareholders shall have approved the Articles of Amendment and filing thereof
in accordance with Applicable Law and authorized the Corporation to consummate
the Recapitalization.

 

(c)                                  Articles of Amendment. The Articles of
Amendment have been filed with the Director appointed under the Canada Business
Corporations Act.

 

(d)                                 Accredited Investor Questionnaires. Each
Lender shall have delivered to the Borrowers, or McCarthy Tétrault LLP on
behalf of the Borrowers, an Accredited Investor Questionnaire substantially in
the form attached hereby as Exhibit G.

 

(e)                                  Trust Agreements. Each Lender shall have
delivered to the Borrowers, or McCarthy Tétrault LLP on behalf of the
Borrowers, a duly executed Trust Agreement, in form and substance
reasonably acceptable to the TSX.

 

27

 

Section 5.3.                                   Waiver
or Termination by the Lenders

 

Each of the conditions
contained in Section 5.1 are inserted for the exclusive benefit of the
Lenders and may be waived in whole or in part by Phoenix, on behalf
of the Lenders, at any time. The Borrowers acknowledge that the waiver by
Phoenix, on behalf of the Lenders, of any condition or any part of any
condition shall constitute a waiver only of such condition or such part of
such condition, as the case may be, and shall not constitute a waiver of
any covenant, agreement, representation or warranty made by the Borrowers
herein that corresponds or is related to such condition or such part of
such condition, as the case may be. If the Initial Closing does not occur
by June 30, 2006, the Lenders may terminate this Agreement by notice
in writing to the Borrowers, and in such event, each Lender shall be released
from all of its obligations, covenants, agreements and liabilities hereunder.

 

ARTICLE 6.

GENERAL

 

Section 6.1.                                   Amalgamation

 

The Corporation
acknowledges that if it amalgamates with any other corporation or corporations
the term, “Corporation”, where used herein shall
extend to and include each of the amalgamating corporations and the amalgamated
corporation. Nothing is this Section 6.1 shall permit or authorize an
amalgamation that is otherwise prohibited by the provisions of this Agreement.

 

Section 6.2.                                   Notices

 

Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and effective on the
earlier of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified for
notice prior to 5:00 p.m., (Austin, Texas time), on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified for notice
later than 5:00 p.m., (Austin, Texas time), on any date and earlier than
11:59 p.m., (Austin, Texas time), on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be addressed:

 

(a)                                  to
the Lenders at:

 

c/o Phoenix Venture Fund LLC

110 East 59th
Street, Suite 1901

New York, NY 10022

Attention: Philip S.
Sassower

Facsimile: (212) 319-4970

 

with a copy to:

Brown Raysman Millstein
Felder & Steiner LLP

900 Third Avenue

 

28

 

New York, NY 10022

Attention:  Jonathan J. Russo, Esq.

Facsimile: (212) 895-2900

 

(b)                                 to
the Borrowers at:

 

Xplore Technologies Corp.

14000 Summit
Drive, Suite 900

Austin, Texas
78728

Attention: Mr. Michael
J. Rapisand

Facsimile: (512) 336-7791

 

Xplore
Technologies Corporation of America

14000 Summit
Drive, Suite 900

Austin, Texas
78728

Attention: Mr. Michael
J. Rapisand

Facsimile: (512) 336-7791

 

with a copy to:

McCarthy Tétrault LLP

Suite 4700

Toronto Dominion Bank
Tower

Toronto, ON M5K 1E6

Attention: Jonathan Grant, Esq.

Fax: (416) 868-0673

 

Section 6.3.                                   Further
Assurances

 

Each of the Borrowers and
the Lenders hereby covenant and agree that at any time and from time to time
after any Closing Date it will, upon the request of the other, do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further acts, deeds, assignments, transfers, conveyances and
assurances as may be required for the better carrying out and performance
of all the terms of this Agreement including, without limitation, such further
and other security interests as the Lenders may reasonably request.

 

Section 6.4.                                   Remedies
Cumulative

 

The rights and remedies
of the parties under this Agreement are cumulative and in addition to and not
in substitution for any rights or remedies provided by law. Any single or
partial exercise by any party hereto of any right or remedy for default or
breach of any term, covenant or condition of this Agreement does not waive,
alter, affect or prejudice any other right or remedy to which such party may be
lawfully entitled for the same default or breach.

 

Section 6.5.                                   Announcements

 

No announcement with
respect to this Agreement, including any disclosure of the identity of the
Lender, will be made by any party hereto without the prior approval of the
other party. The foregoing will not apply to any announcement by any party
required in order to comply with

 

29

 

laws pertaining to
timely disclosure, provided that such party consults with the other parties
before making any such announcement.

 

Section 6.6.                                   Time
of the Essence

 

Time shall be of the
essence of this Agreement.

 

Section 6.7.                                   Entire
Agreement

 

This Agreement, the
schedules referred to herein, and the other documents referenced herein constitute
the entire agreement between the parties hereto pertaining to the matters
therein set forth and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
thereof. Neither party hereto shall be bound or charged with any oral or
written agreements, representations, warranties, statements, promises,
information, arrangements or understandings not specifically set forth in this
Agreement or the schedules or such other documents. The parties hereto further
acknowledge and agree that, in entering into this Agreement and in delivering
the schedules and such other documents, they have not in any way relied, and
will not in any way rely, upon any oral or written agreements, representations,
warranties, statements, promises, information, arrangements or understandings,
express or implied, not specifically referenced or set forth in this Agreement
or in such schedules or such other documents.

 

Section 6.8.                                   Invalidity
of any Provisions

 

Any provision of this
Agreement or any provisions of the security contemplated hereunder which is
prohibited by the laws of any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition without invalidating the
remaining terms and provisions hereof or thereof.

 

Section 6.9.                                   Indemnification

 

The Borrowers agree to
jointly and severally indemnify, defend and hold each Lender harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (except by reason of the gross negligence or willful
misconduct or breach of Applicable Laws of such Lender or any of its
employees), which may be imposed on, incurred by, or asserted against such
Lender and arising from the untruth, inaccuracy or breach (or any facts or
circumstances constituting such untruth, inaccuracy or breach) of any
representations, warranties, covenants or agreements of the Corporation or any
Subsidiary.

 

Section 6.10.                             Successors
and Assigns

 

Neither the Corporation
nor Xplore America may assign or transfer all or any part of their
respective rights or obligations under this Agreement without the prior written
consent of Phoenix on behalf of the Lenders. The terms and conditions of this
Agreement shall inure to the benefit and be binding upon the respective
successors and assignees of the parties.

 

30

 

Section 6.11.                             Amendments

 

This Agreement may only
be amended by a written agreement signed by the Borrowers, Phoenix and holders
of a majority of the Preferred Shares then outstanding.

 

Section 6.12.                             Aggregation
of Preferred Shares

 

All Preferred Shares held
or acquired by Affiliated Persons will be aggregated together to the purpose of
determining the availability of any right hereunder.

 

Section 6.13.                             Counterparts

 

This Agreement may be
executed in separate counterparts (including by facsimile), each of which when
so executed and delivered shall be deemed to be an original and all of such
counterparts shall together constitute one and the same instrument. Any party may execute
this Agreement by facsimile signature.

 

31

 

IN
WITNESS WHEREOF the parties have executed this Agreement.

 

	
   

  	
  XPLORE
  TECHNOLOGIES CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael J. Rapisand

  	
   

  
	
   

  	
   

  	
  Name:
  Michael J. Rapisand

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  XPLORE
  TECHNOLOGIES CORPORATION

  OF AMERICA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael J. Rapisand

  	
   

  
	
   

  	
   

  	
  Name:
  Michael J. Rapisand

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PHOENIX ENTERPRISES LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Philip S. Sassower

  	
   

  
	
   

  	
   

  	
  Name:
  Philip S. Sassower

  
	
   

  	
   

  	
  Title:
  Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PHOENIX VENTURE FUND LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SG PHOENIX VENTURES LLC, its

  
	
   

  	
   

  	
  Managing
  Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andrea Goren

  	
   

  
	
   

  	
   

  	
  Name:
  Andrea Goren

  
	
   

  	
   

  	
  Title:
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PHOENIX ENTERPRISES FAMILY FUND, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Philip S. Sassower

  	
   

  
	
   

  	
   

  	
  Name:
  Philip S. Sassower

  
	
   

  	
   

  	
  Title:
  Managing Member

  
						

 

32

 

	
   

  	
  THE PHILIP S. SASSOWER 1996

  CHARITABLE REMAINDER ANNUITY

  TRUST

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Philip S. Sassower

  	
   

  
	
   

  	
  Name:
  Philip S. Sassower

  
	
   

  	
  Title:
  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Philip S. Sassower

  	
   

  
	
   

  	
  Philip
  S. Sassower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AGF MANAGEMENT LIMITED –

  
	
   

  	
  AFG CANADIAN GROWTH EQUITY FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles Oliver

  	
   

  
	
   

  	
   

  	
  Name:
  Charles Oliver

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AGF MANAGEMENT LIMITED –

  
	
   

  	
  GREAT WEST LIFE GROWTH EQUITY FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles Oliver

  	
   

  
	
   

  	
   

  	
  Name:
  Charles Oliver

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AGF MANAGEMENT LIMITED –

  
	
   

  	
  IG AFG CANADIAN DIVERSIFIED FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles Oliver

  	
   

  
	
   

  	
   

  	
  Name:
  Charles Oliver

  
	
   

  	
   

  	
  Title:
  Vice President

  
						

 

33

 

	
   

  	
  AGF MANAGEMENT LIMITED –

  
	
   

  	
  LONDON LIFE GROWTH EQUITY FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles Oliver

  	
   

  
	
   

  	
   

  	
  Name:
  Charles Oliver

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Nachman Bench

  	
   

  
	
   

  	
  Nachman
  Bench

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DARYL LEE SCOT, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jonathan Tick

  	
   

  
	
   

  	
   

  	
  Name:
  Jonathan Tick

  
	
   

  	
   

  	
  Title:
  Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AENIGMA LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Viviana Kasam

  	
   

  
	
   

  	
   

  	
  Name:
  Viviana Kasam

  
	
   

  	
   

  	
  Title:
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ETABLISSEMENT HANSEN

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Reinhold Wohlwend

  	
   

  
	
   

  	
   

  	
  Name:
  Reinhold Wohlwend

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  JAG MULTI INVESTMENTS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Alexander Goren

  	
   

  
	
   

  	
   

  	
  Name:
  Alexander Goren

  
	
   

  	
   

  	
  Title:
  Manager

  
								

 

34

 

	
   

  	
  MIKMIK LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Micaela Monti

  	
   

  
	
   

  	
   

  	
  Name:
  Micaela Monti

  
	
   

  	
   

  	
  Title:
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GOREN BROTHERS LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andrea Goren

  	
   

  
	
   

  	
   

  	
  Name:
  Andrea Goren

  
	
   

  	
   

  	
  Title:
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JAM CAPITAL ASSOC., LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Leonard Pearlman

  	
   

  
	
   

  	
   

  	
  Name:
  Leonard Pearlman

  
	
   

  	
   

  	
  Title:
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/
  James O’Donnell

  	
   

  
	
   

  	
  James
  O’Donnell

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Jason Rabin

  	
   

  
	
   

  	
  Jason
  Rabin

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Martin Rosenman

  	
   

  
	
   

  	
  Martin
  Rosenman

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Steven Sack

  	
   

  
	
   

  	
  Steven
  Sack

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  795233 ONTARIO LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeff Green

  	
   

  
	
   

  	
   

  	
  Name:
  Jeff Green

  
	
   

  	
   

  	
  Title:
  President

  
								

 

35Exhibit 10.8

 

September
6, 2005

 

PERSONAL AND CONFIDENTIAL

 

Brian
Groh

11201
Native Texan Trail

Austin,
TX 78735

 

Re:          Relocation
Agreement

 

Dear
Mr. Groh:

 

In
consideration of your relocation to Austin, Texas, from Toronto, Canada, this
document, when signed by you, will represent a relocation agreement between
yourself and Xplore Technologies Corporation of America (“Xplore” or the “Company”).
By signing this letter, you agree to its terms as outlined below.

 

1.                       Relocation Agreement

 

This
relocation agreement is being offered by Xplore to provide you with a
reasonable amount of time to re-settle in Austin. Once the term of this
agreement expires, you will revert to being an employee at will, like all other
executive officers of the Company. This agreement supersedes any and all other
written and/or oral agreements and understandings between you, the Company and
any of its affiliates, and is the only agreement that shall govern the terms of
your employment with Xplore.

 

2.                       Position

 

Subject
to Sections 7, 8 and 9 of this agreement, you will continue to serve as
President and Chief Executive Officer of Xplore and or any oilier position or
title to which you are appointed by the Board of Directors of the Company.

 

3.                       Term

 

Subject
to Sections 7, 8 and 9 of this agreement, this agreement will expire on August
27, 2006.

 

4.                       Base Compensation

 

Xplore
will pay you US$200,000 per annum during the term of this agreement. Of this
amount, for the year ended August 27, 2005, US$150,000 is to be paid in cash
and US$50,000 is to be paid in the form of stock, and, for the year ended
August 27, 2006. US$175,000 is to be paid in cash and US$25,000 is to be paid
in the form of stock. The stock compensation will be equivalent to the issuance
of 113,636 common shares in respect of the year ended August 27, 2005 promptly
after receipt of all necessary approvals and another 56,818 common shares in
respect of the year ended August 27, 2006. This 

 

1

 

stock
compensation is earned on a weekly basis. This is subject to the terms
indicated by the Toronto Stock Exchange in Exhibit B.

 

5.                       Bonus

 

You
will be eligible to participate in any applicable bonus plan established by
Xplore’s Board of Directors, in accordance with the terms of such plan(s).

 

6.                       Relocation Expenses

 

You
hereby confirm that Xplore has reimbursed you for all your reasonable moving
expenses in regard to your relocation from Mississauga, Ontario, to Austin,
Texas.

 

7.                       Termination for Cause by Xplore

 

If
Xplore terminates your employment for cause, all of its obligations under this
Agreement will automatically cease effective the date of the termination of
your employment for cause. All compensation earned up until the date of actual
notice of termination shall be paid within seven (7) days. The definition of “cause”
shall mean the following;

 

i.                            Your
willful failure, intentional disregard or repeated refusal to perform your
duties hereunder after receipt of a written notice from the Company’s Board of
Directors stating the deficient areas of your performance, the precise steps
needed to cure the performance and a 30 days’ period of time to cure;

 

ii.                         Your
willful, intentional or grossly negligent act, having the effect of injuring,
in a material way (whether financial or otherwise and as determined in
good-faith by a majority of the Board of Directors of the Company), the
business or reputation of the Company or any of its affiliates, including but
not limited to, any officer, director, executive or shareholder of the Company
or any of its affiliates, which is not in the good faith opinion of the Company
cured by you within thirty (30) days after written notice thereof is given to
you by Xplore;

 

iii.                      Your willful
misconduct in respect of your duties or obligations under this Agreement,
including, without limitation, gross insubordination with respect to written
directions received by you from the Board of Directors of the Company, which is
not in the good faith opinion of the Company cured by you within thirty (30)
days after written notice thereof is given to you by Xplore;

 

iv.                     Your
indictment on any felony or a misdemeanor charge involving moral turpitude
(including entry of a nolo contendere plea in response to same);

 

v.                        Any
material, willful and intentional misappropriation or embezzlement of the
property of the Company or its affiliates (whether or not a misdemeanor or
felony);

 

vi.                     Your breach
of any of the provisions of Sections 12 or 13 of this agreement; and

 

2

vii.                  Your breach of
any provision of this agreement, other than those contained in Sections 12, 13
or this Section 7(iv and v) which is not in the good faith opinion of the
Company cured by you within thirty (30) days after written notice thereof is
given to you by Xplore.

 

8.                       Termination Without Cause by Xplore

 

If
Xplore terminates your employment without cause prior to August 27, 2006,
subject to your execution of a general release of all claims satisfactory in
form to Xplore, Xplore will pay to you the greater of: (i) an amount equal to
(A divided by 12) x B, where A is your annual salary on the date of termination
and B is 24 months minus the number of months elapsed since August 27, 2004
(the “Resettlement Period”); or (ii) a minimum of one month base salary for every
year and pro-rated month for a partial year of your employment, (as applicable,
the “severance period”). Any such amount, regardless of how calculated, will be
paid out in monthly installments of US$16,666.67. In addition, upon termination
without cause, you shall be entitled to exercise your rights to continuation
insurance, if any, as set forth under Part 6 of Title I of the Employment
Retirement Income Security Act of 1974, as amended (“COBRA”)

 

If you
agree to return to Ontario within six (6) months of your termination without
cause, Xplore will pay for your moving expenses as described generally in
Exhibit A, on the condition that you complete your move within one (1) year
from the date of your termination. Such payment will not exceed the actual cost
of relocation as long as the Company selects the service providers. These costs
will include:

 

1.                       Sales
commission, title insurance, recording and miscellaneous fees — not to exceed
$41,400, the actual amount upon purchase of your current Austin home

 

2.                       Moving
cost for household goods and the same number of cars moved from Toronto to
Austin

 

3.                       Closing
costs related to the purchase of home in Ontario, such amounts must be
reasonable and ordinary and only include title search fees, transfer tax and
related legal costs. Amounts which not be reimbursed include payments for
property taxes, insurance and mortgage related fees.

 

4.                        Temporary
housing of one week

 

5.                        Travel
costs for family for one-way trip to Ontario

 

Upon
request in advance of any move, you will provide up to three quotes for moving
expenses and the Company shall be free to choose the service providers.
Reimbursement of expenses will be subject to the Company receiving actual
receipts.

 

Subject
to the rules and regulations of the Toronto Stock Exchange or any other stock
exchange the Company’s shares are listed on, as well as those of any applicable
regulatory authority, and subject to Shareholder approval, the exercise period
of your vested options as of the date you are terminated will be extended
beyond their current expiration dates, if 

 

3

 

necessary,
to the earlier of: (a) the expiry date of those options or (b) the end of the
Resettlement Period. Xplore agrees to present and recommend this extended
exercise period to the Board of Directors for approval.

 

9.                       Other Termination

 

A.                          Upon
death: Your employment hereunder shall be terminated upon your death.

 

B.                          Upon
disability: Your employment hereunder may be terminated by the Company upon
your becoming disabled. For purposes of this agreement, a termination for
disability shall occur (i) when Xplore’s Board of Directors has provided you
with a written termination notice supported by a written statement from a
reputable independent physician to the effect that you have become so
physically or mentally incapacitated as to be unable to resume, within the
ensuing six months, your employment hereunder by reason of physical or mental
illness or injury, or (ii) upon rendering of a written termination notice by
the Board of Directors of the Company after you have been unable to
substantially perform your duties hereunder for 90 or more consecutive days, or
more than 180 days in any consecutive twelve month period, by reason of any
physical or mental illness or injury. For purposes of this section 9, you agree
to make yourself available and to cooperate in any reasonable examination by a
reputable independent physician retained by the Company.

 

C.                          Upon
Change of Control: Your employment hereunder may be terminated by Xplore
(or its successor) upon the occurrence of a Change of Control. For purposes of
this agreement, “Change of Control” means (i) the acquisition, directly or
indirectly, following the date hereof by any person (as such term is defined in
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended),
in one transaction or a series of related transactions, of securities of the
Company representing in excess of fifty percent (50%) or more of the combined
voting power of the Company’s then outstanding securities if such person or his
or its affiliate(s) do not own in excess of 50% of such voting power on the
date of this Agreement, or (ii) the future disposition by the Company (whether
direct or indirect, by sale of assets or stock, merger, consolidation or
otherwise) of all or substantially all of its business and/or assets in one
transaction or series of related transactions (other than a merger effected
exclusively for the purpose of changing the domicile of the Company).

 

10.                Taxes, Duties, Fees

 

You
will be personally responsible for compliance with all applicable tax laws and
regulations and for the payment of all income taxes, property taxes, custom
duties, fees, licenses and other taxes imposed on you by any authorities either
in Texas, Canada or elsewhere. The Company will continue to make appropriate
withholding of related taxes as required by law and be responsible for
remittance of such withholdings to the related taxing authority.

 

4

 

11.                Deductions

 

All
payments to be made to you or on your behalf under this agreement will be
subject to applicable statutory deductions.

 

12.                Non-Solicitation

 

For a
period of 12 months after your employment is terminated, you shall not,
directly or indirectly, without the prior written consent of the Company:

 

i.                            solicit
or induce any employee of the Company or any of its affiliates to leave the
employ of the Company or any such affiliate; or hire for any purpose any
employee of the Company or any affiliate or any employee who has left the
employment of the Company or any affiliate within twelve months of the
termination of such employee’s employment with the Company or any such
affiliate;

 

ii.                         solicit
or accept employment or be retained by any person who, at any time during the
term of this Agreement, was an agent, client or customer of the Company or any
of its affiliates where your position will be related to the business of the
Company or any such affiliate; or

 

iii.                      solicit or
accept the business of any agent, client or customer of the Company or any of
its affiliates with respect to products, services or investments similar to
those provided or supplied by the Company or any of its affiliates.

 

13.                Confidentiality

 

You
recognize and acknowledge that in the course of your duties you have, and are
likely to in the future, receive confidential or proprietary information owned
by the Company, its affiliates or third parties. Accordingly, during and after
the term or this agreement, you agree to keep confidential and not disclose or
make accessible to any other person or use for any other purpose other than in
connection with the fulfillment of your duties hereunder, any Confidential and
Proprietary Information owned by, or received by or on behalf of, the Company
or any of its affiliates. For the purpose of this agreement, “Confidential and
Proprietary Information” shall include, but shall not be limited to,
confidential or proprietary technical information, data, engineering designs,
business plans (both current and under development), client lists, promotion
and marketing programs, trade secrets, or any other confidential or proprietary
business information relating to development programs, costs, revenues,
marketing, design, engineering, investments, sales activities, promotions,
credit and financial data, manufacturing processes, financing methods, plans or
the business and affairs of the Company or of any affiliate or client of the
Company.

 

14.                Governing Law

 

This
agreement will be governed by and construed in accordance with the laws of
Texas. Any dispute arising out of, or relating to, this agreement or the breach
thereof, or regarding the interpretation thereof, shall be finally settled by
arbitration conducted in Austin, Texas 

 

5

 

in
accordance with the rules, but not the auspices of the American Arbitration
Association before a single arbitrator appointed in accordance with such rules.
Judgment upon any award rendered therein may be entered and enforcement
obtained thereon in any court having jurisdiction. The arbitrator shall have
authority to grant any form of appropriate relief, whether legal or equitable
in nature, including specific performance, legal fees and costs. For the
purpose of any judicial proceeding to enforce such award or incidental to such
arbitration or to compel arbitration, the parties hereby submit to the
non-exclusive jurisdiction of the Judicial District Court of Travis County,
Texas or the United States District Court for the Western District of Texas,
and agree that service of process in such arbitration or court proceedings
shall be satisfactorily made upon it if sent by registered mail addressed to
your and the Company’s address listed above. The costs of such arbitration
shall be borne proportionate to the finding of fault as determined by the
arbitrator.

 

If you
are in agreement with the contents of this letter, please sign in the space
provided below and return to my attention.

 

Sincerely,

 

 

Xplore
Technologies Corporation of America

 

 

	
  By:

  	
  /s/ Michael J. Rapisand

  	
   

  	
   

  
	
   

  	
   Michael J. Rapisand

  
	
   

  	
   Chief Financial Officer

  

 

I have
read, understand and, having had the opportunity to seek legal advice, hereby
voluntarily agree with the terms of this temporary employment agreement for
good and valuable consideration.

 

Date:  September 6, 2005

 

 

	
   

  	
  Witnessed
  by: 

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Brian Groh

  	
   

  	
  /s/ Krystal Graves

  	
   

  
	
  Brian Groh

  	
  Name:

  
				

 

6

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