Document:

SECURITIES PLEDGE AGREEMENT

 

This Securities Pledge Agreement (this “Agreement”), dated as of November 9, 2004, by and between Laurus Master Fund, Ltd. (“Laurus”) and Thomas Equipment 2004 Inc., a Canadian corporation (“Pledgor”).

 

BACKGROUND

 

Thomas Equipment, Inc. (“Thomas USA”) and certain of its subsidiaries have entered into a Security and Purchase Agreement dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the “Security Agreement”), pursuant to which Laurus provides or will provide certain financial accommodations to Thomas USA and such subsidiaries.

 

In order to induce Laurus to provide or continue to provide the financial accommodations described in the Security Agreement, Pledgor has agreed to guarantee the obligations of Thomas USA and such subsidiaries to Laurus and to pledge and grant a security interest in, inter alia, the collateral described herein to Laurus on the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

 

1.  Defined Terms. All capitalized terms used herein which are not defined shall have the meanings given to them in the Security Agreement.

 

2.  Pledge and Grant of Security Interest. To secure the full and punctual payment and performance of (the following clauses (a) and (b), collectively, the “Indebtedness”) (a) the obligations or Pledgor under that certain Guarantee dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the “Guarantee”) pursuant to which Pledgor guarantees all of the obligations of Thomas USA and certain if its subsidiaries to Laurus pursuant to, inter alia, the Security Agreement and Ancillary Agreements (the Guarantee, Security Agreement and Ancillary Agreements, as each may be amended, restated, modified and/or supplemented from time to time, collectively, the “Documents”) and (b) all other indebtedness, obligations and liabilities of Pledgor to Laurus whether now existing or hereafter arising, direct or indirect, liquidated or unliquidated, absolute or contingent, due or not due and whether under, pursuant to or evidenced by a note, agreement, guarantee, instrument or otherwise (in each case, irrespective of the genuineness, validity, regularity or enforceability of such Indebtedness, or of any instrument evidencing any of the Indebtedness or of any collateral) therefor or of the existence or extent of such collateral, Pledgor hereby pledges, assigns, hypothecates, transfers and grants a security interest to Laurus in
all of the following (the “Collateral”):

 

(a)  the securities set forth on Schedule A annexed hereto and expressly made a part hereof (together with any additional securities or other equity interests acquired by Pledgor, the “Pledged Securities”), the certificates representing the Pledged Securities and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Securities;

 

	 
	 	 	 
	

	 

(b)  all additional securities of any issuer (each, an “Issuer”) of the Pledged Securities from time to time acquired by Pledgor in any manner, including, without limitation, stock dividends or a distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off (which shares shall be deemed to be part of the Collateral), and the certificates representing such additional shares, and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares; and

 

(c)  all options and rights, whether as an addition to, in substitution of or in exchange for any shares of any Pledged Securities and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such options and rights.

 

Pledgor acknowledges that (i) value has been given, (ii) it has rights in the Pledge Securities, (iii) it has not agreed to postpone the time of attachment of the security interest created hereby, and (iv) it has received a duplicate original copy of this Securities Pledge Agreement.

 

If the Securities are now or at any time hereafter become evidenced in whole or in part, by uncertificated securities registered or recorded in records maintained by or on behalf of the Issuer in the name of a clearing agency, Pledgor shall, at the request of Laurus, cause the security interest created hereby to be entered in the records of such clearing agency.

 

3.  Delivery of Collateral. All certificates representing or evidencing the Pledged Securities shall be delivered to and held by or on behalf of Laurus pursuant hereto and shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Laurus. Pledgor hereby authorizes the Issuer upon demand by Laurus to deliver any certificates, instruments or other distributions issued in connection with the Collateral directly to Laurus, in each case to be held by Laurus, subject to the terms hereof. Upon an Event
of Default (as defined below) that has occurred and is continuing beyond any applicable grace period, Laurus shall have the right, during such time in its discretion and without notice to Pledgor, to transfer to or to register in the name of Laurus or any of its nominees any or all of the Pledged Securities. In addition, Laurus shall have the right at such time to exchange certificates or instruments representing or evidencing Pledged Securities for certificates or instruments of smaller or larger denominations.

 

4.  Representations and Warranties of Pledgor. Pledgor represents and warrants to Laurus (which representations and warranties shall be deemed to continue to be made until all of the Indebtedness has been paid in full and each Document and each agreement and instrument entered into in connection therewith has been irrevocably terminated) that:

 

(a)  the execution, delivery and performance by Pledgor of this Agreement and the pledge of the Collateral hereunder do not and will not result in any violation of any agreement, indenture, instrument, license, judgment, decree, order, law, statute, ordinance or other governmental rule or regulation applicable to Pledgor;

 

	 
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(b)  this Agreement constitutes the legal, valid, and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms;

 

(c)  (i) all Pledged Securities owned by Pledgor is set forth on Schedule A hereto and (ii) Pledgor is the direct and beneficial owner of each share of the Pledged Securities;

 

(d)  all of the shares of the Pledged Securities have been duly authorized, validly issued and are fully paid and nonassessable;

 

(e)  no consent or approval of any person, corporation, governmental body, regulatory authority or other entity, is or will be necessary for (i) the execution, delivery and performance of this Agreement, (ii) the exercise by Laurus of any rights with respect to the Collateral or (iii) the pledge and assignment of, and the grant of a security interest in, the Collateral hereunder;

 

(f)  there are no pending or, to the best of Pledgor’s knowledge, threatened actions or proceedings before any court, judicial body, administrative agency or arbitrator which may materially adversely affect the Collateral;

 

(g)  Pledgor has the requisite power and authority to enter into this Agreement and to pledge and assign the Collateral to Laurus in accordance with the terms of this Agreement;

 

(h)  Pledgor owns each item of the Collateral and, except for the pledge and security interest granted to Laurus hereunder, the Collateral shall be, immediately following the closing of the transactions contemplated by the Documents, free and clear of any other security interest, pledge, claim, lien, charge, hypothecation, assignment, offset or encumbrance whatsoever (collectively, “Liens”);

 

(i)  there are no restrictions on transfer of the Pledged Securities contained in the certificate of incorporation or by-laws (or equivalent organizational documents) of the Issuer or otherwise which have not otherwise been enforceably and legally waived by the necessary parties;

 

(j)  none of the Pledged Securities has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject;

 

(k)  the pledge and assignment of the Collateral and the grant of a security interest under this Agreement vest in Laurus all rights of Pledgor in the Collateral as contemplated by this Agreement;

 

(l)  The Pledged Securities constitute one hundred percent (100%) of the issued and outstanding shares in the capital stock of Thomas Equipment Europe N.V.

 

	 
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5.  Covenants. Pledgor covenants that, until the Indebtedness shall be satisfied in full and each Document and each agreement and instrument entered into in connection therewith is irrevocably terminated:

 

(a)  Pledgor will not sell, assign, transfer, convey, or otherwise dispose of its rights in or to the Collateral or any interest therein; nor will Pledgor create, incur or permit to exist any Lien whatsoever with respect to any of the Collateral or the proceeds thereof other than that created hereby. 

 

(b)  Pledgor will, at its expense, defend Laurus’s right, title and security interest in and to the Collateral against the claims of any other party.

 

(c)  Pledgor shall at any time, and from time to time, upon the written request of Laurus, execute and deliver such further documents and do such further acts and things as Laurus may reasonably request in order to effect the purposes of this Agreement including, but without limitation, delivering to Laurus upon the occurrence of an Event of Default irrevocable proxies in respect of the Collateral in form satisfactory to Laurus. Until receipt thereof, upon an Event of Default that has occurred and is continuing beyond any applicable grace period, this Agreement shall constitute Pledgor’s proxy to Laurus or its nominee to vote all shares of Collateral
then registered in Pledgor’s name.

 

(d)  Pledgor will not consent to or approve the issuance of (i) any additional shares of any class of securities or other equity interests of the Issuer; or (ii) any securities convertible either voluntarily by the holder thereof or automatically upon the occurrence or nonoccurrence of any event or condition into, or any securities exchangeable for, any such shares, unless, in either case, such shares are pledged as Collateral pursuant to this Agreement.

 

6.  Voting Rights and Dividends. In addition to Laurus’s rights and remedies set forth in Section 8 hereof, in case an Event of Default shall have occurred and be continuing, beyond any applicable cure period, Laurus shall (i) be entitled to vote the Collateral, (ii) be entitled to give consents, waivers and ratifications in respect of the Collateral (Pledgor hereby irrevocably constituting and appointing Laurus, with full power of substitution, the proxy and attorney-in-fact of Pledgor for such purposes) and (iii) be entitled to collect and receive for its
own use cash dividends paid on the Collateral. Pledgor shall not be permitted to exercise or refrain from exercising any voting rights or other powers if, in the reasonable judgment of Laurus, such action would have a material adverse effect on the value of the Collateral or any part thereof; and, provided, further, that Pledgor shall give at least five (5) days’ written notice of the manner in which Pledgor intends to exercise, or the reasons for refraining from exercising, any voting rights or other powers other than with respect to any election of directors and voting with respect to any incidental matters. Following the occurrence of an Event of Default, all dividends and all other distributions in respect of any of the Collateral, shall be delivered to Laurus to hold as Collateral and shall, if received by Pledgor, be received in trust for the benefit of Laurus, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Laurus as Collateral in the same form as
so received (with any necessary endorsement).

 

7.  Event of Default. An Event of Default shall be deemed to have occurred and may be declared by Laurus upon the happening of any of the following events:

 

	 
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(a)  An “Event of Default” (or similar term) under any Document or any agreement or note related to any Document shall have occurred and be continuing beyond any applicable cure period;

 

(b)  Pledgor shall default in the performance of any of its obligations under any agreement between Pledgor and Laurus, including, without limitation, this Agreement, and such default shall not be cured for a period of fifteen (15) days after the occurrence thereof;

 

(c)  Any representation or warranty of Pledgor made herein, in any Document or in any agreement, statement or certificate given in writing pursuant hereto or thereto or in connection herewith or therewith shall be false or misleading in any material respect; 

 

(d)  Any portion of the Collateral is subjected to levy of execution, attachment, distraint or other judicial process; or any portion of the Collateral is the subject of a claim (other than by Laurus) of a Lien or other right or interest in or to the Collateral and such levy or claim shall not be cured, disputed or stayed within a period of forty (40) days after the occurrence thereof; or

 

(e)  Pledgor shall (i) apply for, consent to, or suffer to exist the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator, sequestrator or other fiduciary of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of creditors, (iii) commence any proceedings under any provincial or federal bankruptcy, reorganization, arrangement or readjustment of debt, dissolution, winding-up, adjustment, composition or liquidation laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to take advantage of any other law providing for
the relief of debtors, (vi) acquiesce to, or fail to have dismissed, within sixty (60) days, any petition filed against it in any proceeding commenced against it under such bankruptcy laws, or (vii) take any action for the purpose of effecting any of the foregoing.

 

8.  Remedies. In case an Event of Default shall have occurred and be declared by Laurus, Laurus may: 

 

(a)  Transfer any or all of the Collateral into its name, or into the name of its nominee or nominees;

 

(b)  Exercise all corporate rights with respect to the Collateral including, without limitation, all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any shares of the Collateral as if it were the absolute owner thereof, including, but without limitation, the right to exchange, at its discretion, any or all of the Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of the Issuer thereof, or upon the exercise by the Issuer of any right, privilege or option pertaining to any of the Collateral, and, in connection therewith, to deposit and deliver any and all of the
Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine, all without liability except to account for property actually received by it; and

 

	 
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(c)  Subject to any requirement of applicable law, sell, assign and deliver the whole or, from time to time, any part of the Collateral at the time held by Laurus, at any private sale or at public auction, with or without demand, advertisement or notice of the time or place of sale or adjournment thereof or otherwise (all of which are hereby waived, except such notice as is required by applicable law and cannot be waived), for cash or credit or for other property for immediate or future delivery, and for such price or prices and on such terms as Laurus in its sole discretion may determine, or as may be required by applicable law. Without prejudice to the
ability of Laurus to dispose of the Pledged Securities in any manner which is commercially reasonable, Pledgor acknowledges that a disposition of Pledged Securities by Laurus which takes place substantially in accordance with the following provisions shall be deemed to be commercially reasonable:

 

	(i)  	Pledged Securities may be disposed of in whole or in part;

 

	(ii)  	Pledged Securities may be disposed of by public auction, public tender or private contract, with or without advertising and without any other formality;

 

	(iii)  	any assignee of such Pledged Securities may be Laurus;

 

	(iv)  	any sale conducted by Laurus shall be at such time and place, on such notice and in accordance with such procedures as Laurus, in its sole discretion, may deem advantageous;

 

	(v)  	
Pledged Securities may be disposed of in any manner and on any terms necessary to avoid violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that the prospective bidders and purchasers have certain qualifications, and restrict the prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of the Pledged Securities) or in order to obtain any required approval of the disposition (or of the resulting purchase) by any governmental or regulatory authority or official;

 

	(vi)  	
a disposition of Pledged Securities may be on such terms and conditions as to credit or otherwise as Laurus, in its sole discretion, may deem advantageous; and

 

	(vii)  	Laurus may establish an upset or reserve bid or price in respect of the Pledged Securities.

 

Pledgor hereby waives and releases any and all right or equity of redemption, whether before or after sale hereunder. At any such sale, unless prohibited by applicable law, Laurus may bid for and purchase the whole or any part of the Collateral so sold free from any such right or equity of redemption. All moneys received by Laurus hereunder whether upon sale of the Collateral or any part thereof or otherwise shall be held by Laurus and applied by it as provided in Section 10 hereof. No failure or delay on the part of Laurus in exercising any rights hereunder shall operate as a waiver of any such rights nor shall any single or partial exercise of any such rights preclude any other or future exercise thereof or the exercise of any other rights hereunder. Any remedy may be exercised separately or in
combination and shall be in addition to, and not in substitution for, any other rights Laurus may have, however created. Laurus shall not be bound to exercise any right or remedy, and the exercise of rights and remedies shall be without prejudice to the rights of Laurus in respect of the Indebtedness including the right to claim for any deficiency. Laurus shall have no duty as to the collection or protection of the Collateral or any income thereon nor any duty as to preservation of any rights pertaining thereto, except to apply the funds in accordance with the requirements of Section 10 hereof. Laurus may exercise its rights with respect to property held hereunder without resort to other security for or sources of reimbursement for the Indebtedness. Laurus shall not be obliged to exhaust its recourse against Pledgor or any other person or against any other security it may hold in respect of the Indebtedness before realizing upon or otherwise dealing with the Pledged Securities in such manner as Laurus
may consider desirable. Laurus may grant extensions or other indulgences, take and give up security, accept compositions, grant releases and discharges and otherwise deal with Pledgor and with other persons, sureties or security as it may see fit without prejudice to the Indebtedness, the liability of Pledgor or the rights of Laurus in respect of the Pledged Securities. Laurus shall not be (i) liable or accountable for any failure to collect, realize or obtain payment in respect of the Pledged Securities, (ii) bound to institute proceedings for the purpose of collecting, enforcing, realizing or obtaining payment of the Pledged Securities or for the purpose of preserving any rights of any persons, (iii) responsible for any loss occasioned by any sale or other dealing with the Pledged Securities or by the retention of or failure to sell or otherwise deal with the Pledged Securities, or (iv) bound to protect the Pledged Securities from depreciating in value or becoming worthless. In addition to the
foregoing, Laurus shall have all of the rights, remedies and privileges of a secured party under the Uniform Commercial Code of New York regardless of the jurisdiction in which enforcement hereof is sought.

 

	 
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9.  Private Sale. Pledgor recognizes that Laurus may be unable to effect (or to do so only after delay which would adversely affect the value that might be realized from the Collateral) a public sale of all or part of the Collateral by reason of certain prohibitions contained in applicable securities law, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale
thereof. Pledgor agrees that any such private sale may be at prices and on terms less favourable to the seller than if sold at public sales and that such private sales shall be deemed to have been made in a commercially reasonable manner. Pledgor agrees that Laurus has no obligation to delay sale of any Collateral for the period of time necessary to permit the Issuer to register the Collateral for public sale under applicable securities law.

 

10.  Proceeds of Sale. The proceeds of any collection, recovery, receipt, appropriation, realization or sale of the Collateral shall be applied by Laurus as follows:

 

	(a)  	
First, to the payment of all costs, reasonable expenses and charges of Laurus and to the reimbursement of Laurus for the prior payment of such costs, reasonable expenses and charges incurred in connection with the care and safekeeping of the Collateral (including, without limitation, the reasonable expenses of any sale or any other disposition of any of the Collateral), the expenses of any taking, attorneys’ fees and reasonable expenses, court costs, any other fees or expenses incurred or expenditures or advances made by Laurus in the protection, enforcement or exercise of its rights, powers or remedies hereunder;

 

	 
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	(b)  	
Second, to the payment of the Indebtedness, in whole or in part, in such order as Laurus may elect, whether or not such Indebtedness is then due;

 

	(c)  	
Third, to such persons, firms, corporations or other entities as required by applicable law including, without limitation, the Personal Property Security Act (New Brunswick) or the UCC; and

 

	(d)  	Fourth, to the extent of any surplus to the Pledgor or as a court of competent jurisdiction may direct.

 

In the event that the proceeds of any collection, recovery, receipt, appropriation, realization or sale are insufficient to satisfy the Indebtedness, Pledgor shall be liable for the deficiency plus the costs and fees of any attorneys employed by Laurus to collect such deficiency.

 

11.  Waiver of Marshaling. Pledgor hereby waives any right to compel any marshaling of any of the Collateral.

 

12.  No Waiver. Any and all of Laurus’ rights with respect to the Liens granted under this Agreement shall continue unimpaired, and Pledgor shall be and remain obligated in accordance with the terms hereof, notwithstanding (a) the bankruptcy, insolvency, winding-up, liquidation or reorganization of Pledgor, (b) the release or substitution of any item of the Collateral at any time, or of any rights or interests therein, or (c) any delay, extension of time, renewal, compromise or other indulgence granted by Laurus in reference to any of the Indebtedness.
Pledgor hereby waives all notice of any such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consents to be bound hereby as fully and effectively as if Pledgor had expressly agreed thereto in advance. No delay or extension of time by Laurus in exercising any power of sale, option or other right or remedy hereunder, and no failure by Laurus to give notice or make demand, shall constitute a waiver thereof, or limit, impair or prejudice Laurus’s right to take any action against Pledgor or to exercise any other power of sale, option or any other right or remedy.

 

13.  Expenses. The Collateral shall secure, and Pledgor shall pay to Laurus on demand, from time to time, all reasonable costs and expenses, (including but not limited to, reasonable attorneys’ fees and costs, taxes, and all transfer, recording, filing and other charges) of, or incidental to, the custody, care, transfer, administration of the Collateral or any other collateral, or in any way relating to the enforcement, protection or preservation of the rights or remedies of Laurus under this Agreement or with respect to any of the Indebtedness.

 

14.  Laurus Appointed Attorney-In-Fact and Performance by Laurus. Upon the occurrence of an Event of Default, Pledgor hereby irrevocably constitutes and appoints Laurus as Pledgor’s true and lawful attorney-in-fact, with full power of substitution, to execute, acknowledge and deliver any instruments and to do in Pledgor’s name, place and stead, all such acts, things and deeds for and on behalf of and in the name of Pledgor, which Pledgor could or might do or which Laurus may deem necessary, desirable or convenient to accomplish the purposes of this
Agreement, including, without limitation, to execute such instruments of assignment or transfer or orders and to register, convey or otherwise transfer title to the Collateral into Laurus’s name. Pledgor hereby ratifies and confirms all that said attorney-in-fact may so do and hereby declares this power of attorney to be coupled with an interest and irrevocable. If Pledgor fails to perform any agreement herein contained, Laurus may itself perform or cause performance thereof, and any costs and expenses of Laurus incurred in connection therewith shall be paid by the Pledgor as provided in Section 10 hereof.

 

	 
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15.  WAIVERS. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER AGREEMENT EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 

 

16.  Recapture. Notwithstanding anything to the contrary in this Agreement, if Laurus receives any payment or payments on account of the Indebtedness, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver, or any other party under the Bankruptcy and Insolvency Act, as amended, or any other federal or provincial bankruptcy, reorganization, moratorium or insolvency law relating to or affecting the enforcement of creditors’ rights
generally, common law or equitable doctrine, then to the extent of any sum not finally retained by Laurus, Pledgor’s obligations to Laurus shall be reinstated and this Agreement shall remain in full force and effect (or be reinstated) until payment shall have been made to Laurus, which payment shall be due on demand.

 

17.  Captions. All captions in this Agreement are included herein for convenience of reference only and shall not constitute part of this Agreement for any other purpose.

 

18.  Miscellaneous.

 

	(a)  	
This Agreement constitutes the entire and final agreement among the parties with respect to the subject matter hereof and may not be changed, terminated or otherwise varied except by a writing duly executed by the parties hereto.

 

	(b)  	
No waiver of any term or condition of this Agreement, whether by delay, omission or otherwise, shall be effective unless in writing and signed by the party sought to be charged, and then such waiver shall be effective only in the specific instance and for the purpose for which given.

 

	 
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	(c)  	
In the event that any provision of this Agreement or the application thereof to Pledgor or any circumstance in any jurisdiction governing this Agreement shall, to any extent, be invalid or unenforceable under any applicable statute, regulation, or rule of law, such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute, regulation or rule of law, and the remainder of this Agreement and the application of any such invalid or unenforceable provision to parties, jurisdictions, or circumstances other than to whom or to which it is held invalid or unenforceable shall not be affected thereby, nor shall same affect the validity or enforceability of any other provision of this Agreement.

 

	(d)  	
This Agreement shall be binding upon Pledgor, and Pledgor’s successors and assigns, and shall inure to the benefit of Laurus and its successors and assigns.

 

	(e)  	
Any notice or other communication required or permitted pursuant to this Agreement shall be given in accordance with the General Security Agreement entered into by Pledgor in favour of Laurus dated as of the date hereof.

 

	(f)  	
This Agreement shall be governed by and construed and enforced in all respects in accordance with the laws of the Province of New Brunswick and the laws of Canada applicable therein applied to contracts to be performed wholly within the Province of New Brunswick.

 

	(g)  	
PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF EACH COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK FOR ALL PURPOSES IN CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A STATE COURT LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. PLEDGOR FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS (INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR
BY PERSONAL SERVICE PROVIDED A REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID COURTS. EACH PLEDGOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.

 

	 
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	(h)  	
It is understood and agreed that any person or entity that desires to become a Pledgor hereunder, or is required to execute a counterpart of this Securities Pledge Agreement after the date hereof pursuant to the requirements of any Document, shall become a Pledgor hereunder by (x) executing a Joinder Agreement in form and substance satisfactory to Laurus, (y) delivering supplements to such exhibits and annexes to such Documents as Laurus shall reasonably request and (z) taking all actions as specified in this Agreement as would have been taken by such Pledgor had it been an original party to this Agreement, in each case with all documents required above to be delivered to Laurus and with all documents and actions required above to be taken to the reasonable satisfaction of Laurus.

 

	(i)  	
No person dealing with Laurus or an agent or receiver shall be required to determine (i) whether the security interest created hereby has become enforceable, (ii) whether the powers which such person is purporting to exercise have become exercisable, (iii) whether any money remains due to Laurus by Pledgor, (iv) the necessity or expediency of the stipulations and conditions subject to which any sale or lease shall be made, (v) the propriety or regularity of any sale or other dealing by Laurus with the Pledged Securities, or (vi) how any money paid to Laurus has been applied.

 

	(j)  	
This Securities Pledge Agreement is in addition to and without prejudice to all other security now held or which may hereafter be held by Laurus in respect of the Indebtedness.

 

	(k)  	
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed an original signature hereto.

 

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IN WITNESS WHEREOF, Pledgor has causes this Securities Pledge Agreement to be executed as of the day and year first written above.

 

	 	 	 
	 	THOMAS EQUIPMENT 2004, INC.
	 
 	 
 	 
 
		By:  	/s/ CLIFFORD RHEE
	 	

	 	Name: Clifford Rhee
Title: President

 

 

	

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SCHEDULE A to the Securities Pledge Agreement

 

Pledged Securities

 

	
 

Pledgor
	 	
 

Issuer
	 	
 

Class of Securities
	 	
 

Securities Certificate Number
	 	
 

Par Value
	 	
 

Number of Securities
	 
	
Thomas Equipment 2004 Inc.
	 	 	
Thomas Equipment Europe N.V.EXECUTION COPY

 

McCAIN FOODS LIMITED

 

- AND -

 

THOMAS EQUIPMENT, INC.

 

- AND -

 

THOMAS EQUIPMENT 2004 INC.

 

 

 

 

SHAREHOLDERS’ AGREEMENT

 

 

October 26, 2004

 

 

 

 

	 
	 	 	 
	

	 

TABLE OF CONTENTS

 

	 	 	 	 	
Page
	 
	
ARTICLE 1
	 	 	
DEFINITIONS
	 	 	
2
	 
	
 
	
1.1
	 	 	
Definitions
	 	 	
2
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 2
	 	 	
INTERPRETATION AND APPLICATION
	 	 	
3
	 
		
2.1
	 	 	 	 	 	
3
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 3
	 	 	
CAPITAL STRUCTURE
	 	 	
4
	 
		
3.1
	 	 	
Authorized and Issued Share Capital
	 	 	
4
	 
		
3.2
	 	 	
No Obligation to Loan or Guarantee
	 	 	
4
	 
		
3.3
	 	 	
Share Certificates
	 	 	
4
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 4
	 	 	
MANAGEMENT OF THE CORPORATION
	 	 	
5
	 
		
4.1
	 	 	
Observer Rights
	 	 	
5
	 
		
4.2
	 	 	
Meetings of Directors
	 	 	
5
	 
		
4.3
	 	 	
Matters Requiring McCain Approval
	 	 	
5
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 5
	 	 	
FINANCIAL MATTERS
	 	 	
7
	 
		
5.1
	 	 	
Auditor
	 	 	
7
	 
		
5.2
	 	 	
Financial Year
	 	 	
7
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 6
	 	 	
COVENANTS
	 	 	
7
	 
		
6.1
	 	 	
No Partnership Created
	 	 	
7
	 
		
6.2
	 	 	
TEI Covenant
	 	 	
7
	 
		
6.3
	 	 	
Covenants of the Corporation
	 	 	
8
	 
		
6.4
	 	 	
Reporting Obligation
	 	 	
8
	 
		
6.5
	 	 	
Shareholder’s Right of Inspection and Inquiry
	 	 	
9
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 7
	 	 	
TRANSFER OF SHARES
	 	 	
9
	 
		
7.1
	 	 	
Transfer of Shares
	 	 	
9
	 
		
7.2
	 	 	
Permitted Transfers
	 	 	
10
	 
		
7.3
	 	 	
Shareholders to Facilitate Permitted Transfers
	 	 	
10
	 
		
7.4
	 	 	
Piggyback Rights on Sale of Shares
	 	 	
10
	 
		
7.5
	 	 	
Drag Along Right
	 	 	
10
	 
	 	 	 	 	 	 	 	 
	
ARTICLE 8
	 	 	
OBLIGATIONS REGARDING TEI
	 	 	
11
	 
		
8.1
	 	 	
Observer Rights
	 	 	
11
	 
		
8.2
	 	 	
Meetings of Directors of TEI
	 	 	
11
	 
		
8.3
	 	 	
Purchase of McCain Shares
	 	 	
11
	 
		
8.4
	 	 	
Payment of Dividends
	 	 	
11
	 
		
8.5
	 	 	
Stock Exchange Listing
	 	 	
12
	 
		
8.6
	 	 	
Matters Requiring McCain Approval
	 	 	
12
	 
		
8.7
	 	 	
Subordination
	 	 	
12
	 

 

	 
	 	 	 
	

	 

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	Page 	 
	
ARTICLE 9
	 	 	
GENERAL
	 	 	
12
	 
		
9.1
	 	 	
Term
	 	 	
12
	 
		
9.2
	 	 	
Specific Performance/Injunction
	 	 	
13
	 
		
9.3
	 	 	
Further Assurances
	 	 	
13
	 
		
9.4
	 	 	
Public Notices
	 	 	
13
	 
		
9.5
	 	 	
Communications
	 	 	
13
	 
		
9.6
	 	 	
Severability
	 	 	
14
	 
		
9.7
	 	 	
Amendment
	 	 	
14
	 
		
9.8
	 	 	
Assignment
	 	 	
14
	 
		
9.9
	 	 	
Time of the Essence
	 	 	
14
	 
		
9.10
	 	 	
Effect of Agreement By-laws etc
	 	 	
14
	 
		
9.11
	 	 	
Counterparts and Facsimile Execution
	 	 	
15
	 
		
9.12
	 	 	
Governing Law
	 	 	
15
	 
		
9.13
	 	 	
Entire Agreement
	 	 	
15
	 
		
9.14
	 	 	
Waiver of Jury Trial
	 	 	
15
	 
		
9.15
	 	 	
Service of Process
	 	 	
16
	 

	
 

	 	 	 
	

	

 

THIS SHAREHOLDERS’ AGREEMENT made as of the 26th day of October, 2004.

 

A M O N G:

 

 

McCAIN FOODS LIMITED,

 

a corporation incorporated under the laws of Canada, 

 

(“McCain”)

 

OF THE FIRST PART

 

- and -

 

THOMAS EQUIPMENT INC. (formerly known as Maxim Mortgage Corporation), a corporation incorporated under the laws of the State of 

Delaware, (“TEI”)

 

OF THE SECOND PART

 

- and -

 

THOMAS EQUIPMENT 2004 INC., 

 

a corporation incorporated under the laws of Canada, 

 

(the “Corporation”)

 

OF THE THIRD PART

 

 

WHEREAS:

 

	1.  	
On October 11, 2004 the Corporation became a 100% wholly-owned subsidiary of TEI by way of share exchange whereby all of the Corporation’s outstanding and issued common shares were exchanged for approximately 60% of the issued and outstanding common shares of TEI.

 

	2.  	
The authorized capital of the Corporation consists of an unlimited number of Common Shares and 1,000 Preference Shares, of which 12,945,000 Common Shares and 1,000 Preference Shares are issued and outstanding on the date hereof.

 

	3.  	
In order to grant to each other certain rights and privileges relating to the operations of the Corporation and the ownership of the shares of the Corporation, the Shareholders have entered into this Agreement to record their consensus as to the manner in which the Corporation’s affairs shall be conducted and to provide for their rights and obligations, as among themselves, as Shareholders. The Corporation has entered into this Agreement to confirm certain rights and obligations between the Corporation and the Shareholders. 

 

	 
	 	 	 
	

	 

NOW THEREFORE, in consideration of the premises and of the mutual covenants and conditions hereinafter contained and of other good and valuable consideration (the receipt and sufficiency whereof the parties hereby acknowledge), the parties hereto covenant and agree each with the others as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1        Definitions

 

Whenever used in this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have these respective meanings.

 

	(a)  	
“Acceptable Consideration” means any combination of (i) cash; (ii) at the option of McCain, publicly traded common shares of a corporation, the common shares of which are listed and posted for trading or quoted on a recognized North American stock exchange, which common shares are freely tradable and not subject to any hold period or other legal or contractual restriction on sale; (iii) at the option of McCain, common shares of TEI that are listed on the American Stock Exchange, which common shares are freely tradable and not subject to any hold period or other legal or contractual restriction on sale; or (iv) any other form of
consideration consented to, in writing, by McCain;

 

	(b)  	“Annual Budget” means the annual budget prepared in connection with the operation of the Business and approved by the board of directors of the Corporation;

 

	(c)  	“Arm’s Length” shall have the meaning ascribed thereto in the Income Tax Act (Canada);

 

	(d)  	“Articles” means the articles of incorporation dated October 1, 2004, of the Corporation, as amended and as may be amended from time to time;

 

	(e)  	
“Business” means the business presently and heretofore carried on by the Corporation consisting of manufacturing and distributing skid steer and mini skid steer loaders, attachments, mobile screening plants, mini excavators and harvestors;

 

	(f)  	“Business Day” means any day except Saturday, Sunday or any statutory or civic holiday in the City of Fredericton in the Province of New Brunswick;

 

	 
	 	-2-	 
	

	 

	(g)  	“Common Shares” means the common shares in the capital of the Corporation;

 

	(h)  	“Encumbrance” means any mortgage, lien, charge, pledge, option or right to acquire, security interest or encumbrance, whether fixed or floating relating to the Corporation’s assets whether real, personal or mixed, tangible or intangible, or any action, claim, right to salvage, execution or demand of any nature whatsoever and howsoever arising;

 

	(i)  	“Preference Shares” means the preference shares in the capital of the Corporation;

 

	(j)  	“Shares” means any and all of the shares in the capital of the Corporation, including the Common Shares and the Preference Shares;

 

	(k)  	
“Shareholder” means each of McCain and TEI and each other person who subsequently becomes a shareholder of the Corporation, and “Shareholders” means all of them collectively;

 

	(l)  	“Subscription Agreement” means the share subscription agreement between McCain and the Corporation dated the date hereof;

 

	(m)  	“Subsidiary” shall have the meaning ascribed thereto in the Canada Business Corporation Act; and

 

	(n)  	“Transfer” means sell, assign, transfer, convey or otherwise dispose of.

 

ARTICLE 2
INTERPRETATION AND APPLICATION

 

2.1  

 

	(a)  	Extended Meanings

 

In this Agreement, words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders and vice versa.

 

	(b)  	Headings

 

The division of this Agreement into articles and sections, and the use of the headings, is for convenience of reference only and shall not modify or affect the interpretation or construction of this Agreement.

 

	(c)  	Calculation of Time Periods

 

In this Agreement, except as otherwise expressly provided, when calculating the period of time within which or following which any act is to be done or step taken, the date which is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period in question shall end on the next Business Day.

 

	 
	 	-3-	 
	

	 

	(d)  	Accounting Terms

 

All accounting terms which are not specifically defined herein shall be construed in accordance with generally accepted accounting principles which are from time to time approved by the Canadian Institute of Chartered Accountants as set forth in the publication known as the “CICA Handbook” and applicable as at the date on which any calculation is made or required to be made hereunder.

 

	(e)  	Currency

 

Unless otherwise stated, all amounts described in this Agreement are in Canadian currency.

 

ARTICLE 3
CAPITAL STRUCTURE

 

3.1        Authorized and Issued Share Capital

 

The Corporation represents and warrants to the Shareholders that the authorized capital of the Corporation consists of an unlimited number of Common Shares and 1,000 Preference Shares, of which 12,945,000 Common Shares and 1,000 Preference Shares are issued and outstanding as fully paid and non-assessable. Each of the Shareholders represents and warrants to the other Shareholder that it is the registered and beneficial owner of the Shares set forth opposite its name below and that it has the unconditional and irrevocable right to vote such Shares:

 

 

	Shareholder	Number            	Class
	 	 	 
	TEI 	12,945,000            	Common Shares
	 	 	 
	McCain	1000	Preference Shares

            

3.2        No Obligation to Loan or Guarantee

 

McCain shall have no obligation to make loans to the Corporation or to guarantee its indebtedness or otherwise provide any financial assistance unless McCain agrees to it in writing.

 

3.3        Share Certificates

 

Certificates evidencing the issued Shares shall be endorsed with a notation in substantially the following form:

 

“The shares represented by this Certificate may only be transferred, assigned or otherwise disposed of in accordance with the provisions of a Shareholders’ Agreement made as of October October 26, 2004 among the Shareholders of the Corporation and the Corporation.”

 

	 
	 	-4- 	 
	

	 

ARTICLE 4
MANAGEMENT OF THE CORPORATION

 

4.1        Observer Rights

 

McCain shall have the right to have a representative attend all meetings of the board of directors of the Corporation as an observer and participate in the discussions at such meetings. Such observer shall have no right to vote on any matter but shall be sent notices of meetings of the board of directors or committees thereof and copies of all other material provided to the directors including any material relating to financial performance review, business proposals and budgets of the Corporation at the same time as such documents are sent to the directors. Such observer shall also receive copies of minutes of meetings of the board of directors and any committees thereof and all resolutions passed by the board of directors, at the same time as provided to the other directors and in any event within
thirty (30) days of such meeting being held or resolution being passed, as the case may be. McCain will (and will cause such observer) to enter into a non-disclosure agreement regarding the confidential information of the Corporation on terms and conditions mutually acceptable to McCain and the Corporation.

 

4.2        Meetings of Directors

 

The board of directors of the Corporation shall meet at least semi-annually to review the business and affairs of the Corporation and shall meet at least thirty (30) days prior to the end of each financial year for the purpose of considering the Annual Budget for the following financial year as presented to the board of directors by the chief executive officer of the Corporation. Unless otherwise agreed upon by all of the directors, the Corporation will give at least seven (7) days’ notice of any meeting of the directors. No resolution with respect to any matter may be put to any meeting of the directors unless the notice of the meeting contains reasonable detail of the matter or unless all of the directors either are present and do not object to the matter being put to the meeting or otherwise
waive this provision.

 

4.3        Matters Requiring McCain Approval 

 

Notwithstanding any of the provisions of this Agreement, without the prior written consent or approval of McCain, the Corporation shall not cause or permit the Corporation or any Subsidiary to:

 

	(a)  	
issue, or enter into any agreement to issue, or enter into any security or instrument containing a right in favour of the holder thereof or a party thereto to require the Corporation or any Subsidiary to issue, any additional Shares of the Corporation or any shares in the capital of any Subsidiary;

 

	(b)  	
declare or pay any dividends, including stock dividends, on any of the Shares or on any of the shares of any Subsidiary or make any distribution of the assets of the Corporation or any Subsidiary to its shareholders, other than the cumulative cash dividends on the 1000 Preference Shares held by McCain in accordance with the Articles;

 

	 
	 	 -5-	 
	

	 

	(c)  	
redeem, purchase for cancellation or otherwise acquire or retire any of the Shares or any of the shares of any Subsidiary, except for the redemption of the 1000 Preference Shares held by McCain in accordance with the Articles or the purchase of such Preference Shares by TEI pursuant to Section 8.3;

 

	(d)  	
increase or reduce the stated capital account for any class of Shares or alter the capital structure of the Corporation in any way, including subdividing, redividing, reclassifying or otherwise changing a class of Shares into another class of Shares, or reducing, combining or consolidating any Shares;

 

	(e)  	make any material change to the types, forms or amounts of insurance;

 

	(f)  	
make or commit to make any capital expenditure, enter into any financial commitment (other than financial accommodation to be provided by Laurus Master Fund, Ltd. (“Laurus”) in connection with the credit facility to be provided by Laurus to TEI and its subsidiary, limited in principal sum to U.S. $22,000,000.00 plus all amounts advanced by Laurus to preserve and protect Laurus’ rights and collateral security granted to Laurus in connection with the transaction contemplated by such credit facility (the “Senior Credit
Facility”), and any other financing required by the Corporation to acquire Pneutech Inc.) or enter into any lease or commitment to lease or acquisition of assets or securities in any financial year that exceeds $1,000,000 unless such capital expenditure, financial commitment or lease commitment or acquisition is included in the Annual Budget approved by the board of directors of the Corporation;

 

	(g)  	during any financial year, sell, exchange or dispose of any asset of the Corporation or a Subsidiary, other than dispositions in the ordinary course of business;

 

	(h)  	
create or acquire any Subsidiary or amalgamate, consolidate, merge or otherwise reorganize the Corporation or any Subsidiary with or into any other corporation or take any steps to liquidate, dissolve or wind-up the Corporation or any Subsidiaries or to distribute the assets or property of the Corporation or any Subsidiaries for the purposes of winding-up its affairs, such consent not to be unreasonably withheld;

 

	(i)  	
make any loans, or borrow, invest or advance any money or create any Encumbrance upon any assets of the Corporation (other than the Encumbrances granted in favour of Laurus to secure the Senior Credit Facility) or give any guarantees or indemnities or give any security for the debts or obligations of or provide financial assistance to any other person other than in accordance with the Senior Credit Facility;

 

	(j)  	
establish or amend any compensation arrangements in any material respect including without limitation, all matters relating to remuneration, issuance or amendment of employee stock options and benefits (current, deferred, retirement or otherwise), pertaining to senior management of the Corporation or the senior management of any Subsidiary not otherwise provided for in the Annual Budget approved by the board of directors of the Corporation or as a result of the hiring of senior management in the normal course;

 

	 
	 	 -6-	 
	

	 

	(k)  	
enter into any contracts, commitments or agreements with any of the Shareholders of the Corporation or other parties hereto or any persons who do not deal at Arm’s Length with any of the Shareholders, any directors or officers of the Corporation or of any Subsidiary, other than those contracts entered into on the date hereof set forth in Schedule A attached hereto;

 

	(l)  	make any material change in the nature of the Business or relocate the operations and Business from Centreville, New Brunswick;

 

	(m)  	
make an assignment for the benefit of any creditors of the Corporation or any Subsidiaries or file any notice, make application or take any other proceeding with respect to the Corporation under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or the Winding-Up and Restructuring Act (Canada); or

 

	(n)  	make any change to the Articles or to the articles or by-laws of the Subsidiaries. 

 

ARTICLE 5
FINANCIAL MATTERS

 

5.1        Auditor

 

Unless the Shareholders otherwise agree, Grant Thornton LLP shall be appointed as the auditor of the Corporation.

 

5.2        Financial Year

 

Except as the Shareholders may otherwise agree, the financial year of the Corporation shall be the twelve month period ending on the last day of June in each year.

 

ARTICLE 6
COVENANTS

 

6.1        No Partnership Created

 

Nothing contained in this Agreement shall be deemed in any way or for any purpose to constitute any Shareholder a partner, agent or legal representative of any other Shareholder in the conduct of any business or otherwise or a member of a joint venture or joint enterprise with any other Shareholder or to create any fiduciary relationship between them.

 

	 
	 	-7- 	 
	

	 

6.2        TEI Covenant

 

TEI shall vote its Shares and in all other respects use its best efforts to take all such steps to cause the Corporation to comply with and act in a manner contemplated by the provisions of this Agreement so as to implement to their full extent the provisions of this Agreement.

 

6.3        Covenants of the Corporation

 

The Corporation covenants that:

 

	(a)  	
it will at all times during the term of this Agreement be governed by the terms and provisions hereof in carrying on its business and affairs, and shall duly comply with, perform or otherwise satisfy all provisions contained in this Agreement on its part to be complied with, performed or otherwise satisfied;

 

	(b)  	
the Corporation shall maintain accurate and complete books and records of all transactions, receipts, expenses, assets and liabilities of the Corporation in accordance with generally accepted accounting principles, consistently applied as approved and adopted by the board of directors and satisfactory to the Corporation’s auditor or accountant, as applicable; and

 

	(c)  	the Corporation will carry on its operations and Business in Centreville, New Brunswick and in accordance with the provisions of this Agreement and in accordance with applicable law.

 

6.4        Reporting Obligation

 

The Corporation covenants that it will deliver to each of the Shareholders:

 

	(a)  	at least 40 days prior to the end of each financial year, an Annual Budget for the forthcoming financial year for approval by the board of directors;

 

	(b)  	
within 21 days after the end of each month of each financial year, the unconsolidated statement of earnings, retained earnings, contributed surplus and changes in cash or financial position of the Corporation and TEI for such month and year to date and a balance sheet as of the last day of such month. All such statements of the Corporation shall contain the comparative budgeted amounts for such period as provided for in the Annual Budget and a comparison to the prior year amounts as applicable;

 

	(c)  	
within 105 days after the end of each financial year, the audited annual consolidated statements of the Corporation and TEI, including the statement of earnings, retained earnings, contributed surplus and changes in cash or financial position of the Corporation for such financial year and a balance sheet of the Corporation as at the last day of such financial year together with the auditor’s report thereon, if any; and

 

	 
	 	-8- 	 
	

	 

	(d)  	such other financial information as either of the Shareholders may reasonably require from the Corporation and TEI and/or their auditors or accountants, as applicable;

 

in each case prepared in accordance with generally accepted accounting principles consistently applied and certified to be so by the senior financial officer of the Corporation.

 

6.5        Shareholder’s Right of Inspection and Inquiry

 

The Corporation shall permit each Shareholder and its representatives, including accountants, legal or financial advisors or management consultants or others appointed by and on behalf of such Shareholder, to visit or inspect any properties of the Corporation or any Subsidiaries to examine the books and financial records of the Corporation or any Subsidiaries to discuss its affairs, finances and accounts, all at such reasonable times and as often as may be reasonably requested by the Shareholder, provided that such right of inspection and examination shall not interfere with the ordinary course of business and affairs of the Corporation or any Subsidiaries. Such Shareholder and its representatives may examine all or any aspect of the operations of the Corporation or any Subsidiaries and the Corporation
agrees to cause its appropriate officers to answer any inquiries which such Shareholder and its representatives may ask fully and fairly and to the best of their ability. The costs of conducting the examination shall be borne solely by the Shareholder so conducting such examination. The Corporation agrees that such persons may, in the course of their investigations, discuss the business and affairs of the Corporation with the officers, directors and employees of the Corporation and with the Corporation’s auditor or accountant, as applicable; provided such discussions are not unreasonably burdensome to the Corporation.

 

ARTICLE 7
TRANSFER OF SHARES

 

7.1        Transfer of Shares

 

	(a)  	General Prohibition on Transfer of Shares

 

Subject to Subsection 7.1(c), no Common Shares shall be Transferred, mortgaged, pledged, charged, hypothecated or otherwise encumbered except in accordance with this Agreement. A purported Transfer, mortgage, pledge, charge, hypothecation or other encumbrance of any Common Shares in violation of this Agreement shall not be valid and the Corporation shall not register any such purported Transfer, mortgage, pledge, charge, hypothecation or other encumbrance of Common Shares on the securities register of the Corporation, nor shall any voting rights attaching to or relating to such Common Shares be exercised, nor shall any purported exercise of such voting rights be valid or effective.

 

 

	(b)  	Transferee to Sign Agreement

 

Subject to Subsection 7.1(c), if, pursuant to any provision of this Agreement, a Shareholder or the Corporation Transfers any Shares, no Transfer of such Shares shall be made or shall be effective and no application shall be made to the Corporation and the Corporation shall not register any such Transfer on the securities register of the Corporation until the proposed transferee becomes a party to this Agreement. Such proposed transferee shall deliver to the Secretary of the Corporation a signed copy of this Agreement and the Secretary of the Corporation shall forward a copy of the signed Agreement to each party to this Agreement. 

 

	 
	 	-9- 	 
	

	 

	(c)  	Pledge of Shares to Laurus

 

The parties hereto acknowledge and consent to the pledge by TEI of the Common Shares held by TEI to Laurus as collateral security for the Senior Credit Facility.

 

7.2        Permitted Transfers

 

Any Transfer permitted pursuant to Sections 7.4 and 7.5 of this Agreement shall be for Acceptable Consideration. 

 

7.3        Shareholders to Facilitate Permitted Transfers

 

Each of the parties to this Agreement agrees that it shall give and execute all necessary consents and approvals to the Transfer of Shares in accordance with the terms of this Agreement as soon as the relevant provisions of this Agreement relating to the Transfer have been complied with.

 

7.4        Piggyback Rights on Sale of Shares

 

If TEI (the “Selling Shareholder”) receives a bona fide offer to purchase Shares from an arm’s length third party (“Third Party”) which the Selling Shareholder wishes to accept, TEI shall at least ten (10) days prior to accepting the Third Party offer, give notice in writing (“Disposition Notice”) to McCain. McCain shall have the right exercisable with ten (10) days of receipt of the Disposition Notice, upon notice in writing to the Selling Shareholder (“Piggy-Back Notice”) to require the Selling Shareholder to make acceptance of the offer of the Third Party by the Selling Shareholder to purchase its Shares conditional upon the Third Party purchasing the Preference Shares held by McCain for the Redemption Price as provided in the Articles simultaneously with
the purchase of the Selling Shareholder’s Shares. If the Third Party does not wish to purchase all of the Selling Shareholder’s Shares and the Preference Shares held by McCain, in the manner hereinbefore mentioned, no Shares shall be sold to the Third Party. If McCain does not provide the Piggy-Back Notice within the prescribed ten (10) day period, TEI may sell its Shares to the Third Party, without the participation of McCain.

 

7.5        Drag Along Right

 

Subject to Section 7.3, if TEI has received from a Third Party a bona fide written offer to purchase all of the Shares of the Corporation, then TEI will have the right to require McCain to sell all their Preference Shares to the Third Party at the Redemption Price as defined in the Articles. 

 

	 
	 	 -10-	 
	

	 

ARTICLE 8
OBLIGATIONS REGARDING TEI

 

8.1        Observer Rights

 

McCain shall have the right to have a representative attend all meetings of the board of directors of TEI as an observer and participate in the discussion at such meetings. Such observer shall have no right to vote on any matter but shall be sent notices of meetings of the board of directors of TEI or committees thereof and copies of all other material provided to the directors of TEI including any material relating to financial performance review, business proposals and budgets of the TEI at the same time as such documents are sent to the directors. Such observer shall also receive copies of minutes of meetings of the board of directors of TEI and any committees thereof and all resolutions passed by the board of directors, at the same time as provided to the other directors and in any event within
thirty (30) days of such meeting being held or resolution being passed, as the case may be. 

 

8.2        Meetings of Directors of TEI

 

The board of directors of TEI shall meet at least quarterly to review the business and affairs of TEI and shall meet at least thirty (30) days prior to the end of each financial year for the purpose of considering the annual budget for the following financial year as presented to the board of directors by the chief executive officer of TEI. Unless otherwise agreed upon by all of the directors, TEI will give at least seven (7) days’ notice of any meeting of the directors. No resolution with respect to any matter may be put to any meeting of the directors unless the notice of the meeting contains reasonable detail of the matter or unless all of the directors of TEI either are present and do not object to the matter being put to the meeting or otherwise waive this provision.

 

8.3        Purchase of McCain Shares

 

TEI hereby covenants and agrees to purchase McCain’s 1000 Preference Shares within eighteen months of the date hereof at the Redemption Price as set out in the Articles for either:

 

	(a)  	cash; or

 

	(b)  	at the sole discretion of McCain, for Acceptable Consideration.

 

8.4        Payment of Dividends

 

The Corporation hereby agrees to pay the annual cumulative dividends to McCain in accordance with the Articles and TEI hereby covenants and agrees to do all acts and things to ensure that the Corporation pays the dividends to McCain annually in accordance with the Articles, including but not limited to providing an inter-corporate loan or capital contribution to the Corporation.

 

	 
	 	 -11-	 
	

	 

8.5        Stock Exchange Listing

 

TEI hereby agrees to promptly apply for a listing of the Common Shares for trading on the American Stock Exchange and shall cause such meetings to be held, votes to be cast, resolutions to be passed, documents to be executed, and all things and acts to be done to ensure that such listing is achieved in a timely manner.

 

8.6        Matters Requiring McCain Approval 

 

Notwithstanding any of the provisions of this Agreement, without the prior written consent or approval of McCain, such consent not to be unreasonably withheld, TEI shall not cause or permit TEI or any Subsidiary to:

 

	(a)  	
create or acquire any Subsidiary or amalgamate, consolidate, merge or otherwise reorganize TEI or any Subsidiary with or into any other corporation, except for the merger or amalgamation of Pneutech Inc. or any of its affiliates with TEI, or take any steps to liquidate, dissolve or wind-up TEI or any Subsidiaries or to distribute the assets or property of TEI or any Subsidiaries for the purposes of winding-up its affairs; or

 

	(b)  	
make a voluntary assignment for the benefit of any creditors of TEI or any Subsidiaries or file any notice, make a voluntary application or take any other proceeding with respect to TEI under any applicable bankruptcy, creditor protection or winding-up legislation.

 

8.7        Subordination

 

The parties acknowledge that, pursuant to a subordination agreement between McCain and Laurus of even date herewith, the payment of dividends and the redemption or purchase of the Preference Shares is subordinate to the rights of Laurus in the event of a default under the Senior Credit Facility that is not cured by TEI or the Corporation in accordance with the Senior Credit Facility or waived by Laurus in writing.

 

ARTICLE 9
GENERAL

 

9.1        Term

 

This Agreement shall come into force and effect as of the date hereof and shall continue in force until the earlier of:

 

	(a)  	the date on which one person holds all the Shares;

 

	(b)  	the date this Agreement is terminated by written agreement among all the parties hereto; or

 

	(c)  	the date on which the Corporation is dissolved in accordance with the applicable provisions of the Canada Business Corporations Act.

 

	 
	 	 -12-	 
	

	 

9.2        Specific Performance/Injunction

 

The parties acknowledge that any breach of this Agreement by any party may cause significant damage and harm to any one or more of the other parties hereto and that damages and other remedies at law may not be a sufficient remedy in the event of a breach by any party of the terms of this Agreement. Accordingly, the parties hereby acknowledge that the equitable remedies of specific performance and injunction are the appropriate remedies in such circumstances and hereby agree to the granting of such remedies without proof of actual damages, in addition to any other remedies to which the other party or parties may be entitled.

 

9.3        Further Assurances

 

The parties agree to make, do, execute, acknowledge and deliver or cause and procure to be made, done, executed, acknowledged and delivered any and all further acts, documents and assurances as may, in the opinion of any of them, be necessary or desirable to give effect to the sections and agreements provided for and contemplated by this Agreement.

 

9.4        Public Notices

 

All notices to third parties concerning the transactions contemplated by this Agreement shall be jointly planned and coordinated by the parties and no party shall act unilaterally in this regard without the prior approval of the other parties, such approval not to be unreasonably withheld unless such disclosure shall be required to meet timely disclosure obligations of any party under applicable securities law and stock exchange rules in circumstances where prior consultation with the other parties is not practicable.

 

9.5        Communications

 

Any notice or communication required or permitted by this Agreement to be given to a party hereto shall be in writing and is sufficiently given if delivered personally, or if sent by prepaid ordinary mail except in the event of a general discontinuance of postal service due to strike, lock-out or otherwise, or if transmitted by any form of recorded communication tested prior to transmission (other than e-mail), to such party:

 

	(a)  	in the case of notice to McCain:

 

Mr. Harold Durost / Mr. Terrance Bird

c/o McCain Foods Limited

BCE Place, 181 Bay Street

Suite 3600

Toronto, ON M5J 2T3

Telecopier: (416) 955-1756

 

	(b)  	in the case of TEI:

 

Mr. David Marks
1818 North Farwell Ave
Milwaukee, Wisconsin
USA, 53202

 

 

	 
	 	 -13-	 
	

	 

	(c)  	in the case of notice to the Corporation:

 

Mr. Clifford Rhee 

29 Hawkins Road

Centreville, NB E7K 3G4

Telecopier: (506) 276-4308

 

or such other address as the party to whom such notice is given shall have last notified the party giving such notice. Notice delivered personally shall be deemed to be given when delivered and if mailed, shall be deemed to have been given on the fifth business day after deposit in a post office or public letter box. Notice transmitted by a form of recorded communication shall be deemed given on the next day following dispatch and acknowledgement of receipt by recipient. Any party may from time to time notify the others in the manner provided herein of any change of address which thereafter, until changed by like notice, shall be the address of such party for all purposes hereof.

 

9.6        Severability

 

If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of such provision in any other jurisdiction or its application to other parties or circumstances.

 

9.7        Amendment

 

This Agreement may be amended with the written consent of McCain.

 

9.8        Assignment

 

Except as otherwise specifically provided herein, the rights of the parties shall not be assignable without the prior written consent of all Shareholders but shall bind and benefit the respective parties hereto and their successors, heirs, personal legal representatives and permitted assigns. Notwithstanding the foregoing, the Agreement may be assigned by McCain to an affiliate. 

 

9.9        Time of the Essence

 

Time shall be of the essence in this Agreement.

 

	 
	 	 -14-	 
	

	 

9.10        Effect of Agreement By-laws etc.

 

Each of the parties hereto agrees that to the extent of any inconsistency, incongruity or contradiction between the articles, by-laws and any resolutions of the directors or shareholders of the Corporation or TEI on the one hand, and the provisions of this Agreement on the other hand, the provisions of this Agreement shall govern and supersede any such inconsistent, incongruous or contradictory provision of the by-laws or such resolutions and the parties hereto further agree to cause articles and by-laws to be amended and resolutions modified or rescinded to ensure that that they conform with the provisions of this Agreement.

 

9.11        Counterparts and Facsimile Execution

 

This Agreement may be executed in one or more counterparts. Each executed counterpart shall be deemed to be an original. All executed counterparts taken together shall constitute one agreement.

 

To evidence the fact that is has executed this Agreement, a party may send a copy of its executed counterpart to all other parties by facsimile or email transmission. That party shall be deemed to have executed this Agreement on the date it sent such facsimile or email transmission. In such event, such party shall forthwith deliver to the other party the counterpart of this Agreement executed by such party.

 

9.12        Governing Law

 

This Agreement shall be deemed to have been made in, and shall be governed by, and be construed in accordance with the laws of the Province of New Brunswick and the laws of Canada applicable therein and shall be treated, in all respects, as a New Brunswick contract. Each party irrevocably attorns and submits to the jurisdiction of the courts of the Province of New Brunswick in connection with all disputes under or relating to this Agreement or the transactions contemplated hereby

 

9.13        Entire Agreement

 

This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter of this Agreement and supersedes any prior negotiations, understandings and agreements among them in respect of such subject matter. The parties hereto acknowledge that there is no representation, warranty, agreement or understanding between them which has induced any of the parties hereto to enter into this Agreement. No amendment or variation to this Agreement shall be binding upon any party hereto unless made in writing and signed by such party. The failure of any party hereto to insist on the strict performance of any provision of this Agreement shall not limit the rights of that party to insist at any future time on the performance of the same or any other provision of this
Agreement.

 

9.14        Waiver of Jury Trial

 

FOR THE PURPOSES OF ANY LITIGATION COMMENCED IN THE UNITED STATES, EACH PARTY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION (A) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT; OR (B) ARISING FROM OR RELATING TO ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT; AND AGREES THAT ANY SUCH LITIGATION SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 

 

	 
	 	-15- 	 
	

	 

9.15        Service of Process

 

Each party irrevocably consents to the service of process out of the courts of the Province of New Brunswick in accordance with the local rules of civil procedure or by mailing a copy thereof, by registered mail, postage prepaid to such party at the address of such party set forth in Section 9.5, or by sending a copy thereof by facsimile to such party at the facsimile number of such party set forth in Section 9.5.

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first written above.

	 	 	 
	 	McCAIN FOODS LIMITED
	 
 	 
 	 
 
		By:  	/s/ HAROLD DUROST
	 	

	 	Name: Harold Durost
Title:

	 	 	 
	 	THOMAS EQUIPMENT, INC.
	 
 	 
 	 
 
		By:  	/s/ CLIFFORD RHEE
	 	

	 	Name: Clifford Rhee
Title: President

	 	 	 
	 	THOMAS EQUIPMENT 2004 INC.
	 
 	 
 	 
 
		By:  	/s/ DAVID MARKS
	 	

	 	Name: David Marks
Title: Chairman

	

	 	 -16-	 
	

	- -

SCHEDULE A

EXISTING NON-ARM’S LENGTH CONTRACTS
AND CONTRACTS WITH SHAREHOLDERS

 

 

Employment agreement between Clifford M. Rhee and Thomas Equipment 2004 Inc.

 

Employment agreement between Clifford M. Rhee and Thomas Equipment, Inc.

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