Document:

Unassociated Document

 

WARRANT

 

	
PIONEER POWER SOLUTIONS, INC.

	
No.

	  	
 _____ Shares

	
Date of Issuance: May 11, 2010

	  	  

WARRANT TO PURCHASE COMMON STOCK

 

VOID AFTER 5:30 P.M., EASTERN

TIME, ON THE EXPIRATION DATE

 

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

 

FOR VALUE RECEIVED, PIONEER POWER SOLUTIONS, INC., a Delaware corporation (the “Company”), hereby agrees to sell upon the terms and on the conditions hereinafter set forth, but no later than 5:30 p.m., Eastern Time, on May __, 2014 (the “Expiration Date”), to ______, or his registered assigns (the “Holder”), under the terms as hereinafter set forth, up to ______ fully paid and non-assessable shares of Common Stock (as defined in Section 11) of the Company (the “Warrant Stock”), at a purchase price of $3.25 per share (the “Warrant Price”), pursuant to this warrant (this “Warrant”). The number of shares of Warrant Stock to be so issued and the Warrant Price are subject to adjustment in certain events as hereinafter set forth.

 

1.           Exercise of Warrant.

 

(a)           The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the Notice of Exercise attached hereto duly executed) at the principal office of the Company, and by the payment to the Company of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at the Holder’s election (i) by certified or official bank check or by wire transfer to an account designated by the Company, (ii) by “cashless exercise” in accordance with the provisions of subsection (b) of this Section 1, but only when a registration statement under the Securities Act (as defined in Section 11) providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.

 

  

  

  

 

(b)           Notwithstanding any provisions herein to the contrary and commencing one (1) year following the Original Issue Date (as defined in Section 11), if (i) the Per Share Market Value (as defined in Section 11) of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) the Holder at the time of exercise is not able to sell the Warrant Stock pursuant to an effective registration statement filed under the Securities Act providing for the resale of the Warrant Stock, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

 

	  	
 

X=

	

	  	  	  
	
Where

	
X=

	
the number of shares of Common Stock to be issued to the Holder.

	  	  	  
	  	
Y=

	
the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.

	  	  	  
	  	
A=

	
the Warrant Price.

	  	  	  
	  	
B=

	
the Per Share Market Value (as defined in Section 11) of one share of Common Stock on the Trading Day (as defined in Section 11) immediately preceding the date of such election.

(c)           This Warrant may be exercised in whole or in part so long as any exercise in part hereof would not involve the issuance of fractional shares of Warrant Stock.  If exercised in part, the Company shall deliver to the Holder a new Warrant, identical in form, in the name of the Holder, evidencing the right to purchase the number of shares of Warrant Stock as to which this Warrant has not been exercised, which new Warrant shall be signed by the Chairman, Chief Executive Officer, President or any Vice President of the Company.  The term Warrant as used herein shall include any subsequent Warrant issued as provided herein.

 

(d)           No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Company shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.

 

(e)           In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the Warrant Stock so purchased, registered in the name of the Holder, shall be delivered to the Holder within a reasonable time after such rights shall have been so exercised. The person or entity in whose name any certificate for the Warrant Stock is issued upon exercise of the rights represented by this Warrant shall for all purposes be deemed to have become the holder of record of such shares immediately prior to the close of business on the date on which the Warrant was surrendered and payment of the Warrant Price and any applicable taxes was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the opening of business on the next succeeding date on which the stock transfer books are open. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any issuance and delivery of shares of Warrant Stock to any Person (as defined in Section 11) other than the Holder or with respect to any income tax due by the Holder with respect to any shares of Warrant Stock.

 

  

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2.           Disposition of Warrant Stock and Warrant.

 

(a)           The Holder hereby acknowledges that this Warrant and any Warrant Stock purchased pursuant hereto are, as of the date hereof, not registered: (i) under the Securities Act on the ground that the issuance of this Warrant is exempt from registration under Section 4(2) of the Securities Act as not involving any public offering or (ii) under any applicable state securities law because the issuance of this Warrant does not involve any public offering; and that the Company’s reliance on the Section 4(2) exemption of the Securities Act and under applicable state securities laws is predicated in part on the representations hereby made to the Company by the Holder that it is acquiring this Warrant and will acquire the Warrant Stock for investment for its own account, with no present intention of dividing its participation with others or reselling or otherwise distributing the same, subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control.

 

The Holder hereby agrees that it will not sell or transfer all or any part of this Warrant and/or Warrant Stock, except pursuant to an effective registration statement under the Securities Act, unless and until it shall first have given notice to the Company describing such sale or transfer and furnished to the Company either (i) an opinion of counsel reasonably satisfactory to the Company, to the effect that the proposed sale or transfer may be made without registration under the Securities Act and without registration or qualification under any state law, or (ii) an interpretative letter from the Securities and Exchange Commission to the effect that no enforcement action will be recommended if the proposed sale or transfer is made without registration under the Securities Act.

 

(b)           If, at the time of issuance of any Warrant Stock, no registration statement is in effect with respect to such shares under applicable provisions of the Securities Act, the Company may at its election require that the Holder provide the Company with written reconfirmation of the Holder’s investment intent and that any stock certificate delivered to the Holder of a surrendered Warrant (in connection with an exercise) shall bear a legend reading substantially as follows:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.”

 

In addition, so long as the foregoing legend may remain on any stock certificate delivered to the Holder, the Company may maintain appropriate “stop transfer” orders with respect to such certificates and the shares represented thereby on its books and records and with those to whom it may delegate registrar and transfer functions.

 

  

-3-

  

 

3.           Reservation of Shares.  The Company hereby agrees that at all times there shall be reserved for issuance upon the exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance upon exercise of this Warrant. The Company further agrees that all shares which may be issued upon the exercise of the rights represented by this Warrant will be duly authorized and will, upon issuance and against payment of the Warrant Price therefor, be validly issued, fully paid and non assessable, free from all taxes, liens, charges and preemptive rights with respect to the issuance thereof, other than taxes, if any, in respect of any transfer occurring contemporaneously with such issuance and other than transfer restrictions imposed by federal and state securities laws.

 

4.           Exchange, Transfer or Assignment of Warrant.  Subject to Section 2 hereof, this Warrant may be transferred by the Holder, in whole or in part, without the consent of the Company. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Company by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Company, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the Company for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.

 

5.           Capital Adjustments.  This Warrant is subject to the following further provisions:

 

(a)           If any recapitalization of the Company or reclassification of its Common Stock or any merger or consolidation of the Company into or with a Person, or the sale or transfer of all or substantially all of the Company’s assets or of any successor corporation’s assets to any Person (any such Person being included within the meaning of the term “successor corporation”) shall be effected, at any time while this Warrant remains outstanding and unexpired, then, as a condition of such recapitalization, reclassification, merger, consolidation, sale or transfer, lawful and adequate provision shall be made whereby the Holder of this Warrant thereafter shall have the right to receive upon the exercise hereof as provided in Section 1 and in lieu of the shares of Common Stock immediately theretofore issuable upon the exercise of this Warrant, such shares of capital stock, securities or other property as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore issuable upon the exercise of this Warrant had such recapitalization, reclassification, merger, consolidation, sale or transfer not taken place, and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.

 

(b)           If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the number of shares of Warrant Stock purchasable upon exercise of this Warrant and the Warrant Price shall be proportionately adjusted.

 

  

-4-

  

 

(c)           Whenever the number of shares of Warrant Stock purchasable upon exercise of this Warrant is adjusted, as herein provided, the Warrant Price payable upon the exercise of this Warrant shall be adjusted to that price determined by multiplying the Warrant Price immediately prior to such adjustment by a fraction (i) the numerator of which shall be the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately prior to such adjustment, and (ii) the denominator of which shall be the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately thereafter.

 

(d)           The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth in this Section 5 shall exclude any shares then directly or indirectly held in the treasury of the Company.

 

(e)           The Company shall not be required to make any adjustment pursuant to this Section 5 if the amount of such adjustment would be less than one percent (1%) of the Warrant Price in effect immediately before the event that would otherwise have given rise to such adjustment.  In such case, however, any adjustment that would otherwise have been required to be made shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than one percent (1%) of the Warrant Price in effect immediately before the event giving rise to such next subsequent adjustment.

 

(f)           Following each computation or readjustment as provided in this Section 5, the new adjusted Warrant Price and number of shares of Warrant Stock purchasable upon exercise of this Warrant shall remain in effect until a further computation or readjustment thereof is required.

 

6.           Notice to Holders.

 

(a)           In case:

 

(i)           the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right;

 

(ii)           of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation with or merger of the Company into another Person, or any conveyance of all or substantially all of the assets of the Company to another Person; or

 

(iii)           of any voluntary dissolution, liquidation or winding-up of the Company;

 

  

-5-

  

 

then, and in each such case, the Company will mail or cause to be mailed to the Holder hereof at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up.  Such notice shall be mailed at least twenty (20) days prior to the record date therein specified, or if no record date shall have been specified therein, at least twenty (20) days prior to the date of such action; provided, however, failure to provide any such notice shall not affect the validity of such transaction.

 

(b)           Whenever any adjustment shall be made pursuant to Section 5 hereof, the Company shall promptly make a certificate signed by its Chairman, Chief Executive Officer, President, Vice President, Chief Financial Officer or Treasurer, setting forth in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price and number of shares of Warrant Stock purchasable upon exercise of this Warrant after giving effect to such adjustment, and shall promptly cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Holder of this Warrant.

 

7.           Registration Rights. If, at any time while this Warrant remains outstanding, or the Holder holds any shares of Warrant Stock, the Company shall determine to prepare and file with the Securities and Exchange Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to the Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, the Holder shall so request in writing, the Company shall include in such registration statement all or any part of the Warrant Stock the Holder requests to be registered.

 

8.           Loss, Theft, Destruction or Mutilation.  Upon receipt by the Company of evidence satisfactory to it, in the exercise of its reasonable discretion, of the ownership and the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof, without expense to the Holder, a new Warrant of like tenor dated the date hereof.

 

9.           Warrant Holder Not a Stockholder.  The Holder of this Warrant, as such, shall not be entitled by reason of this Warrant to any rights whatsoever as a stockholder of the Company.

 

  

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10.           Notices.  Any notice required or contemplated by this Warrant shall be deemed to have been duly given if transmitted by registered or certified mail, return receipt requested, postage prepaid, or nationally recognized overnight delivery service, to the Company at c/o Provident Industries, Inc., c/o Clinton Group, 9 West 57th Street, New York, New York 10019, Attention: Chief Executive Officer, or to the Holder at the name and address set forth in the Warrant Register maintained by the Company.

 

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

 

“Common Stock” means the common stock of the Company, par value $.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Original Issue Date” means April 26, 2010.

 

“Per Share Market Value” means on any particular date (a) the closing sales price per share of the Common Stock on such date on any registered national stock exchange on which the Common Stock is then listed, or if there is no such closing sales price on such date, then the closing sales price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not then listed on a registered national stock exchange, the closing sales price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the “Pink Sheet” quotes for the five days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined in good faith by the board of directors of the Company; provided, however, that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.

 

“Person” shall mean any natural person, corporation, division of a corporation, partnership, limited liability company, trust, joint venture, association, company, estate, unincorporated organization or government or any agency or political subdivision thereof

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Trading Day” means (a) a day on which the Common Stock is eligible to be traded on a registered national stock exchange, or (b) if the Common Stock is not eligible to be traded on any registered national stock exchange, a day on which the Common Stock is authorized for quotation on the OTC Bulletin Board, or (c) if the Common Stock is not eligible to be traded on a registered national stock exchange or authorized for quotation on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a), (b) or (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

 

  

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12.           Choice of Law. THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

 

13.           Jurisdiction and Venue.  The Company and the Holder, by its acceptance hereof, hereby agree that any dispute which may arise between them arising out of or in connection with this Warrant shall be adjudicated before a court located in New York, New York, and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York located in New York City with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Warrant or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, postage prepaid, in care of the address set forth herein or such other address as either party shall furnish in writing to the other.

 

[Signature Page Follows]

 

 

  

-8-

  

IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed on its behalf, in its corporate name and by its duly authorized officer, as of this 11th day of May, 2010.

 

	 	
PIONEER POWER SOLUTIONS, INC.

	 
	 	 	 	 
	 	
By: 

	/s/ Nathan J. Mazurek	 
	 	 	Name:  Nathan J. Mazurek	 
	 	 	Title:  Chief Executive Officer	 
	 	 	 	 

 

 

  

-9-

  

 

NOTICE OF EXERCISE

WARRANT

 

PIONEER POWER SOLUTIONS., INC.

 

The undersigned ____________________, pursuant to the provisions of the within Warrant, hereby elects to purchase _______________ shares of Common Stock of Pioneer Power Solutions, Inc. covered by the within Warrant.

 

	
Dated:

	  	  	
Signature

	  
	  	  	  	  	  
	  	  	  	
Address

	  
	  	  	  	  	  
	  	  	  	  	  

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: ___________________________

 

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.

 

The undersigned intends that payment of the Warrant Price shall be made as (check one):

 

	 	
Cash Exercise

	
o

 

	 	
Cashless Exercise

	
o

 

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $______________ by certified or official bank check (or via wire transfer) to the Company in accordance with the terms of the Warrant.

 

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is _______________.

 

 

Where:

 

The number of shares of Common Stock to be issued to the Holder _________________  (“X”).

 

The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised _______________________ (“Y”).

 

The Warrant Price ___________________ (“A”).

 

  

-10-

  

 

The Per Share Market Value of one share of Common Stock on the Trading Day immediately preceding the date of such election ______________________ (“B”).

 

ASSIGNMENT

 

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

 

	
Dated:

	  	  	
Signature

	  
	  	  	  	  	  
	  	  	  	
Address

	  
	  	  	  	  	  
	  	  	  	  	  

 

PARTIAL ASSIGNMENT

 

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

 

	
Dated:

	  	  	
Signature

	  
	  	  	  	  	  
	  	  	  	
Address

	  
	  	  	  	  	  
	  	  	  	  	  

FOR USE BY THE COMPANY ONLY:

 

This Warrant No. _______canceled (or transferred or exchanged) this _____ day of ________________, _____________ shares of Common Stock issued therefor in the name of _______________, Warrant No. ________ issued for ______________ shares of Common Stock in the name of ________________________.

 

-11-Unassociated Document

 

 

Granby Branch

399 Principale

Granby, Québec  J2G 2W7

February 7, 2011

Nathan Mazurek

Andrew Minkow

James Wilkins

PIONEER TRANSFORMERS LTD.

BERNARD GRANBY REALTY INC.

612 Bernard Road

Granby, Quebec  J2G 8E5

Re: Commitment Letter (renewal)

Dear Sirs,

We are pleased to advise that we have renewed the following credit facilities for your company as outlined in the attachment.

In accepting this commitment you acknowledge that, if in the opinion of the Bank, a material adverse change in risk occurs, including without limiting the generality of the foregoing, any material adverse change in the financial condition of the Borrower, any obligation to advance some or all of the above facilities may be withdrawn or cancelled.

On this understanding, we request your acceptance of the following by signing the commitment letter. At that point any additional security documentation will be prepared.

We wish to thank you for doing business with the Bank of Montreal and we look forward to an ongoing mutually beneficial relationship.

Yours truly,

Samuel Lasanté

Commercial Account Manager

Tel 450-347-1484

Fax 450-347-0335

 

  

  

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

COMMITMENT LETTER

 

	 	 	 	 
	
NEEDS

	  	
SOURCES

	  
	
Cashflow need (peak)

	
7,700,000 $

	
Demand revolving credit facility

	
7,700,000 $

	
Acquisitions (building & equipment)

	
2,000,000 $

	
Term loan facility

	
2,000,000 $

	 	 	
Settlement risk facility

	
500,000 $

	
Foreign exchange contracts

	
500,000 $

	
Corporate MasterCard account

	
50,000 $

	
Misc business expenses

	
50,000 $

	  	  
	  	
10,250,000 $

	  	
10,250,000 $

DEFINED

	
TERMS:

	
In this Commitment Letter, certain terms used with the upper-case are defined in Schedule I hereto.  Please refer to such Schedule I for the meaning of such terms.  All amounts herein are in Canadian dollars unless expressly stated otherwise.

	
BORROWER:

	
PIONEER TRANSFORMERS LTD. (“Pioneer”) and/or BERNARD GRANBY REALTY INC. (“Bernard”), henceforth collectively, the “Borrower”.

	
LENDER:

	
BANK OF MONTREAL (henceforth, “BMO” or the “Bank”)

CREDIT

	
FACILITIES:

	
FACILITY A:

	
Revolving overdraft demand loan not exceeding $ 7,700,000 or the Equivalent Amount in USD.

	
  

	
FACILITY B:

	
Non-revolving demand loan(s) up to $ 2,000,000.

	
  

	
FACILITY C:

	
MasterCard credit cards up to $ 50,000 or the Equivalent Amount in USD.

	
  

	
FACILITY D:

	
Treasury risk management facility for foreign exchange forward contracts having an aggregate risk content not exceeding $ 500,000.

 

LOAN

	
PURPOSES:

	
FACILITY A:

	
To finance ongoing operations.

	
  

	
FACILITY B:

	
To finance future equipment acquisitions & working capital injection following plant expansion in 2010.

	
  

	
FACILITY C:

	
For business expenses.

 

	
  

	
FACILITY D:

	

To hedge foreign exchange risk.

 

  

	

	
Page 2 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

	
AVAILABILITY:

	
The Facilities will be available for drawdown for the specified Loan Purposes upon satisfaction of Conditions Precedent. Availability will be by way of:

FACILITY A (subject to monthly Margin Requirement):

	
  

	
Ø

	
By way of direct advances in CAD or USD through overdraft in the accounts of the Borrower set up for such purpose;

	
  

	
Ø

	
By way of issue of letters of credit (standby and documentary) and letters of guarantee for a maximum term of 365 days, subject to renewal and extension.

FACILITY B (available for drawdown for a period of 12 months):

	
  

	
Ø

	

By way of direct advances through demand note(s) at variable interest and or;

	
  

	
Ø

	

By way of fixed rate term loans (1 to 5 year terms).

   

	
  

	
FACILITY C:

Available through use of MasterCard cards issued from time to time by the Bank, at its discretion, in accordance with the terms and conditions of the MasterCard Agreement.

	
  

	
FACILITY D:

By way of foreign exchange forward contracts for a maximum term of 365 days for each agreement;

	
MARGIN

	
REQUIREMENT:

	
Notwithstanding any other provision of this Commitment Letter, the amount at any time outstanding under Facility A (including the aggregate undrawn amount of all outstanding Letters of Credit and Letters of Guarantee) and of all other obligations of the Borrower in respect of any Letter of Credit and Letter of Guarantee shall not exceed the Borrowing Base.  For the purposes hereof, “Borrowing Base” shall mean the total of:

	
  

	
80% of the Bank's estimated worth of eligible accounts receivable (excluding Excluded Receivables) of the Borrower owing by debtors located in Canada and in the United States of America (advances supported by US receivables shall be limited to $ 1,000,000 CAD); plus

 

The lesser of (i) $ 3,500,000 and (ii) 50% of the Bank’s estimated worth of eligible inventory, (excluding Excluded Inventory) of the Borrower. Eligible inventory shall include work in progress supported by booked orders to a maximum of $ 1,000,000; less

   

	
  

	
any amount secured by a Lien ranking prior to the security for the benefit of the Bank with respect to accounts receivable and/or inventory of the Borrower, and all current and past due amounts owed to the various governments by the Borrower, including, without limitation, Federal and Provincial income taxes, deductions at source, G.S.T., P.S.T., Q.S.T. and any other amount that could be considered as prior claim or as a deemed trust or as a super priority in favour of the various governments or governmental authorities or the payment of which would rank prior to the payment of debts and liabilities of the Borrower or any other Obligor under or pursuant to the Facilities or the Loan Documents; less Excluded Receivables.

 

  

	

	
Page 3 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

	
  

	
For the purposes hereof, “Excluded Receivables” shall mean accounts receivable which the Bank does not, according to its usual practice, consider as an eligible receivable, including without limitation, accounts over which the Bank does not have a first ranking Lien, accounts receivable owing by debtors located outside of Canada and the United States of America, accounts receivable subject to set-off or compensation, accounts receivable owing by an affiliate, a shareholder, a director, an officer or an employee of the Borrower, accounts receivable which the Bank in good faith determines to be not of good quality or collectible in the ordinary course of business, accounts receivable subject to undue credit risk, accounts in dispute and accounts receivable which remain unpaid for more than 90 days from the date of invoice.

For the purposes hereof, “Excluded Inventory” shall mean inventory which the Bank, in accordance with its usual practice, does not consider as eligible inventory, including without limitation, inventory over which the Bank does not have a first ranking Lien, 30-day goods, inventory located outside the premises of the Borrower or outside of Canada, in transit or otherwise not in possession of the Borrower or the relevant Obligor, goods on consignment, spare parts and production supplies. Value of inventory shall be determined at the lesser of its cost and fair market value.

 

	
  

	
FACILITY D:

	
Outstanding foreign exchange forward contracts shall not exceed a risk content of $ 500,000.

	
PROGRESS

	
DRAWS:

	
Advances for Facility B will be available by way of multiple draws for the specified Loan Purposes upon satisfaction of Conditions Precedent and shall not exceed:

 

65% of expenses related to the plant expansion (draws shall be based on invoices or proof of payment); plus

 

	
  

	
50% of equipment based on market value as determined the professional evaluation that was remitted to the Lender in 2009; plus

 

75% of new equipment based on value of invoices before taxes.

 

	
Scenario based on estimated costs:

	 
	
Plant expansion expenses

	
$1,030,000 @ 65% = 

	$	670,000	 
	
Actual equipment (evaluated)

	
$1,480,000 @ 50% = 

	$	740,000	 
	
New equipment (invoices)

	
$   790,000 @ 75% = 

	$	592,000	 
	
“Borrowing base” for Facility B

	  	$	2,002,000	 

 

  

	

	
Page 4 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

	
MATURITY AND

	
INSTALMENTS:

	
FACILITY A:

	
Repayable on demand (revolving overdraft facility).

	
  

	
FACILITY B:

	
Amortization not to exceed 7 years with:

	
  

	
Ø

	
fixed monthly capital payments (linear) plus interest, or

	
  

	
Ø

	
fixed monthly payments (linear) including capital & interest, or

	
  

	
Ø

	
annual capital payments beginning 12 months following disbursal as follows (% based on initial drawdown):

Year 1: 10%

Year 2:  12%

Year 3:  14%

Year 4:  16%

Year 5:  18%

Year 6:  30%

	
  

	
FACILITY C:

	
Balance payable in full, monthly.

	
PREPAYMENTS:

	
Direct advances (including any overdraft) in CAD and in USD bearing interest based on the CAD Prime Rate and the US Base Rate respectively may be prepaid at any time and from time to time without penalty, subject to any applicable of prior notice periods to be determined by the Bank.

	
  

	
Advances at a fixed rate of interest may be prepaid at any time, subject to penalties and to any application of prior notice periods to be determined by the Bank.

	
  

	
Any outstanding Letter of Credit or Letter of Guarantee may be cancelled upon receipt by the Bank of the original thereof (and any amendment thereto) and evidence satisfactory to the Bank that the beneficiary has consented to such cancellation.

	
INTEREST

	
RATES:

	
FACILITY A:

	
CAD Prime Rate and/or US Base Rate plus 0.75%, payable monthly in arrears.

	 	
FACILITY B:

	
CAD Prime Rate plus 1.00%, payable monthly in arrears. A fixed rate option is available as per rates at loan drawdown or at reservation date.

	 	
FACILITY C:

	
Subject to the interest rates and fees set from time to time in accordance with the MasterCard Card Agreement and related agreements.

 

  

	

	
Page 5 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

	
FEES:

	
Overdraft Facility fee of $ 950 payable monthly and subject to annual review.

	
  

	
A fixed monthly fee of $ 350 covering all Banking services, including electronic cash management services); Subject to annual review.

	
  

	
The Borrower shall pay to the Bank an annual renewal fee of $ 5,000. Such fee shall be payable at acceptance of commitment letter.

All legal and other direct out of pocket costs of the Bank incurred with respect to due diligence and preparation of loan documents, arrangement expenses and advertising shall be for the account of the Borrower.  The Borrower agrees to guarantee payment of all such legal fees and other direct out of pocket costs upon and by virtue of acceptance hereof by the Borrower.

	
SECURITY:

	
The following security that has been and will be provided by the Borrower, shall, unless otherwise indicated, support all present and future indebtedness and liability of the Borrower to the Bank including without limitation indebtedness and liability under guarantees and cash management products. Security has been and shall be registered on the Bank’s standard forms, supported by resolutions and solicitor’s opinion, all acceptable to the Bank:

	
  

	
a)

	
Revolving overdraft loan facility agreement (Facility A).

	
  

	
b)

	
Demand notes (Facility B).

	
  

	
c)

	
Fixed rate term loan agreement(s) when and if option is selected.

	
  

	
d)

	
First ranking deed on hypothec on all present and future movable property of the Borrower for the amount of $ 10,250,000.

	
  

	
e)

	
Security pursuant to Section 427 of the Bank Act on all present and future inventory of the Borrower.

 

 

	
  

	
f)

	
Cross guarantees between Pioneer Transformers Ltd and Bernard Granby Realty Inc. with required resolutions and legal opinions.

	
  

	
g)

	
Bank to be named as loss payee on business and fire insurance. Certified copy of policy to be provided. Standard mortgage clause to be contained in the policy.

	
  

	
h)

	
Required documentation for foreign exchange forward contracts.

	
  

	
i)

	
Bank’s standard application and indemnity agreement for letters of credit, letters of guarantee or documentary letter of credit.

	
  

	
j)

	
MasterCard Agreement and other related agreements for Facility C.

	
  

	
k)

	
Commercial Loan Insurance for principal shareholders & officers to be offered.

 

  

	

	
Page 6 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

CONDITIONS PRECEDENT

TO DRAWDOWN:

Those customarily found in loan documentation for credit facility of this nature including, without limitation, the following:

	
  

	
a)

	
Completion of all security documentation and all loan documentation in form and substance satisfactory to the Bank’s legal counsel;

	
  

	
b)

	
Receipt of invoices and or proof of payment for equipment and expenses related to the plant expansion in 2010, to the satisfaction of the Bank (for Facility B only);

	
  

	
c)

	
Satisfactory legal opinions relating to all matters considered relevant by the Bank, including due authorization, execution, delivery and enforceability of the loan and security documentation by the Borrower;

	
  

	
d)

	
No default or event of default exists at the time of, or after giving effect to the closing and/or disbursement;

REPRESENTATIONS

	
& WARRANTIES:

	
Usual, including confirmation of corporate status and authority, non-violation of law or existing agreements, no material litigation, satisfactory insurance coverage, continued compliance with environmental regulations and other such representations and warranties customarily contained in loan agreements for similar financing.

NEGATIVE

	
COVENANTS:

	
Usual negative covenants for transactions of this nature including but not limited to the following and subject to exceptions and limitations to be agreed:

 

	
  

	
a)

	
Amalgamate, merge or consolidate with any legal entity and cause its subsidiaries to wind up, liquidate or dissolve its affairs;

 

	
  

	
b)

	
Change the nature of its core business;

 

	
  

	
c)

	
Alter its capital structure in a manner that would be materially adverse to the Bank or undergo a change of control.

 

	
  

	
d)

	
No investments and/or advances to affiliated or related companies without the Bank’s prior written consent.

 

	
  

	
e)

	
No collateral mortgage shall be registered on the land & buildings belonging to the Borrower without the Bank’s prior written consent.

 

  

	

	
Page 7 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

FINANCIAL

	
COVENANTS:

	
The following covenants will be tested annually (based on consolidated financial statements of the Borrower):

	
  

	
Ø

	
Minimum Debt Service Coverage Ratio of 1.25

	
  

	
Ø

	
Minimum Current Ratio of 1.20

	
  

	
Ø

	
Maximum Total Debt to Tangible Net Worth Ratio of 2.50 (to be tested quarterly based on non-consolidate in-house financial statements, and annually on consolidated financial statements.)

REPORTING

REQUIREMENTS:   The Borrower shall deliver to the Bank the following:

	
  

	
a)

	
From Pioneer Transformers Ltd.: Signed, aged lists of accounts receivable, accounts payable (including declaration of any deemed trusts) and inventory are to be provided by the 20th day of each month.  Inventory lists are to be provided on the Bank's standard form.

	
  

	
b)

	
From Pioneer Transformers Ltd.: Quarterly in-house financial statements within 45 days of quarter end.

	
  

	
c)

	
Annual audited financial statements of the Borrower (non-consolidated + consolidated) within 120 days of fiscal year end.

	
  

	
d)

	
Annual forecasts to be provided at time of annual review including income statement, balance sheet and cashflow.

	
  

	
e)

	
Other documents as the Bank may reasonably require from time to time.

EVENTS OF

	
DEFAULT:

	
Those customarily found in loan documentation for similar financing including but not limited to failure to pay principal and interest when due; representations and warranties materially incorrect; breach of covenants and security undertakings; Material Adverse Change; failure to comply with the terms of other financing agreements of the Borrower (with notice and cure periods as applicable); cross-default to material obligations of the Borrower; bankruptcy/insolvency of the Borrower; non-compliance with any environmental regulation imposed by any government or its agency, change of ownership - either directly or indirectly; merger with any other corporation or person.

 

BANKING

	
SERVICES:

	
The borrower agrees to maintain bank accounts only with the Bank of Montreal.

 

  

	

	
Page 8 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

GOVERNING

	
LAW:

	
The laws of the Province of Québec and the laws of Canada applicable therein shall apply subject to the right of the Bank to subject any security to the laws of the jurisdiction which the Bank deems most appropriate.

	
LANGUAGE

	
CLAUSE:

	
The parties hereby confirm their express wish that this Commitment Letter and all documents and agreements directly or indirectly related thereto, including notices, be drawn up in the English language.  Notwithstanding such express wish, the parties agree that any of such documents, agreements and notices or any part thereof may be drawn up in the French language.  Les parties reconnaissent leur volonté expresse que le présent Sommaire des termes et conditions ainsi que tous les documents et conventions qui s'y rattachent directement ou indirectement, y compris les avis, soient rédigés en langue anglaise.  Nonobstant telle volonté expresse, les parties conviennent que n'importe quel desdits documents, conventions et avis ou toute partie de ceux-ci puissent être rédigés en langue française.

	
ACCEPTANCE

 We hereby accept the foregoing terms and conditions.

This 7th day of February, 2011

 

 

PIONEER TRANSFORMERS LTD

 

 

	
By: 

	
/s/ Nathan J. Mazurek

	 
	 	
duly authorized

	 

 

 

 

BERNARD GRANBY REALTY INC.

 

 

	
By: 

	/s/ Nathan J. Mazurek	 
	 	
duly authorized

	 

 

  

	

	
Page 9 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

SCHEDULE I

DEFINITIONS

“CAD” means lawful money of Canada.

“Current Ratio” means the ratio of current assets to current liabilities at such time, all as shown on the financial statements in accordance with GAAP.

“Debt Service Coverage Ratio” means total earnings before depreciation and interest less unfinanced capital expenses divided by annual interest expenses, current portion of long-term debt, dividends, purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of capital stock of the Borrower.

 “Equivalent Amount” means, on any date, the amount in CDN$ or US$, as the case may be, which would be obtained on the conversion of an amount in US$ or any other currency to CDN$ or an amount in CDN$ or any other currency into US$, respectively, at the Bank of Canada noon spot rate for the purchase of US$ or such other currency with CDN$ or for the purchase of CDN$ or such other currency with US$, respectively, as quoted or published or otherwise made available by the Bank of Canada on such date.

“GAAP” means generally accepted accounting principles in Canada in effect from time to time, applied in a consistent manner from period to period.

“Indebtedness” means the indebtedness of any Obligor and includes, without duplication (in each case, whether such obligation is with full or limited recourse):

 

	
  

	
a)

	
any obligation of such Obligor for borrowed money;

	
  

	
b)

	
any obligation of such Obligor evidenced by a bond, debenture, note or other similar instrument;

	
  

	
c)

	
any obligation of such Obligor to pay the deferred purchase price of property or services, except a trade account payable that arises in the ordinary course of business;

	
  

	
d)

	
any obligation of such Obligor as lessee under any capital lease;

	
  

	
e)

	
any obligation of such Obligor to reimburse any other person in respect of amounts drawn or drawable under any letter of credit or other guarantee or under any bankers’ or trade acceptance issued or accepted by such other person, whether contingent or non-contingent;

	
  

	
f)

	
all obligations of such Obligor to purchase, redeem, retire, decrease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Obligor or any other person, valued, in the case of redeemable preferred stock, at the greater of its voluntary liquidation preference plus accrued and unpaid dividends;

	
  

	
g)

	
any obligation of such Obligor to purchase securities or other property that arises out of or in connection with the sale of the same or substantially similar securities or property;

	
  

	
h)

	
any Indebtedness of others secured by a Lien on any asset of such Obligor;

	
  

	
i)

	
any Indebtedness of others guaranteed by such Obligor; and

 

  

	

	
Page 10 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

	
  

	
j)

	
all obligations and liabilities of such Obligor in respect of “Specified Transactions” (as such term is defined in the 1992 Multicurrency – Cross Border Master Agreement published by the International Swaps and Derivatives Association, Inc.).

  

 “Lien” means a mortgage, hypothec, legal hypothec, prior claim, pledge, lien, charge or encumbrance, whether fixed or floating, on, or any Security Interest in any property, whether immovable or real, movable or immovable, or mixed, tangible or intangible or a pledge for hypothecation thereof or trust or presumed or deemed trust or any other mechanisms of right benefiting the holder thereof or any conditional sale agreement or other title retention agreement or equipment trust relating thereto or any lease relating to property which would be required to be accounted for as a capital lease on the balance sheet.

“Loan Documents” means, collectively, this Commitment Letter, the Credit Agreement, the Security Documents and all other documents, instruments and agreements executed and delivered by any Obligor in connection directly or indirectly with this Commitment Letter, the Facilities or otherwise referred to or contemplated under or by this Commitment Letter or any such documents, instruments or agreements.

“Material Adverse Event” means a material adverse change in or effect on, either individually or in the aggregate, the business, assets, liabilities, financial positions or operating results of the Obligors taken as a whole or which adversely affects or could reasonably be expected to adversely affect the ability of any Obligor to perform any of its obligations under or pursuant to the Facilities and this Commitment Letter or the other Loan Documents in accordance with their respective terms or the validity or enforceability of any of the Loan Documents.

“Person” means any individual, corporation, company, partnership, association, trust or joint venture.

“Prime Rate” means the variable annual rate of interest established by the Bank from time to time as the reference rate of interest it will use at such time to determine interest rates for loans in CDN$ to its Canadian commercial borrowers in Canada and designated as its Prime Rate.

 “Security Documents” means the collective reference to all present and future documents, agreements and instruments pursuant to which an Obligor grants a Security Interest to or for the benefit of the Bank, alone or together with any other person or persons, in any of its assets securing all or part of the obligations of the Borrower under or pursuant to the Facilities and this Commitment Letter or any other Loan Documents.

“Security Interest” means a hypothec, mortgage, pledge, fixed or floating charge, assignment by way of security or any other security interest securing payment or performance of an obligation.

 

  

	

	
Page 11 of 12 

 

  

	

	
COMMITMENT LETTER

February 7, 2011 

 

“Subordinated Debt” of a Person means indebtedness of such Person for borrowed money (including principal and accrued interest), which is validly and effectively subordinated and postponed in right of payment of principal, interest and premium if any, to the payment in full of all amounts owing from time to time under or pursuant to any of the Facilities by way of an agreement in form and substance satisfactory to the Lender and is unsecured on the property of such Person, provided (a) that such indebtedness is treated as subordinated debt in accordance with GAAP, (b) without limiting the foregoing, the Lender shall be satisfied with the covenants and default clauses in the agreement pursuant to which such indebtedness is created, and (c) the terms of the instrument evidencing such indebtedness or under which such indebtedness is outstanding reflect the provisions of this definition to the satisfaction of the Lender.

“Tangible Net Worth” of a Person means, as of any date, the sum of Shareholders’ Equity of such Person and the Subordinated Debt of such Person, less, without duplication, any goodwill, organizational expenses, trademarks, trade names, copyrights, patents, patent applications, licenses, deferred costs, deferred charges,  and any other assets that are properly classified as “intangible” less amounts due by directors, officers and other Persons related to the Borrowers and its Affiliates, all determined as of such date in accordance with GAAP and to the satisfaction of BMO acting reasonably.

“Total Debt” of a Person shall mean the total amount of liabilities of such Person, plus the amount of all cheques in circulation less deferred taxes and Subordinated Debt of such Person.

“Total Debt to Tangible Net Worth Ratio” means the ratio of Total Debt to Tangible Net Worth, in accordance with GAAP.

“US Base Rate” means the variable annual rate of interest established by the Bank from time to time as being the reference rate of interest it will use at such time in Canada to determine rates of interest on US$ commercial loans to Canadian residents in Canada and designated as its US Base Rate.

“USD” means lawful money for the time being of the United States of America in same day immediately available funds or, if such funds are not available, the form of money of the United States of America which is customarily used in the settlement of international banking transaction on that day.

 

 

	

	
Page 12 of 12

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