Exhibit 99.27
AMENDED AND RESTATED
CONVERTIBLE DEBENTURE
in the original principal amount of $6,000,000
issued by
EXCLAMATION INTERNATIONAL INCORPORATED
IN FAVOUR OF
CIBC CAPITAL PARTNERS
originally issued on March 15, 2001
and
amended and restated on February 8, 2002
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
1.1. Definitions.......................................................... 1
1.2. Invalidity, etc...................................................... 12
1.3. Headings, etc........................................................ 12
1.4. Governing Law........................................................ 12
1.5. Attornment........................................................... 13
1.6. Currency............................................................. 13
1.7. This Agreement to Govern............................................. 13
1.8. Actions on Days Other Than Business.................................. 13
1.9. Interest Act......................................................... 13
1.10. Schedules, etc....................................................... 13
ARTICLE 2.
PAYMENTS
2.1. Interest Rate........................................................ 14
2.2. Calculation and Payment of Interest.................................. 14
2.3. Repayment of the Debenture........................................... 14
2.4. Right of Postponement................................................ 14
2.5. Sale from Treasury................................................... 15
2.6. Defeasance........................................................... 15
2.7. Application of Prepayments and Repayments............................ 15
2.8. Payments Generally................................................... 15
2.9. Payments - No Deduction.............................................. 16
2.10. Illegality........................................................... 16
2.11. Change in Circumstances.............................................. 16
2.12. Payment of Costs and Expenses........................................ 18
2.13. Indemnities.......................................................... 18
2.14. Maximum Rate of Interest............................................. 19
ARTICLE 3.
CONVERSION OF DEBENTURE
3.1. Conversion Right..................................................... 20
3.2. Automatic Conversion................................................. 20
3.3. Conversion Price..................................................... 21
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3.4. Manner of Exercise of Conversion..................................... 21
3.5. Adjustment of Conversion Price and Number of Common Shares
Issuable Upon Conversion.......................................... 22
3.6. Rules Regarding Calculation of Adjustment of Conversion
Price and Number of Common Shares Issuable Upon Conversion........ 23
3.7. Postponement of Subscription......................................... 24
3.8. No Requirement to Issue Fractional Shares............................ 25
3.9. Company to Reserve Common Shares..................................... 25
3.10. Taxes and Charges on Conversion...................................... 25
3.11. Notice of Adjustment................................................. 25
3.12. Registration Rights.................................................. 25
ARTICLE 4.
SECURITY
4.1. Security............................................................. 27
4.2. Further Assurances - Security........................................ 27
4.3. Security Effective Notwithstanding Date of Advance................... 27
4.4. No Merger............................................................ 28
4.5. Release of Security.................................................. 28
ARTICLE 5.
COVENANTS
5.1. Affirmative Covenants................................................ 28
5.1.1. Punctual Payment.......................................... 28
5.1.2. Conduct of Business....................................... 28
5.1.4. Compliance with Applicable Law and Contracts.............. 29
5.1.6. Maintenance of Property................................... 29
5.1.7. Financial Reporting....................................... 29
5.1.8. Insurance................................................. 30
5.1.9. Ownership of Subsidiaries................................. 30
5.1.10. Security.................................................. 31
5.1.11. Inspections............................................... 31
5.1.12. Notice of Litigation and Other Matters.................... 31
5.1.13. Consents and Approvals.................................... 31
5.1.14. Payment of Taxes and Claims............................... 32
5.1.15. Use of Proceeds........................................... 32
5.1.16. Other Matters............................................. 32
5.1.17. Further Assurances........................................ 32
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5.1.18. Liquidity Event............................................... 32
5.2. Lender Entitled to Perform Covenants.................................. 32
5.3. Negative Covenants.................................................... 33
5.3.1. Merger: Sale or Disposition of All or a Significant Part of
its Assets.................................................. 33
5.3.2. Reorganizations, etc.......................................... 33
5.3.3. Sale of Capital Stock......................................... 33
5.3.4. Ranking....................................................... 33
5.3.5. Board Composition............................................. 33
5.3.6. Negative Pledge............................................... 33
5.3.7. Restricted Payments........................................... 33
5.3.8. Debt.......................................................... 33
5.3.9. Financial Assistance.......................................... 34
5.3.10. Investments and Acquisitions.................................. 34
5.3.11. Charter Documents............................................. 34
5.3.12. Shareholder Agreements........................................ 35
5.3.13. Lines of Business............................................. 35
5.3.14. Transactions with Affiliates.................................. 35
5.4. Exceptions............................................................ 35
5.5. Environmental Compliance.............................................. 35
ARTICLE 6.
BOARD REPRESENTATION
6.1. The Lender's Board Representation..................................... 36
6.2. Shareholders' Meetings................................................ 36
6.3. Termination of Entitlement............................................ 37
ARTICLE 7.
EVENTS OF DEFAULT AND REMEDIES
7.1. Events of Default..................................................... 37
7.1.1. Default in Payment............................................ 37
7.1.2. Other Covenants............................................... 37
7.1.3. Representations and Warranties................................ 37
7.1.4. Default in other Indebtedness................................. 37
7.1.5. Subscriber Documents.......................................... 37
7.1.6. Voluntary Insolvency Actions.................................. 38
7.1.7. Involuntary Insolvency Proceedings............................ 38
7.1.8. Appointment of Receiver....................................... 38
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7.1.9. Bankruptcy Statutes........................................... 38
7.1.10. Judgments..................................................... 39
7.1.11. Encumbrances.................................................. 39
7.1.12. Cease to carry on Business.................................... 39
7.1.13. Qualified Auditor's Report.................................... 39
7.1.14. Cease Trading Order........................................... 39
7.1.15. Ceases to be Reporting Issuer................................. 39
7.1.16. Change of Control............................................. 39
7.1.17. Material Adverse Effect....................................... 40
7.1.18. Liquidation Event or a Dividend Event......................... 40
7.2. Remedies Upon Default................................................. 40
7.3. Set-Off .............................................................. 40
7.4. Distributions......................................................... 40
7.5. Overdue Amounts....................................................... 41
ARTICLE 8.
REORGANIZATION
8.1. Reorganization........................................................ 41
8.2. Covenants............................................................. 41
8.3. Confirmations......................................................... 42
ARTICLE 9.
GENERAL
9.1. Reliance and Non-Merger............................................... 42
9.2. Amendment and Waiver.................................................. 42
9.3. Notices............................................................... 42
9.4. Time ................................................................. 43
9.5. Further Assurances.................................................... 44
9.6. Assignment............................................................ 44
9.7. Entire Agreement...................................................... 45
SCHEDULE A
Compliance Certificate
SCHEDULE B
General Disclosure
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SCHEDULE C
Permitted Liens
SCHEDULE D
Reorganization Term Sheet
EXCLAMATION INTERNATIONAL INCORPORATED
(CONTINUED UNDER THE LAWS OF ONTARIO)
AMENDED AND RESTATED DEBENTURE
Exclamation International Incorporated (the "Borrower") for value received
hereby acknowledges itself indebted to and unconditionally promises to pay to or
to the order of CIBC Capital Partners, a division of Canadian Imperial Bank of
Commerce (the "Lender") on March 15, 2004, or such earlier date as all or any
part of the Principal Amount hereof may become due in accordance with the
provisions hereof or such later date as elected by the Lender in accordance with
the provisions hereof (such date being the "Maturity Date"), the aggregate
principal sum of SIX MILLION DOLLARS ($6,000,000) (the "Original Principal
Amount") in lawful money of Canada, on presentation and surrender of this
Debenture (in the case of payment of all of the Principal Amount hereof) to the
Borrower at its registered office, and to pay interest on the Principal Amount
of this Debenture outstanding from time to time at the rate and times and in the
manner set forth herein.
ARTICLE 1.
INTERPRETATION
1.1. DEFINITIONS
For the purposes of this Debenture:
"1933 ACT" has the meaning attributed to such term in Section 3.12;
"ACQUISITION" means, with respect to any Person, any purchase or other
acquisition by such Person, regardless of how accomplished or effected
(including any such purchase or other acquisition effected by way of
amalgamation, merger, arrangement, business combination or other form of
corporate reorganization or by way of purchase, lease or other acquisition
arrangements), of (a) any other Person (including any purchase or acquisition of
such number of the issued and outstanding securities of, or such portion of an
equity interest in, such other Person that such other Person becomes a
Subsidiary of the purchaser or of any of its Affiliates) or of all or
substantially all of the property of any other Person, or (b) any division,
business, operation or undertaking of any other Person or of all or
substantially all of the property of any division, business, operation or
undertaking of any other Person;
"AFFILIATE" means an "affiliate" as defined by the Business Corporations Act
(Ontario);
"APPLICABLE LAW" means, in respect of any Person, property, transaction, event
or course of conduct, all applicable laws, statutes, rules, by-laws and
regulations, regulatory policies and all applicable official directives, orders,
judgments and decrees of Governmental Authorities;
"ASSOCIATE" means an "associate" as defined in the Business Corporations Act
(Ontario);
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"BORROWER" means Exclamation International Incorporated, a corporation continued
under the laws of Ontario and its successors from time to time (including, if
applicable, the amalgamated corporation arising from an amalgamation of
Exclamation International Incorporated in connection with the transactions
contemplated in section 8.1);
"BUSINESS" means, before completion of the Reorganization, the creation,
financing, managing and operating of Internet based businesses consistent with
the business currently carried on by the Borrower and its Subsidiaries and,
following completion of the Reorganization, the business currently carried on by
Points;
"BUSINESS DAY" means any day, other than a Saturday or Sunday, on which Canadian
chartered banks are open for business in Toronto, Canada;
"CAPITALIZED LEASE OBLIGATION" means, with respect to any Person, any rental
obligation which, under GAAP, is capitalized on the books of such Person, taken
at the amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles, and may include Sale-Leaseback obligations;
"CAPITAL REORGANIZATION" has the meaning attributed to such term in Section
3.5.2;
"CHANGE OF CONTROL" means any Person (and such Person's Affiliates and
Associates, and any person acting jointly on in concert with such Person)
acquiring greater than 50% of the votes attached to the Borrower's securities
entitled to vote for the election of the Borrower's board of directors or
greater than 50% of the equity (by value) of the Borrower;
"CLASS A CONVERTIBLE PREFERRED SHARES" means the 1.8% Class A convertible
preferred shares in the capital of Points;
"CLASS B CONVERTIBLE PREFERRED SHARES" means the 1.8% Class B convertible
preferred shares in the capital of Points;
"CLASS C CONVERTIBLE PREFERRED SHARES" means the 1.8% Class C convertible
preferred shares in the capital of Points;
"COMMON SHARES" means the common shares in the capital of the Borrower;
"COMMON SHARE REORGANIZATION" has the meaning attributed to such term in Section
3.5.1;
"CONTAMINANT" means (a) any pollutant, toxic substance, hazardous waste,
hazardous material, hazardous substance, petroleum product, oil, or radioactive
material; (b) any substance, gas, material or chemical which is or may be
defined as or included in the definition of "hazardous substances", "toxic
substances", "hazardous materials", "hazardous wastes" or words of similar
import under any Environmental Law; (c) any other chemical, material, gas or
substance, the exposure or release of which is or may be prohibited, limited or
regulated by any Environmental Law; or (d) any chemical, material,
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gas or substance that does or may pose a hazard to health and/or safety of
Persons or the Natural Environment;
"CONVERSION PRICE" has the meaning attributed to such term in Section 3.3;
"CONVERSION RIGHT" has the meaning attributed to such term in Section 3.1;
"DATE OF AUTOMATIC CONVERSION" has the meaning attributed to such term in
Section 3.2;
"DATE OF CONVERSION" means the date upon which the Conversion Right is exercised
by the Lender by surrendering this Debenture in accordance with Section 3.4.2;
"DEBENTURE" means this convertible debenture and all schedules attached to this
convertible debenture, in each case as they may be amended, restated or replaced
from time to time; the expressions "HEREOF", "HEREIN", "HERETO", "HEREUNDER",
"HEREBY" and similar expressions refer to this convertible debenture as a whole
and not to any particular article, section, schedule, or other portion hereof;
"DEBT" means, with respect to any Person, without duplication:
(a) all indebtedness for borrowed money of such Person (including, for greater
certainty, reimbursement obligations in respect of letters of credit,
bankers' acceptances and note purchase facilities, obligations of such
Person evidenced by a bond, note, debenture or similar instrument, and
obligations of such Person in relation to purchase money agreements,
deferred purchase price payments (where payment of the purchase price is
deferred more than 90 days from the date of purchase), prepaid contracts,
conditional sales agreements, or title retention agreements (other than
those characterized as operating leases under GAAP), or subordinated
indebtedness whether or not classified as equity on a balance sheet of such
Person, in any case whether or not recourse of the debtholder is limited in
any way),
(b) all Capitalized Lease Obligations of such Person, and without limitation,
all Debt of such Person under Sale-Leasebacks (other than Sale-Leasebacks
that are characterized as operating leases under GAAP),
(c) all indebtedness for borrowed money secured by a Lien on any property or
asset owned or held by such Person, whether or not the obligations secured
thereby shall have been assumed,
(d) the marked-to-market of all obligations of the Person under Hedging
Agreements,
(e) all Redeemable Preferred Shares of such Person held by any Person, and
(f) all Guarantees of such Person with respect to obligations of a type
described in any of the preceding clauses;
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"DEFAULT" means any event or condition which, upon notice, lapse of time, or
both, would constitute an Event of Default;
"DISPOSITION" means any sale, assignment, transfer, conveyance, lease, license,
granting of an option or other disposition (or agreement to dispose) of any
nature or kind whatsoever of any property or of any right, title or interest in
or to any property, and the verb "DISPOSE" shall have a correlative meaning;
"EMPLOYEE OPTIONS" means the options of Points granted to certain directors,
officers, employees and associates of each of Points and the Borrower
outstanding on February 8, 2002;
"ENVIRONMENTAL LAW" means any and all present and future Canadian federal,
provincial or territorial, or local and foreign laws, rules, regulations or
obligations arising under common law, and any order or decrees, in each case as
now or thereafter in effect, relating to the regulation or protection of human
health, safety or the environment or to Releases or threatened Releases of
pollutants, contaminants, chemicals or toxic or hazardous substances, Hazardous
Materials, wastes or recyclables into the indoor or outdoor environment,
including ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances, wastes or
recyclables;
"EVENT OF DEFAULT" has the meaning attributed to such term in Section 7.1;
"EXCLUDED TAXES" means, in relation to any Person, those taxes on income or
capital which are imposed or levied by any jurisdiction or any political
subdivision of such jurisdiction solely as a result of such Person (a) being
organized under the laws of such jurisdiction or any political subdivision of
such jurisdiction, (b) having its principal office or lending office in such
jurisdiction, (c) being resident in such jurisdiction, (d) carrying on business
in such jurisdiction, or (e) not dealing at arm's length (as defined for the
purposes of any taxing statute in the applicable jurisdiction) with the
Borrower, but for greater certainty shall not include any sales, goods or
services, or harmonized sales and goods and services taxes payable under the
laws of such jurisdiction or any political subdivision of such jurisdiction with
respect to any goods or services made available by the Lender to the Borrower or
any Subsidiary;
"EXPIRY DATE" means the date that is three months prior to the date that the
hold period (being the period, imposed by Ontario securities legislation, before
this Debenture and Common Shares issuable upon conversion of this Debenture may
be traded without a prospectus) lapses, provided that if such period is 18
months, then the date that is two months prior to the date that such hold period
lapses;
"FINANCIAL ASSISTANCE" given by any Person (the "FINANCIAL ASSISTANCE PROVIDER")
to or for the account or benefit of any other Person (the "FINANCIAL ASSISTANCE
RECIPIENT") means any direct or indirect financial assistance of any nature,
kind or description
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whatsoever (by means of loan, guarantee or otherwise) of or from such Financial
Assistance Provider, or of or from any other Person with recourse against such
Financial Assistance Provider or any of its property, to or for the account or
benefit of the Financial Assistance Recipient (including Investments in a
Financial Assistance Recipient, Acquisitions from a Financial Assistance
Recipient, and gifts or gratuities to or for the account or benefit of a
Financial Assistance Recipient);
"FOUNDERS OPTIONS" means the options granted prior to the date hereof to the
founders of Points to acquire up to 1,818,182 common shares in the capital of
Points;
"GAAP" means, in respect of the Borrower and its Subsidiaries, generally
accepted accounting principles in Canada applied on a consistent basis;
"GENERAL SECURITY AGREEMENT" means the general security agreement dated the
Original Issue Date and entered into by the Borrower in favour of the Lender, in
form and substance satisfactory to the Lender, as amended, restated or replaced
from time to time;
"GOVERNMENTAL AUTHORITY" means, when used with respect to any Person, any
government, parliament, legislature, regulatory authority, agency, tribunal,
department, commission, board, instrumentality, court, arbitration board or
arbitrator or other law, regulation or rule making entity (including a Minister
of the Crown, any central bank, Superintendent of Financial Institutions or
other comparable authority or agency) having or purporting to have jurisdiction
on behalf of, or pursuant to the laws of, Canada or any country in which such
Person is incorporated, continued, amalgamated, merged or otherwise created or
established or in which such Person has an undertaking, carries on business or
holds property, or any province, territory, state, municipality, district or
political subdivision of any such country or of any such province, territory or
state of such country;
"GUARANTEE" means, with respect to any Person, any direct or indirect liability,
contingent or otherwise, of such Person with respect to any indebtedness, letter
of credit, lease, dividend or other obligation of another, including any such
obligation directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business) or discounted or sold
with recourse by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, including any such obligation in effect
guaranteed by such Person through any agreement (contingent or otherwise) to
purchase, repurchase or otherwise acquire such obligation of any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain the solvency or any balance sheet or other
financial condition of the obligor of such obligation (including keep-well
covenants), or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to
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the outstanding principal amount of the obligation guaranteed or such lesser
amount to which the maximum exposure of the guarantor shall have been
specifically limited;
"HAZARDOUS MATERIAL" means, collectively, (a) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation, and transformers
or other equipment that contain dielectric fluid containing polychlorinated
biophyls ("PCB's"), (b) any chemicals or other materials or substances which are
now or hereafter become defined as or included in the definition of "hazardous
recyclables", "extremely hazardous wastes", "restricted hazardous wastes",
"toxic substances", "toxic pollutants", "contaminants" "pollutants" or words of
similar import under any Environmental Law, and (c) any other chemical,
contaminant, pollutant, deleterious substance, dangerous good or other material
or substance, which is limited or regulated under any Environmental Law;
"HEDGING AGREEMENTS" means, for any Person, (a) an interest rate swap, cap or
collar agreement or similar arrangement between such Person and one or more
financial institutions or other entities providing for the transfer or
mitigation of interest risks, either generally or under specific contingencies,
and (b) an agreement or arrangement between such Person and one or more
financial institutions or other entities providing for the transfer or
mitigation of risks of fluctuations in the exchange rate between any foreign
currency and Canadian dollars either generally or under specific contingencies;
"INVESTMENT" means, with respect to any Person, the making by such Person of (a)
any direct or indirect investment in or purchase or other acquisition of the
securities of or an equity interest in any other Person, (b) any loan or advance
to, or arrangement for the purpose of providing funds or credit to (excluding
extensions of trade credit in the ordinary course of business in accordance with
customary commercial terms) any other Person, or (c) any capital contribution to
(whether by means of a transfer of cash or other property or any payment for
property or services for the account or use of) any other Person; provided that,
for greater certainty, an Acquisition shall not be treated as an Investment;
"LENDER" means CIBC Capital Partners, a division of Canadian Imperial Bank of
Commerce, and its successors and assigns;
"LIEN" means any mortgage, charge, pledge, hypothecation, assignment, deposit
arrangement, lien (statutory or otherwise), preference, security interest or
other charge or encumbrance of any nature however arising, or any other
agreement or arrangement creating in favour of any creditor a right in respect
of any particular property that is prior to the right of any other creditor in
respect of such property, and includes the right of a lessor under a Capitalized
Lease Obligation, the right of a vendor under a conditional sale agreement and
any easement, right of way or other encumbrance on real property;
"LOAN DOCUMENTS" means this Debenture, the Security Documents, the Subscription
Agreement and all other documents from time to time entered into by the Lender
or for the benefit of the Lender in connection with this Debenture;
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"MATERIAL ADVERSE EFFECT" means, individually or in the aggregate, a material
adverse effect on (a) the business, operations, properties or condition
(financial or otherwise) of the Borrower, XI or Points (b) the ability of the
Borrower or its Subsidiaries to perform its obligations under the Subscriber
Documents, or (c) the rights and remedies of the Lender under the Subscriber
Documents;
"MAXIMUM AMOUNT" has the meaning attributed to such term in Section 3.1;
"NATURAL ENVIRONMENT" means the air, land, subsoil, surface water, ground water,
and property or any combination or part thereof in any jurisdiction in which the
Borrower or any Subsidiary carries on business;
"NON-ARM'S LENGTH PERSON" means any director, senior or executive officer,
Affiliate or Associate of the Borrower or any Subsidiary or any other Person who
does not deal at arm's length with the Borrower or any of its Affiliates within
the meaning of such concept as used in the Income Tax Act (Canada);
"NON-VOTING SHARES" means the "non-voting shares" in the capital of Points;
"OBLIGATIONS" means all indebtedness, liabilities and other obligations of the
Borrower to the Lender hereunder or under any other Loan Document, whether
actual or contingent, direct or indirect, matured or not, now existing or
hereafter arising;
"OFFICER'S CERTIFICATE" means a certificate, in form satisfactory to the Lender
(a) in the case of any such certificate of the Borrower, signed by the Chairman,
the President, the Chief Financial Officer or Vice President of the Borrower,
and (b) in all other cases, of the applicable Person required to provide such
certificate signed by the president or a vice president of such corporation or
by such other of its senior officers as may be acceptable to the Lender, acting
reasonably;
"OPTION AGREEMENT" means the option agreement dated the Original Issue Date
amongst the Borrower, XI and the Lender, substantially in the form attached as
Exhibit B to the Subscription Agreement, as amended, restated or replaced from
time to time;
"ORIGINAL ISSUE DATE" means March 15, 2001;
"ORIGINAL PRINCIPAL AMOUNT" has the meaning attributed to such term in the first
paragraph of this Debenture;
"PARTNER WARRANTS" means share purchase warrants (with an exercise price equal
to or greater than US$1.96 (subject to anti-dilution adjustments)) to acquire up
to 7,703,892 common shares in the capital of the Points issued by Points from
time to time to Persons whose loyalty programs participate in the Points
exchange;
"PERMITS" means all permits, licenses, authorizations, approvals, franchises,
rights-of-way, easements and entitlements which the Borrower or any Subsidiary
requires, or is required to have, to own, lease or license its property or
operate or carry on the Business;
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"PERMITTED LIENS" means, in respect of any property of the Borrower or any
Subsidiary, any of the following:
(a) Liens for taxes, assessments or government charges, including charges for
workers' compensation and employment insurance, which are not due or
delinquent, or the validity of which is being contested by it in good
faith, provided that the outcome of such contest would not reasonably be
expected to have a Material Adverse Effect;
(b) Liens imposed or permitted by law such as carriers' liens, builders' liens,
materialmens' liens and other liens, privileges or other charges of a
similar nature, in respect of obligations not yet due or delinquent, or the
validity of which is being contested in good faith, provided that the
outcome of such contest would not reasonably be expected to have a Material
Adverse Effect;
(c) undetermined or inchoate Liens arising in the ordinary course of and
incidental to construction or current operations which have not been filed
pursuant to law and in respect of which no steps or proceedings to enforce
such liens have been initiated, and which relate to obligations which are
not due or delinquent or which, although filed, relate to obligations not
overdue or to obligations being contested by it in good faith with a
reasonable likelihood of success, or which would not reasonably be expected
to have a Material Adverse Effect;
(d) the Security;
(e) Liens securing Purchase Money Obligations provided such Liens charge only
the asset subject to the Purchase Money Obligation and no other asset;
(f) liens securing Capitalized Lease Obligations;
(g) Liens of judgments rendered or claims filed which are being contested in
good faith by it by proper legal proceedings, provided that such
proceedings effectively postpone enforcement of any such Lien and do not
otherwise result in an Event of Default hereunder;
(h) easements, rights-of-way, servitudes, zoning, and similar rights in or
restrictions in respect of land (including rights-of-way and servitudes for
railways, sewers, drains, gas and oil pipelines, gas and water mains,
electric light and power and telephone or telegraph or cable television
conduits, poles, wires and cables) granted to or reserved or taken by other
Persons, which do no, individually or in the aggregate, materially detract
from the use or value of the property subject thereto;
(i) the reservations, limitations, provisos and conditions in any original
grants from the Crown of any land or interests therein and statutory
exceptions, qualifications and reservations in respect of title;
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(j) the unexercised rights reserved or vested in any Governmental Authority by
the terms of any title documents, or by any statutory provisions, to
terminate any such title documents, or other interests in land, or to
require annual or other periodic payments as a condition of the continuance
thereof;
(k) defects in title which are not general in application and which do not,
individually or in the aggregate, materially detract from the value of the
property or any significant part thereof or materially impair the use of
any thereof in the operation of their respective businesses; and
(l) all other items set out in Schedule "C".
"PERSON" means any individual, partnership, limited partnership, joint venture,
syndicate, sole proprietorship, company or corporation with or without share
capital, unincorporated association, trust, trustee, executor, administrator or
other legal personal representative or Governmental Authority;
"PLEDGE AGREEMENT" means the pledge agreement dated the Original Issue Date, as
amended, restated or replaced from time to time, entered into by the Borrower in
favour of the Lender whereby the Borrower pledged to the Lender, as security for
the Obligations, the Pledged Assets;
"PLEDGED ASSETS" means the shares and other securities held by the Borrower in
the capital of XI and all other securities of the Subsidiaries held by the
Borrower from time to time, together with the related assets described in the
Pledge Agreement;
"POINTS" means Points.com Inc., a corporation incorporated under the laws of
Ontario, its successors and assigns;
"PRINCIPAL AMOUNT" means the principal amount outstanding under this Debenture
from time to time, being the Original Principal Amount as increased or decreased
pursuant to the terms and conditions of this Debenture;
"PUBLIC OFFERING" means a sale or other distribution to the public of treasury
shares of the Borrower by way of a prospectus, registration statement or other
similar disclosure document which would result in those shares being freely
tradeable in a jurisdiction in Canada or in the United States to and between
members of the public without the requirement of filing a further prospectus or
similar disclosure document;
"PURCHASE MONEY OBLIGATIONS" means the outstanding balance of the purchase price
of real and/or personal property, title to which has been acquired or will be
acquired upon payment of such purchase price, or indebtedness to non-vendor
third parties incurred to finance the acquisition of such new and not
replacement real and/or personal property, or any refinancing of such
indebtedness or outstanding balance;
"QUALIFIED PUBLIC OFFERING" means a Public Offering having the following
characteristics:
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(i) the Borrower's Common Shares issued pursuant to the Public Offering are
listed for trading on The Toronto Stock Exchange, The Nasdaq Stock Market
or another senior securities exchange satisfactory to the Board of
Directors;
(ii) the gross proceeds from the Public Offering to the Borrower are at least
$30,000,000 in the aggregate;
(iii) the issue price per Common Share in the Public Offering is at least four
times the Conversion Price; and
(iv) the Borrower has an equity value (using the price at which the shares of
the Borrower are being offered pursuant to the Public Offering) of at least
$175,000,000 on a pre-offering basis;
"QUALIFYING PROVINCES" has the meaning attributed to such term in Section 3.12;
"REDEEMABLE PREFERRED SHARES" shall mean, in respect of any Person, shares of
the capital stock (or other equity interests) of such Person that are entitled
to preference or priority over any other shares of the capital stock (or other
equity interests) of such Person in respect of payment of dividends (or their
equivalent) or distribution of assets upon liquidation, and which are:
(a) redeemable, payable or required to be purchased or otherwise retired or
extinguished or convertible into Debt of such Person, in any case (a) at a
fixed or determinable date, whether by operation of sinking fund or
otherwise, (b) at the option of any Person other than such Person, or (c)
upon the occurrence of a condition not solely within the control of such
Person, or
(b) convertible into other Redeemable Preferred Shares;
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including the movement of Hazardous Materials through
ambient air, soil, surface water, ground water, wetlands, land or subsurface
strata;
"REORGANIZATION" has the meaning attributed to such term in Section 8.1;
"RESTRICTED PAYMENT" means, with respect to the Borrower and any Subsidiary, any
payment by such Person to any other Person (a) of any dividends or any other
distribution on any shares of its capital, (b) on account of, or for the purpose
of setting apart any property for a sinking or other analogous fund for, the
purchase, redemption, retirement or other acquisition of any shares of its
capital or any warrants, options or rights to acquire any such shares, (c) of
any principal of, or interest or premium on, or of any amount in respect of a
sinking or analogous fund or defeasance fund for, any Debt of the Borrower
ranking in right of payment pari passu with or subordinate to the Obligations or
(d) of any management, consulting or similar fee, or any material bonus or
comparable payment, or material payment by way of gift or other gratuity, to any
Non-Arm's Length
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Person, unless such payment is to a director or to a senior or executive officer
of the Borrower or a Subsidiary either in the ordinary course of employment or
with the approval of the board of directors of the Borrower or the applicable
Subsidiary;
"RIGHT OF POSTPONEMENT" has the meaning attributed to such term in Section 2.4;
"SALE-LEASEBACK" means an arrangement under which title to any property or an
interest therein is transferred by or on the direction of a Person ("X") to
another Person which leases or otherwise grants the right to use such property,
asset or interest (or other property, which X intends to use for the same or a
similar purpose) to X (or nominee of X), whether or not in connection therewith
X also acquires a right or is subject to an obligation to acquire the property,
asset or interest, and regardless of the accounting treatment of such
arrangement;
"SECURITY" means the Liens created by the Security Documents;
"SECURITY DOCUMENTS" means the Pledge Agreement, the General Security Agreement,
the XI Guarantee, the XI Pledge Agreement, the XI General Security Agreement and
any other guarantees and security documents held from time to time by the
Lender, securing or intended to secure repayment of the Obligations, including
the security described in Section 4.1 hereunder and, in the singular, any one of
such Security Documents;
"SUBSCRIBER DOCUMENTS" has the meaning attributed to such term in the
Subscription Agreement;
"SUBSCRIPTION AGREEMENT" means the subscription agreement dated the Original
Issue Date between the Borrower and the Lender pursuant to which the Lender
subscribed for this Debenture, as amended, restated or replaced from time to
time;
"SUBSIDIARY" means, with respect to a corporation, a subsidiary body corporate
within the meaning of the Business Corporations Act, (Ontario) as in force on
the date of this Agreement, and any partnership or other organization in respect
of which the corporation or any Subsidiary of the corporation has the right to
make or control management decisions, and "SUBSIDIARIES" means all of them.
Where the term "Subsidiary" or "Subsidiaries" is used herein without further
qualification, such term shall mean a Subsidiary or the Subsidiaries of the
Borrower. For greater certainty, ThinOffice shall at all times be deemed a
Subsidiary of the Borrower until it is sold as contemplated by section 8.1(a)
and each of XI and Points shall at all times be deemed Subsidiaries of the
Borrower until, if applicable, it is amalgamated with the Borrower as
contemplated by section 8.1(d);
"TAXES" means all taxes of any kind or nature whatsoever including, without
limitation, income taxes, sales or value-added taxes, levies, stamp taxes,
royalties, duties, and all fees, deductions, compulsory loans and withholdings
imposed, levied, collected, withheld or assessed as of the Original Issue Date
or at any time in the future, by an Governmental
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Authority of or within Canada or any other jurisdiction whatsoever having power
to tax, together with penalties, fines, additions to tax and interest thereon;
"THINOFFICE" means ThinOffice Inc., a corporation incorporated under the laws of
Ontario, its successors and assigns;
"XI" means Exclamation Inc., a corporation incorporated under the laws of
Ontario, its successors and assigns;
"XI DEBENTURE" means the debenture of XI dated the Original Issue Date in the
aggregate principal amount of $4,000,000 to be issued to the Borrower, as
amended, restated or replaced from time to time;
"XI GENERAL SECURITY AGREEMENT" means the general security agreement to be dated
the Original Issue Date and to be entered into by XI in favour of the Lender, in
form and substance satisfactory to the Lender, as amended, restated or replaced
from time to time;
"XI GUARANTEE" means the guarantee dated the Original Issue Date and to be
entered into by XI in favour of the Lender, in form and substance satisfactory
to the Lender, as amended, restated or replaced from time to time; and
"XI PLEDGE AGREEMENT" means the pledge agreement dated the Original Issue Date
entered into by XI in favour of the Lender, in form and substance satisfactory
to the Lender, as amended, restated or replaced from time to time.
1.2. INVALIDITY, ETC.
Each of the provisions contained in this Debenture is distinct and
severable and a declaration of invalidity, illegality or unenforceability of any
such provision or part thereof by a court of competent jurisdiction shall not
affect the validity or enforceability of any other provision hereof.
1.3. HEADINGS, ETC.
The division of this Debenture into articles, sections and clauses, the
inclusion of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation hereof.
1.4. GOVERNING LAW
This Debenture shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
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1.5. ATTORNMENT
The parties hereto irrevocably submit and attorn to the non-exclusive
jurisdiction of the courts of the Province of Ontario for all matters arising
out of or in connection with this Debenture.
1.6. CURRENCY
Except as otherwise specifically provided herein, monetary amounts in this
Debenture are stated in and will be paid in Canadian dollars.
1.7. THIS AGREEMENT TO GOVERN
If there is any inconsistency between the terms of this Debenture and the
terms of any Security Document, the provisions hereof shall prevail to the
extent of the inconsistency.
1.8. ACTIONS ON DAYS OTHER THAN BUSINESS
Except as otherwise specifically provided herein, where any payment is
required to be made or any other action is required to be taken on a particular
day and such day is not a Business Day and, as a result, such payment cannot be
made or action cannot be taken on such day, then this Debenture shall be deemed
to provide that such payment shall be made or such action shall be taken on the
first Business Day after such day.
1.9. INTEREST ACT
For the purposes of the Interest Act (Canada) and disclosure under such
act, whenever interest to be paid under this Debenture or any Loan Document is
to be calculated on the basis of a year of 365 days or 360 days or any other
period of time that is less than a calendar year, the yearly rate of interest to
which the rate determined pursuant to such calculation is equivalent is the rate
so determined multiplied by the actual number of days in the calendar year in
which the same is to be ascertained and divided by either 365, 360 or such other
period of time, as the case may be.
1.10. SCHEDULES, ETC.
The following are the schedules attached to this Agreement
Schedule A - Compliance Certificate
Schedule B - General Disclosure
Schedule C - Permitted Liens
Schedule D - Reorganization Term Sheet
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ARTICLE 2.
PAYMENTS
2.1. INTEREST RATE
Interest shall accrue from the Original Issue Date on the outstanding
Principal Amount of this Debenture from time to time at a rate of 11% per annum.
2.2. CALCULATION AND PAYMENT OF INTEREST
Interest on the outstanding Principal Amount shall accrue from day to day,
both before and after default, demand, maturity and judgment, and shall be
calculated on the basis of the actual number of days elapsed and on the basis of
a year of 365 days. Unless payment is otherwise required in accordance with the
terms and conditions of this Debenture, interest shall be payable on this
Debenture in cash on the Maturity Date (for greater certainty, as contemplated
by section 3.4.4, if the Lender prior to or on the Maturity Date exercises its
Conversion Right, interest shall be payable in cash on the Maturity Date only in
respect of interest which has accrued over the term of this Debenture on that
portion of the Principal Amount which is not converted pursuant to the exercise
of the Conversion Right).
Interest shall compound on an annual basis on the last day immediately
prior to each anniversary of the Original Issue Date (and thereafter interest
shall accrue on such compounded interest at the rate set out in Section 2.1).
2.3. REPAYMENT OF THE DEBENTURE
Subject to the terms and conditions of this Debenture, the Borrower shall
not be required, and shall not be entitled, to make payments of principal on
this Debenture except as set out in the next sentence, unless prepayment is
required pursuant to the provisions of Section 2.9 hereof or the Obligations are
declared due and payable in accordance with Section 7.2. Unless payment is
otherwise required or made earlier in accordance with the terms and conditions
of this Debenture, the Principal Amount of this Debenture, together with all
accrued and unpaid interest and other amounts payable under this Debenture,
shall be due and payable in full in cash on the Maturity Date.
2.4. RIGHT OF POSTPONEMENT
The Lender shall be entitled to elect to extend the term of the Debenture
(the "Right of Postponement") for a maximum of four (4) successive one year
periods by providing up to four (4) notices (each, an "Extension Notice") to the
Borrower, in each case no later than 95 days prior to the then Maturity Date.
Each Extension Notice shall extend the term of the Debenture (and, as a result,
the Maturity Date) by one year and must be delivered to the Borrower prior to
the Maturity Date which is applicable prior to the delivery of the applicable
Extension Notice (for greater certainty, if the Lender delivers an Extension
Notice prior to March 15, 2004, the Maturity Date shall be extended to March 15,
2005 and if the Lender delivers a second
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Extension Notice prior to March 15, 2005, the Maturity Date shall be extended to
March 16, 2006 and so on).
2.5. SALE FROM TREASURY
The Lender acknowledges that the Borrower may, at its option, and without
the requirement of obtaining the Lender's consent make arrangements within 90
days prior to the Maturity Date: (a) complete the sale to third parties from
treasury of the number of its Common Shares required to raise the cash necessary
to repay this Debenture (including interest); or (b) charge assets of the
Borrower, such charges subordinate to the Security, to raise the cash necessary
to repay this Debenture (including interest) (and for greater certainty upon the
due payment and performance in full of all the obligations of the Borrower under
this Debenture and the other Loan Documents the Lender agrees to release the
property of the Borrower and XI under the Security as required by Section 4.5);
or (c) sell some or all of its assets (effective at the time repayment of this
Debenture is due) and use the sale proceeds from such sale or sales to repay the
Debenture (including interest) (provided that the proceeds of such sale or sales
shall not exceed the amount required to be repaid on such date).
2.6. DEFEASANCE
If the Borrower duly and irrevocably pays into a trust bank account,
designated by the Lender, for the benefit of the Lender, the Principal Amount
owing on such date plus the maximum total interest which may accrue and may be
payable under this Debenture as of March 15, 2008 (being the latest possible
date of the Maturity Date), then the Borrower and its Subsidiaries' obligations
under Article 5 hereof (except for subsection 5.1.1) will cease and become null
and void and the Security will revert to and revest in the Borrower and XI
without any release, acquittance, reconveyance, re-entry or other act or
formality whatsoever. The Lender shall, upon the written request and at the
expense of the Borrower, in such circumstances, cancel and discharge the
Security and execute and deliver to the Borrower such deeds or other instruments
as shall be requisite to discharge the Security and to reconvey to the Borrower
(or as it may in writing direct) any property subject to the Security (in each
case, other than as set forth above). For greater certainty, no defeasance by
the Borrower or release of covenants or Security shall affect the Lender's
rights to extend the Maturity Date as permitted by Section 2.4 or to convert all
or any part of this Debenture as permitted by Article 3.
2.7. APPLICATION OF PREPAYMENTS AND REPAYMENTS
Any amounts prepaid or repaid with the consent of the Lender or where
required pursuant to the terms hereof shall not be reborrowed. All amounts
prepaid or repaid shall be applied firstly in reduction of the accrued and
unpaid interest then outstanding and thereafter in reduction of the principal
amount of this Debenture being prepaid or repaid.
2.8. PAYMENTS GENERALLY
All payments made pursuant to this Debenture (in respect of principal,
interest or otherwise) shall be made by the Borrower to the Lender by way of
deposit by or on behalf of the
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Borrower to the account specified therefor by the Lender no later than 3:00 p.m.
(Toronto time) on the due date therefor. Any payments received after such time
shall be considered for all purposes as having been made on the next following
Business Day unless the Lender otherwise agrees in writing.
2.9. PAYMENTS - NO DEDUCTION
All payments made in respect of this Debenture (in respect of principal,
interest or otherwise) shall be made in full without set-off or counterclaim,
and free of and without deduction or withholding for any present or future
Taxes, other than Excluded Taxes, provided that if the Borrower shall be
required by law to deduct or withhold any Taxes, other than Excluded Taxes, from
or in respect of any payment or sum payable to the Lender, the payment or sum
payable shall be increased as may be necessary so that after making all required
deductions or withholdings, the Lender receives an amount equal to the sum it
would have received if no deduction or withholding had been made and the
Borrower shall pay the full amount deducted to the relevant taxation or other
authority in accordance with Applicable Law.
If the Lender becomes liable for any Tax in the jurisdiction in which the
Borrower is located as a result of a payment being made without the required Tax
in that jurisdiction having been deducted or withheld, the payor shall indemnify
the Lender for such Tax and any interest and penalties thereon, and the
indemnity payment shall be increased as necessary so that after the imposition
of any Tax in that jurisdiction on the indemnity payment (including Tax in
respect of any such increase in the indemnity payment), the Lender shall receive
the full amount of Taxes, interest and penalties for which it is liable in that
jurisdiction.
2.10. ILLEGALITY
If any Applicable Law coming into force after the Original Issue Date, or
if any change in any existing Applicable Law or in the interpretation or
application thereof by any court or Governmental Authority, now or hereafter
makes it unlawful for the Lender to have subscribed for or hold this Debenture
or to give effect to its obligations in respect thereof, the Lender may, by
written notice thereof to the Borrower, declare its obligations under this
Debenture to be terminated, and the Borrower shall prepay, within the time
required by such law, the Principal Amount of the Debenture together with
accrued interest thereon and any other amounts owing under this Debenture as may
be applicable to the date of such payment. If any such event shall, in the
opinion of the Lender, only affect part of this Debenture, the remainder of the
Debenture shall be unaffected and the obligations of the Borrower under the Loan
Documents shall continue.
2.11. CHANGE IN CIRCUMSTANCES
If the introduction of or any change in any Applicable Law relating to the
Lender or any change in the interpretation of application thereof by any
Governmental Authority or compliance by the Lender with any request or direction
of any Governmental Authority:
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(a) subjects the Lender or causes the withdrawal or termination of a
previously granted exemption with respect to, any Taxes or changes the
basis of taxation of payments due to the Lender or increases any
existing Taxes on payments of amounts owning to the Lender (other than
Taxes of application to the overall income of the Lender);
(b) imposes, modifies or deems applicable any reserve, liquidity, cash
margin, capital, special deposit, deposit insurance or assessment, or
any other regulatory or similar requirement against assets held by, or
deposits in or for the account of, or loans by, or any other
acquisition of funds for loans by, the Lender;
(c) imposes on the Lender or requires there to be maintained by the Lender
any capital adequacy or additional capital requirement (including,
without limitation, a requirement which affects the Lender's
allocation of capital resources to its obligations) in respect of the
Lender's obligations hereunder; or
(d) imposes on the Lender any other condition or requirement with respect
to this Debenture (other than Taxes of application to the overall
income of the Lender);
and such occurrence has the effect of:
(e) increasing the cost to the Lender of agreeing to make or making,
maintaining or funding this Debenture or any portion thereof;
(f) reducing the amount of the Obligations owing to the Lender;
(g) directly or indirectly reducing the effective return to the Lender
under this Debenture or on its overall capital as a result of entering
into this Debenture or as a result of any of the transactions or
obligations contemplated by this Debenture (other than a reduction
resulting from a higher rate of income tax being imposed on the
Lender's overall income); or
(h) causing the Lender to make any payment or to forego any interest, fees
or other return on or calculated by reference to any sum received or
receivable by the Lender hereunder;
then, the Lender shall also advise the Borrower by way of a certificate of an
officer of setting forth, with sufficient particulars (including for greater
certainty, the details of calculations relevant thereto), the facts relevant to
the application of this Section 2.11, and, absent manifest error in such
officer's certificate, the Borrower shall promptly upon demand by the Lender pay
or cause to be paid to the Lender such additional amounts as shall be sufficient
to fully indemnify the Lender for such additional cost, reduction, payment,
foregone interest or other return. A certificate of the Lender documenting the
relevant calculations and submitted to the Borrower by the Lender shall be
conclusive and binding for all purposes, absent manifest error.
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2.12. PAYMENT OF COSTS AND EXPENSES
The Borrower shall pay to the Lender on demand all reasonable costs and
expenses of the Lender and its agents and any receiver or receiver-manager
appointed by it or by a court in connection with this Debenture and the
Subscriber Documents, including, without limitation:
2.12.1. prior to the date of advance of the Original Principal Amount, the
preparation of this Debenture or any of the Subscriber Documents (to a
maximum of $[ ]);
2.12.2. following the date of advance of the Original Principal Amount, the
preparation of any actual or proposed amendment or modification hereof or
thereof or any waiver hereunder or thereunder and all instruments
supplemental or ancillary thereto;
2.12.3. following the date of advance of the Original Principal Amount
obtaining advice as to the Lender's rights and responsibilities under this
Debenture or the Subscriber Documents; and
2.12.4. the defence, establishment, protection or enforcement of any of the
rights or remedies of the Lender under this Debenture or any of the
Subscriber Documents including, without limitation, all costs and expenses
of establishing the validity and enforceability of, or of collection of
amounts owing under, any of the Security Documents or any enforcement of
the Security;
including, without limitation, all of the reasonable fees, expenses and
disbursements of legal counsel to the Lender incurred in connection therewith.
2.13. INDEMNITIES
2.13.1. The Borrower shall indemnify and save harmless the Lender from all
claims, demands, liabilities, damages, losses, costs, charges and expenses
(including the reasonable fees, expenses and disbursements of legal counsel
to the Lender), which may be incurred by the Lender as a consequence of or
in respect of (i) default by the Borrower in the payment when due of any
Obligation or any other Default or Event of Default hereunder, (ii) the
application by the Borrower or any Subsidiary of the proceeds of this
Debenture. A certificate of the Lender as to any such loss or expense and
containing reasonable details of the calculation of such loss or expense
shall be, absent manifest error, prima facie evidence of the amount of such
loss or expense.
2.13.2. The Borrower shall indemnify and save harmless the Lender and its
Affiliates, agents, officers, directors and employees (each an "Indemnified
Party") from all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including without limitation any investigatory,
remedial, clean-up, compliance or preventative costs, charges and expenses)
(collectively, "Claims") which may be asserted against or incurred by such
Indemnified Party under or on account of any applicable Environmental Law
(including the assertion of any Lien thereunder), whether upon realization
of the Security, or as a lender to the Borrower, or as successor to or
assignee of any right or interest of the
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Borrower or any of the Borrower's Subsidiaries or as a result of any order,
investigation or action by any Governmental Authority relating to any one
of its or their business or property, including without limitation any
Claims arising from:
(a) the Release of a Contaminant, the threat of the Release of any
Contaminant, or the presence of any Contaminant affecting the real or
personal property of the Borrower or any of its Subsidiaries, whether
or not the Contaminant originates or emanates from such Person's
property or any other real property or personal property located
thereon;
(b) the Release of a Contaminant owned by, or under the charge, management
or control of, the Borrower or any of its Subsidiaries or any
predecessors or assignors thereof;
(c) any costs of removal or remedial action incurred by any Governmental
Authority or any costs incurred by any other Person or damages from
injury to, destruction of, or loss of natural resources in relation
to, the real property or personal property of the Borrower or any of
its Subsidiaries or any contiguous real property or elsewhere or
personal property located thereon, including reasonable costs of
assessing such injury, destruction or loss incurred pursuant to
Environmental Law;
(d) liability for personal injury or property damage arising by reason of
any civil law offences or quasi-criminal offences or under any
statutory or common tort law theory and any and all other third party
claims of any and every nature whatsoever, including, without
limitation, damages assessed for the maintenance of a public or
private nuisance or for the carrying on of a dangerous activity at,
near, or with respect to the real or personal property of the
Borrower, or any of its Subsidiaries or elsewhere; and/or
(e) any other matter relating to the Natural Environment and Environmental
Law affecting the property or the operations and activities of the
Borrower or any of its Subsidiaries within the jurisdiction of any
Governmental Authority.
2.14. MAXIMUM RATE OF INTEREST
Notwithstanding anything herein or in any Subscriber Document to the
contrary:
(a) In the event that any provision of this Debenture or any other
Subscriber Documents would oblige the Borrower to make any payment of
interest or other amount payable to the Lender in an amount or
calculated at a rate which would be prohibited by law or would result
in a receipt by the Lender of interest at a criminal or prohibited
rate (as such terms are construed under the Criminal Code (Canada) or
any other Applicable Law), then notwithstanding such provision, such
amount or rate shall be deemed to have been adjusted with the same
effect as if adjusted at the Original Issue Date to the maximum amount
or rate of interest, as the case may be, as would not be so prohibited
by law or so result in a receipt by
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the Lender of interest at a criminal or prohibited rate, such
adjustment to be effected to the extent necessary in each case, as
follows:
(i) by reducing any fees and other amounts which would constitute
interest for the purposes of Section 347 of the Criminal Code
(Canada) or any other applicable law; and
(ii) by reducing the amount or rate of interest exigible under Article
2 of this Debenture.
(b) Any amount or rate of interest referred to in this Section 2.14 shall
be determined in accordance with generally accepted actuarial
practices and principles over the maximum term of this Debenture (or
over such shorter term as may be required by Section 347 of the
Criminal Code (Canada)) and, in the event of a dispute, a certificate
of a Fellow of the Canadian Institute of Actuaries appointed by the
Lender shall be conclusive for the purposes of such determination,
absent manifest error.
ARTICLE 3.
CONVERSION OF DEBENTURE
3.1. CONVERSION RIGHT
Upon and subject to the terms and conditions of this Article, the Lender
shall have the right (the "Conversion Right"), at its option, at any time prior
to the close of business on the Maturity Date to convert up to $6,000,000 (the
"Maximum Amount") of the Principal Amount hereof into Common Shares at the
Conversion Price.
3.2. AUTOMATIC CONVERSION
The Maximum Amount of the Principal Amount of this Debenture shall be
automatically converted at the Conversion Price into Common Shares on the date
(the "Date of Automatic Conversion") immediately preceding one of the following
events (each, a "Liquidity Event"):
(i) All of the outstanding Common Shares are sold, transferred or
otherwise Disposed of for a price per share of at least four times the
Conversion Price;
(ii) All or substantially all of the assets of the Borrower are sold for a
price that, upon distribution of the net proceeds thereof to the
shareholders of the Borrower, (after paying or making provisions for
all creditors of the Borrower), would result in net proceeds per
Common Share to the Lender, after conversion of the Maximum Amount of
this Debenture into Common Shares and making of such distribution, of
at least four times the Conversion Price; or
(iii) A Qualified Public Offering;
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provided that in the case of (i) or (ii) above, the Lender shall receive a
payment (consisting of cash or readily liquid securities as determined by the
Lender in its sole discretion) promptly after the Date of Automatic Conversion
of the full value of the Common Shares received by the Lender pursuant to the
automatic conversion (which payment shall be made pursuant to a sale or purchase
for cancellation of, or receipt of a liquidating distribution on, the Common
Shares received by the Lender pursuant to such automatic conversion).
3.3. CONVERSION PRICE
The Conversion Price, subject to adjustment in accordance with this
Article, shall be $0.31732 per Common Share.
3.4. MANNER OF EXERCISE OF CONVERSION
The following rules apply with respect to the conversion of up to the
Maximum Amount of this Debenture:
3.4.1. To exercise the Conversion Right, or to give effect to the
conversion of this Debenture upon Automatic Conversion, the Lender shall
surrender this Debenture at the office of the Borrower in the City of
Toronto together with (in the case of exercise of the Conversion Right)
written notice (which shall be irrevocable) in a form satisfactory to the
Borrower, duly executed by the Lender exercising the Conversion Right in
respect of any amount of this Debenture in accordance with the provisions
of this Article, stating the Principal Amount which the Lender elects to
convert. In the case of exercise of the Conversion Right the surrender of
this Debenture accompanied by such written notice shall be deemed to
constitute a contract between the Lender and the Borrower whereby: (i) the
Lender subscribes for the number of Common Shares which the Lender shall be
entitled to receive on such conversion; (ii) the Lender releases the
Borrower from all liability to pay the Principal Amount of this Debenture
to be converted; (iii) the Borrower agrees that the surrender of this
Debenture for conversion constitutes full payment of the subscription price
for the Common Shares issuable upon such conversion. Thereupon the Lender
will be entitled to be entered in the books of the Borrower as at the Date
of Conversion or the Date of Automatic Conversion, as the case may be, as
the holder of the number of Common Shares into which such Debenture has
been converted in accordance with the provisions of this Article and, as
soon as practicable thereafter, the Borrower will deliver to the Lender a
certificate or certificates for such Common Shares entered.
3.4.2. For the purposes of the exercise of the Conversion Right, this
Debenture will be deemed to be surrendered for conversion on the date (the
"Date of Conversion") on which it is so surrendered in accordance with the
provisions of this Article.
3.4.3. The Lender shall, upon the exercise of the Conversion Right,
surrender this Debenture to the Borrower and the Borrower will cancel the
same and will, without charge, promptly deliver to the Lender a new
Debenture in an aggregate Principal Amount equal to the part of the
Principal Amount of this Debenture that was not converted. For greater
certainty, the Lender shall continue to have the right to convert the
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new Debenture into Common Shares until the Maturity Date provided that in
no case shall the aggregate Principal Amount converted exceed the Maximum
Amount.
3.4.4. Upon conversion the Lender shall no longer be entitled to receive
accrued and unpaid interest (other than capitalized interest (but excluding
from capitalized interest compounded interest)) on the part of this
Debenture surrendered for conversion up to but excluding the Date of
Conversion, or the Date of Automatic Conversion, as the case may be, but
Common Shares issued upon such conversion will rank only in respect of
dividends declared in favour of shareholders of record on and after the
Date of Conversion or the Date of Automatic Conversion, as the case may be,
from which applicable date they will for all purposes be and be deemed to
be issued and outstanding fully paid and non-assessable Common Shares.
Interest on the Principal Amount of this Debenture which is converted (and
any compounded interest in respect of the Principal Amount so converted)
shall cease to accrue from and after the Conversion Date or the Date of
Automatic Conversion, as the case may be.
3.5. ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF COMMON SHARES ISSUABLE UPON
CONVERSION
The Conversion Price (and the number of Common Shares issuable upon
conversion of this Debenture as provided below) is subject to adjustment from
time to time in the events and in the manner provided as follows:
3.5.1. If and whenever at any time after the Original Issue Date the
Borrower:
(a) subdivides its outstanding Common Shares into a greater number of
shares; or
(b) consolidates its outstanding Common Shares into a smaller number
of shares; or
(c) distributes Common Shares or securities exchangeable for or
convertible into Common Shares by way of a stock dividend or
other distribution to all or substantially all holders of Common
Shares, or distributes to all or substantially all holders of
Common Shares any other securities or assets;
(any such events being called a "Common Share Reorganization"), then the
Conversion Price will be adjusted effective immediately after the effective date
or record date for the happening of a Common Share Reorganization, as the case
may be, at which the holders of Common Shares are determined for the purpose of
the Common Share Reorganization by multiplying the Conversion Price in effect
immediately prior to such effective date or record date by a fraction, the
numerator of which is the number of Common Shares (on a fully diluted basis)
outstanding on such effective date or record date before giving effect to such
Common Share Reorganization and the denominator of which is the number of Common
Shares (on a fully diluted basis) outstanding immediately after giving effect to
such Common Share Reorganization.
3.5.2. If and whenever at any time after the Original Issue Date there is a
reclassification of Common Shares outstanding at any time or change of the
Common
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Shares into other shares or into other securities (other than a Common
Share Reorganization), or a consolidation, amalgamation or merger of the
Borrower with or into any other Borrower or other entity (other than a
consolidation, amalgamation or merger which does not result in any
reclassification of the outstanding Common Shares or a change of the Common
Shares into other shares), or a transfer of the undertaking or assets of
the Borrower as an entirety or substantially as an entirety to another
Borrower or other entity (any of such events being called a "Capital
Reorganization"), the Lender, upon exercise of its right to convert this
Debenture after the effective date of such Capital Reorganization, will be
entitled to receive, and must accept for the same aggregate consideration
in lieu of the number of Common Shares to which the Lender was theretofore
entitled upon such conversion, the aggregate number of shares, other
securities or other property which the Lender would have been entitled to
receive as a result of such Capital Reorganization as if, on the effective
date thereof, the Lender had been the registered holder of the number of
Common Shares to which the Lender was theretofore entitled upon conversion.
If determined appropriate by the Borrower, adjustments will be made as a
result of any such Capital Reorganization in the application of the
provisions set forth in this Article with respect to the rights and
interests thereafter of the Lender to the end that the provisions set forth
in this Article will thereafter correspondingly be made applicable as
nearly as may reasonably be in relation to any shares, other securities or
other property thereafter deliverable upon the conversion of this
Debenture. Any such adjustment must be approved by action by the directors
and will for all purposes be conclusively deemed to be an appropriate
adjustment if so approved by the directors and the Lender.
3.6. RULES REGARDING CALCULATION OF ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF
COMMON SHARES ISSUABLE UPON CONVERSION
For the purposes of Section 3.5:
3.6.1. The adjustments provided in Section 3.5 are cumulative and will, in
the case of Adjustments to the Conversion Price, be computed to the nearest
one-tenth of one cent and will be made successively whenever an event
referred to therein occurs, subject to the following subsections of this
section.
3.6.2. No adjustment in the Conversion Price will be made under Section 3.5
in respect of the issue from time to time of Common Shares issuable on
conversion of this Debenture and any such issue will be deemed not to be a
Common Share Reorganization.
3.6.3. If at any time a dispute arises with respect to the adjustments
provided for in Section 3.5, such dispute will be conclusively determined
by such firm of nationally recognized independent chartered accountants as
may be selected by the Borrower and the Lender (or if they are unable to
agree upon such a firm, then the Borrower and the Lender shall each select
a representative from one such firm and those two individuals shall select
a third firm) and any such determination will be binding upon the Borrower,
the Lender and shareholders of the Borrower. The Borrower will provide such
accountants
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with access to all necessary records of the Borrower. If any such
determination is made, the Borrower shall deliver a notice of the Lender
describing such determination.
3.6.4. In case the Borrower after the Original Issue Date takes any action
affecting the Common Shares, other than action described in Section 3.5,
which in the opinion of the directors of the Borrower acting in good faith
would materially affect the rights of the Lender, the Conversion Price or
the number of Common Shares issuable upon conversion will be adjusted in
such manner, if any, and at such time, by action of the directors of the
Borrower as may be equitable in the circumstances.
3.6.5. If the Borrower sets a record date to determine the holders of the
Common Shares for the purpose of entitling them to receive any dividend or
distribution or sets a record date to take any other action and, thereafter
and before the distribution to such shareholders of any such dividend or
distribution or the taking of any other action, decides not to implement
its plan to pay or deliver such dividend or distribution or take such other
action, then no adjustment in the Conversion Price or the number of Common
Shares issuable upon conversion of this Debenture will be required by
reason of the setting of such record date.
3.6.6. As a condition precedent to the taking of any action which would
require any adjustment in any of the conversion rights pursuant to this
Debenture, including the Conversion Price and the number and class of
shares or other securities which are to be received upon the conversion
thereof, the Borrower shall take any corporate action which may, in the
opinion of counsel, be necessary in order that the Borrower have unissued
and reserved in its authorized capital and may validly and legally issue as
fully paid and non-assessable all the shares or other securities which the
Lender is entitled to receive on the full conversion thereof in accordance
with the provisions thereof.
3.7. POSTPONEMENT OF SUBSCRIPTION
In any case in which this Article requires that an adjustment be effective
immediately after a record date for an event referred to herein, the Borrower
may defer, until the occurrence of such an event:
3.7.1. issuing to the Lender, if this Debenture is converted after such
record date and before the occurrence of such event, the additional Common
Shares issuable upon such conversion by reason of the adjustment required
by such event; and
3.7.2. delivering to the Lender any distributions declared with respect to
such additional Common Shares after such exercise date and before such
event;
provided, however, that the Borrower delivers to the Lender an appropriate
instrument evidencing the Lender's right, upon the occurrence of the event
requiring the adjustment, to an adjustment in the Conversion Price or the number
of Common Shares issuable on the conversion of this Debenture and to such
distributions declared with respect to any additional Common Shares issuable on
the conversion of this Debenture.
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3.8. NO REQUIREMENT TO ISSUE FRACTIONAL SHARES
The Borrower is not required to issue fractional Common Shares upon the
conversion of this Debenture. If any fractional interest in a Common Share
would, but for the provisions of this section, be deliverable upon the
conversion of any Principal Amount of this Debenture, the number of Common
Shares to which the Lender is entitled upon conversion will be rounded up to the
next whole number.
3.9. COMPANY TO RESERVE COMMON SHARES
The Borrower covenants with the Lender that it will at all times reserve
and keep available out of its authorized Common Shares, solely for the purpose
of issue upon conversion of this Debenture, such number of Common Shares as will
then be issuable upon the conversion of the Maximum Amount of this Debenture.
The Borrower covenants with the Lender that all Common Shares which will be so
issuable will, on surrender and conversion of this Debenture in accordance with
the terms hereof, be duly and validly issued as fully paid and non-assessable.
3.10. TAXES AND CHARGES ON CONVERSION
The Borrower will from time to time promptly pay any and all taxes and
charges which may be imposed by the laws of Canada or any province thereof
(except income tax or security transfer tax, if any) which are payable by the
Borrower with respect to the issuance and/or delivery to the Lender, upon the
exercise of the Conversion Right, of Common Shares.
3.11. NOTICE OF ADJUSTMENT
The Borrower shall forthwith give notice to the Lender specifying any event
requiring any adjustment or readjustment and the results thereof, including the
resulting Conversion Price.
3.12. REGISTRATION RIGHTS
(a) If, at any time after the date hereof and on or prior to the Expiry Date,
the Borrower shall be requested by the Lender to file and obtain a receipt
for a (final) prospectus of the Borrower to qualify the distribution of the
Common Shares issuable upon conversion of this Debenture (the
"Prospectus"), which request shall specify the principal amount of the
Debenture to be converted and the jurisdictions in which such Prospectus
shall be filed), the Borrower shall, subject to Section 3.12(b), use its
best efforts to file such Prospectus and obtain such receipt (the
"Qualification Requirement").
(b) Anything contained in Section 3.12(a) to the contrary notwithstanding, the
Borrower shall not be obligated to effect the Qualification Requirement
pursuant to Section 3.12(a) except in accordance with the following
provisions:
(i) the Borrower shall not be obligated to use its best efforts to
effect the Qualification Requirement pursuant to Section 3.12(a),
(x) on more than two occasions, provided that on each occasion at
least $1,500,000 of the
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principal amount of this Debenture which may be converted is to
be converted and the Common Shares issuable as a result thereof
(the "Conversion Shares") are to be distributed to the Lender
under the Prospectus, and (y) unless the jurisdictions in which
such Prospectus is to be filed is limited to one or more of any
of the jurisdictions in which the Borrower is a "reporting
issuer" or has equivalent status in Canada;
(ii) the Borrower may delay the filing or effectiveness of such
Prospectus or delay the qualification of Conversion Shares
pursuant to the issuance of a receipt for such Prospectus, for a
period of up to 30 days after the receipt of a request under
Section 3.12(a): (x) if at the time of such request the Borrower
has entered into a commitment letter for an offering of Common
Shares by way of a prospectus (in which case the Borrower will
use its best efforts to permit the holder of this Debenture to
qualify the conversion of the Debenture pursuant to Section
3.12(a)); or (y) if the Borrower has entered into a letter of
intent in respect of any proposal or plan by the Borrower to
engage in any acquisition of substantial assets or substantially
all of the shares of another person or company, sale of all or
substantially all of its shares or assets, merger, or
consolidation (with an affiliated third party), disclosure of
which would be required in such Prospectus, and the Corporation
determines in good faith that such disclosure would be materially
detrimental to the Borrower or would have a material adverse
effect on any such confidential negotiations, provided that the
Borrower may only exercise this right twice, not in succession,
in respect of the Qualification Requirement.
(iii) with respect to the Prospectus pursuant to Section 3.12(a), the
Borrower may include in such Prospectus any Common Shares (the
"Offered Shares"), provided, however, that if the Lender
determines, acting reasonably and in good faith, that the
inclusion of all of the Offered Shares in such Prospectus would
materially and adversely effect the re-sale by the Lender of the
Conversion Shares, then the number of Conversion Shares and/or
Offered Shares proposed to be distributed under such Prospectus
shall be included in the following order, (x) first, the
Conversion Shares requested by the Lender to be distributed under
such Prospectus, and (y) second, the Offered Shares.
(c) If, at any time after the date hereof and on or prior to the Expiry Date,
the Borrower decides to effect a registration under the Securities Act of
1933, as amended, of Common Shares (the "Registerable Shares"), it shall
give written notice to the Lender of such decision and, upon the written
request of the Lender (the "Registration Request"), delivered to the
Borrower within 15 days after deliver of any such notice by the Borrower,
to include in such registration the Conversion Shares (which request shall
specify the number of Conversion Shares proposed to be included in such
registration), the Borrower shall use its best effort to cause such
Conversion Shares to be included in such registration, provided, however,
that the underwriter advises the Borrower that the
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inclusion of all the Conversion Shares requested to be included in such
registration would materially interfere with the successful marketing
(including pricing) of the Common Shares proposed to be included in such
registration by the Borrower, then the number of Registerable Shares and
Conversion Shares proposed to be included in such registration shall be
included in the following order, (x) first, the Registerable Shares; and
(y) second, the Conversion Shares requested to be included in such
registration.
ARTICLE 4.
SECURITY
4.1. SECURITY
As security for the due and punctual payment of all of the Obligations, the
Borrower shall contemporaneously with the issuance of this Debenture deliver or
cause to be delivered to and in favour of the Lender, in form and substance
satisfactory to the Lender and its counsel:
(a) the General Security Agreement;
(b) the Pledge Agreement;
(c) the XI General Security Agreement
(d) the XI Pledge Agreement
(e) the XI Guarantee; and
(f) all other share certificates, stock powers of attorney, documentation,
consents and authorizations necessary in order to make valid and
effective the aforementioned agreements.
4.2. FURTHER ASSURANCES - SECURITY
The Borrower shall take, and shall cause XI to take, such action and
execute and deliver to the Lender such documents and instruments as the Lender
shall reasonably request, and register, file or record the same (or a notice or
financing statement in respect thereof) in all offices where such registration,
filing or recording is, in the opinion of the Lender or Lender's counsel,
necessary or advisable to constitute, perfect and maintain the Security as first
ranking Liens of the Borrower and XI (and, if applicable after completion of the
Reorganization, Amalco) in all jurisdictions reasonably required by the Lender,
in each case within a reasonable time after the request therefor by the Lender,
and in each case in form and substance satisfactory to the Lender and Lender's
counsel.
4.3. SECURITY EFFECTIVE NOTWITHSTANDING DATE OF ADVANCE
The Security shall be effective and the undertakings in the Debenture and
the other Subscriber Documents with respect thereto shall be continuing, whether
the monies hereby
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or thereby secured or any part thereof shall be advanced before or after or at
the same time as the creation of any such Security or before or after or upon
the date of execution of this Debenture. The Security shall not be affected by
any payments on the Debenture, but shall constitute continuing security to the
Lender for the Obligations from time to time.
4.4. NO MERGER
The Security shall not merge in any other security. No judgment obtained by
or on behalf of the Lender shall in any way affect any of the provisions of this
Debenture or the Security. For greater certainty, no judgment obtained by or on
behalf of the Lender shall in any way affect the obligation of the Borrower to
pay interest or other amounts at the rates, times and in the manner provided in
this Debenture.
4.5. RELEASE OF SECURITY
Following due payment and performance in full of all obligations of the
Borrower under this Debenture and the Loan Documents, the Lender will, at the
request, cost and expense of the Borrower, release and discharge the right and
interest of the Lender in the property of the Borrower and XI under the
Security. In addition, if any property of the Borrower or XI is Disposed of as
permitted by this Debenture, or is otherwise released from the Security at the
direction or with the consent of, among others, the Lender, the Lender, at the
request and expense of the Borrower (on satisfaction, or on being assured of
concurrent satisfaction, of any condition to or obligation imposed with respect
to such Disposition), may discharge such property from the Security and deliver
and re-assign to the Borrower or XI any of such property as is then in the
possession of the Lender.
ARTICLE 5.
COVENANTS
5.1. AFFIRMATIVE COVENANTS
So long as any Obligations remain outstanding the Borrower shall, and
(except as otherwise indicated herein) shall cause, as applicable, each of XI,
Points and ThinOffice to:
5.1.1. PUNCTUAL PAYMENT. In the case of the Borrower only, pay or cause to
be paid all Obligations falling due hereunder on the dates and in the
manner specified herein;
5.1.2. CONDUCT OF BUSINESS. Do or cause to be done all things necessary or
desirable to maintain its corporate existence in its present jurisdiction
of incorporation, to maintain its corporate power and capacity to own its
properties and assets, and to carry on its business in a commercially
reasonable manner in accordance with normal industry standards;
5.1.3. PRESERVATION OF PERMITS, ETC. Preserve and maintain all material
Permits, and material trademarks or trademark applications, trade names,
certification marks, patents or patent applications, industrial designs,
copyrights, URLs and Internet domain
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names, as may be necessary or desirable for it to carry on the Business and
comply with its obligations under this Debenture and the Subscriber
Documents;
5.1.4. COMPLIANCE WITH APPLICABLE LAW AND CONTRACTS. Comply with the
requirements of all Applicable Law, all obligations which, if contravened,
could give rise to a Lien over any of its property, and all insurance
policies and contracts to which it is a party or by which it or its
properties are bound;
5.1.5. ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a system of
accounting which is established and administered in accordance with GAAP,
keep adequate records and books of account in which accurate and complete
entries shall be made in accordance with GAAP reflecting all transactions
required to be reflected by GAAP and keep accurate and complete records of
any property owned by it;
5.1.6. MAINTENANCE OF PROPERTY. Maintain all of its property, used in its
business, in good repair, working order and condition (ordinary wear and
tear excepted);
5.1.7. FINANCIAL REPORTING. Deliver to the Lender:
(A) QUARTERLY STATEMENTS. Within 60 days after the end of each of the
first three quarterly fiscal periods of each fiscal year of the
Borrower, consolidated and, in the case of the Borrower,
unconsolidated statements of income, retained earnings and cash flows
of the Borrower, XI, Points and ThinOffice for such period and for the
period from the beginning of the respective fiscal year to the end of
such period, and the related consolidated and, in the case of the
Borrower, unconsolidated balance sheets of the Borrower and XI, Points
and ThinOffice, setting forth in each case in comparative form the
corresponding consolidated or unconsolidated (as applicable) figures
for the corresponding period in the preceding fiscal year.
(B) ANNUAL STATEMENTS. As soon as available and in any event within 140
days after the end of each fiscal year of the Borrower, audited
consolidated and, in the case of the Borrower, unconsolidated
statements and, in the case of ThinOffice, unaudited statements of
income, retained earnings and cash flows (in the case of ThinOffice if
available) of the Borrower, XI, Points and ThinOffice for such fiscal
year and the related consolidated and unconsolidated balance sheets of
the Borrower, XI, Points, and ThinOffice as at the end of such fiscal
year, setting forth in each case in comparative form the corresponding
consolidated or unconsolidated (as applicable) figures for the
preceding fiscal year, and accompanied by an unqualified opinion
thereon of independent accountants of recognized national standing;
(C) COMPLIANCE CERTIFICATE. At the time it furnishes each set of financial
statements pursuant to paragraphs (a) or (b) above, an Officer's
Certificate which shall state that:
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(i) all such financial statements fairly present the consolidated or
unconsolidated (as applicable) financial condition and results of
operations of the respective entities,
(ii) all such financial statements have been prepared in accordance
with GAAP as at the end of, and for, such period (subject, where
applicable, to normal year end audit adjustments),
(iii) no Default or Event of Default has occurred and is continuing
(or, if any Default or Event of Default has occurred and is
continuing, describing the same in reasonable detail and
describing the action that the Borrower has taken or proposes to
take with respect thereto)
(iv) except as disclosed in such certificate, no event or circumstance
has occurred since the date of the last certificate delivered
pursuant to this clause that has had or would reasonably be
expected to have a Material Adverse Effect, and
(v) reporting on all Restricted Payments and all Investments made in
the applicable period pursuant to Section 5.3.7 and 5.3.10 such
certificate to be substantially in the form of Schedule A;
(D) BUDGET. As soon as available, but in any event not later than 30 days
prior to the commencement of each fiscal year, a financial budget
(including relevant narrative analysis and descriptions) for the
Borrower, XI, Points and ThinOffice which shall consist of an
operating budget, the forecasted consolidated balance sheet,
forecasted statement of earnings and retained earnings, cash flow
projections, proposed capital expenditures, proposed acquisition
programs and proposed financing activities for such fiscal year;
(E) MISCELLANEOUS. As soon as practicable following a request therefor
from the Lender, financial statements and any income tax returns,
other tax returns and any elections, remittance forms or other
documents filed by the Borrower, XI, Points or ThinOffice pursuant to
any legislation which requires the Borrower or any Subsidiary to pay,
withhold, collect or remit such amounts;
5.1.8. INSURANCE. Keep insured by financially sound and reputable insurers
all property of the Borrower, XI, Points and ThinOffice of a character
usually insured by corporations engaged in the same or similar business
against loss or damage of the kinds and in the amounts customarily insured
against by such corporations and carry such other insurance as is usually
carried by such corporations or as is required by law;
5.1.9. OWNERSHIP OF SUBSIDIARIES. Take such action from time to time as
shall be necessary to ensure that the Borrower, either directly or
indirectly through its Subsidiaries, continues to beneficially own all the
shares of XI and of Points (other than shares of Points issuable on
exercise of the Partner Warrants, Founders Options or
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Employee Options) and, subject to the Reorganization (including any
disposition of securities of Bigtree.com Ltd., ThinOffice Inc., Exponential
Entertainment Inc. and ThinApse Corp. in connection therewith), at least
the number of securities of each other Subsidiary that it owns on March 15,
2001 (as such number may be adjusted pursuant to share splits,
consolidations and other reorganizations after March 15, 2001). Without
limiting the foregoing, (a) none of the Borrower and its Subsidiaries will
sell, transfer or otherwise Dispose of any shares of stock in XI or Points;
(b) XI will not issue any shares other than to the Borrower; and (c) Points
will not issue any shares other than to the Borrower or XI or pursuant to
any Partner Warrant, Founders Option or Employee Option;
5.1.10. SECURITY. Take such action from time to time as shall be necessary
to ensure that certain shares and securities of all present Subsidiaries
(except the shares and securities which are disposed of pursuant to the
Reorganization) are pledged to the Lender pursuant to the Pledge Agreement,
that certain shares and securities held by XI (except the shares and
securities which are disposed of pursuant to the Reorganization) are
pledged to the Lender pursuant to the XI Pledge Agreement and that the
Security all times constitutes a first ranking charge, subject only to
Permitted Liens, over the assets subject to the Security;
5.1.11. INSPECTIONS. Permit the Lender and its authorized employees,
representatives and agents, upon giving at least 24 hours' prior notice, to
(i) visit and inspect its properties during normal business hours, (ii)
inspect and make extracts from and copies of its books and records, and
(iii) discuss with senior management of the Borrower or any of the
Subsidiaries, as may be reasonably designated by the Lender, its business,
property, financial condition and prospects;
5.1.12. NOTICE OF LITIGATION AND OTHER MATTERS. As soon as practicable
after it shall become aware of the same, give notice to the Lender of the
following events:
5.1.12.1. the commencement of any action, proceeding, arbitration or
investigation against or in any other way relating adversely to the
Borrower or any Subsidiary or any of their respective properties,
assets, Permits or businesses;
5.1.12.2. any other development which has had or could reasonably be
expected to have a Material Adverse Effect; and
5.1.12.3. any Default or Event of Default, or the occurrence or
non-occurrence of any event which constitutes, or which with the
passage of time or giving of notice or both would constitute, a
material default under any other Debt of the Borrower, XI, Points or
ThinOffice giving in each case the details thereof and specifying the
action proposed to be taken with respect thereto;
5.1.13. CONSENTS AND APPROVALS. Take all steps that are necessary to obtain
any approvals or consents required now or in the future to permit any asset
over which the Lender has or may have a security interest to be
transferable to the Lender and by it to any
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other Person free of any restrictions in transfer or to permit the Borrower
and the Subsidiaries to perform their obligations under this Debenture and
the other Loan Documents;
5.1.14. PAYMENT OF TAXES AND CLAIMS. Comply with the following:
5.1.14.1. pay and discharge all Taxes payable by it;
5.1.14.2. withhold and collect all Taxes required to be withheld and
collected by it and remit such Taxes to the appropriate Governmental
Authority at the time and in the manner required; and
5.1.14.3. pay and discharge all obligations incidental to any trust
imposed upon it by statute which, if unpaid, might become a Lien upon
any of its property;
in each case unless being contested in good faith by appropriate
proceedings;
5.1.15. USE OF PROCEEDS. Use the proceeds of this Debenture only for: (i)
the purpose of purchasing $4,000,000 of securities of Points and to the
extent same is within the Borrower's reasonable control cause Points to use
those proceeds only for working capital purposes; and (ii) working capital
purposes at the Borrower (including advances to its other Subsidiaries);
5.1.16. OTHER MATTERS In the case of the Borrower and XI only, take all
steps reasonably available to it to cause each of the other entities in
which it has an investment interest in to comply with the covenants
described in Sections 5.1.2, 5.1.4 and 5.1.14;
5.1.17. FURTHER ASSURANCES. After notice thereof from the Lender, do all
such further acts and things and execute and deliver all such further
documents as shall be reasonably requested by the Lender in order to give
effect to the terms of this Debenture and the Subscriber Documents; and
5.1.18. LIQUIDITY EVENT. In the case of the Borrower only, use its
commercially reasonable best efforts to complete a Liquidity Event on or
before March 15, 2004.
5.2. LENDER ENTITLED TO PERFORM COVENANTS
If the Borrower or any of its Subsidiaries fails to perform any covenant
contained in Section 5.1, or in any other provision of any Loan Document, the
Lender may, in its discretion, perform any such covenant capable of being
performed by it and if any such covenant requires the payment of money the
Lender may make such payments. All sums so expended by the Lender shall be
deemed to form part of the Obligations, shall bear interest at the same rate as
the Principal Amount and shall be payable by the Borrower on demand.
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5.3. NEGATIVE COVENANTS
Except as otherwise provided in this Debenture, so long as any Obligations
remain outstanding the Borrower covenants and agrees to and in favour of the
Lender that it shall not without the consent of the Lender, and it shall not
permit XI, Points or ThinOffice, without the consent of the Lender to:
5.3.1. MERGER, SALE OR DISPOSITION OF ALL OR A SIGNIFICANT PART OF ITS
ASSETS. Enter into any transaction or series of related transactions
whereby all or any significant part of its assets (or all or any
significant part of its technology or intellectual property or, in the case
of the Borrower, any of the securities of its Subsidiaries) would become
the property of any other Person whether by way of reorganization,
consolidation, amalgamation, arrangement, winding-up, merger, transfer,
sale, Sale-Leaseback, or otherwise;
5.3.2. REORGANIZATIONS, ETC. Enter into any transaction to change or
reorganize its capital structure or consolidate, amalgamate or merge with
any other Person;
5.3.3. SALE OF CAPITAL STOCK. Except as expressly permitted by Section 5.4
and except for any issuance of shares by the Borrower upon the exercise of
options and warrants granted by the Borrower as of the Original Issue Date
and warrants issued by the Borrower upon the conversion of preferred shares
of the Borrower issued and outstanding as of the Original Issue Date, sell
50% or more of its capital stock as of March 15,2001;
5.3.4. RANKING. Cause or permit the Lender, as holder of this Debenture, to
rank subordinate or pari passu with any Debt of the Borrower, except Debt
secured by Liens described in clause (e) of the definition of the Permitted
Liens;
5.3.5. BOARD COMPOSITION. Increase or decrease the authorized size of its
board of directors or in any way change its composition not in compliance
with Article 6;
5.3.6. NEGATIVE PLEDGE. Create, incur, assume or suffer to exist any Lien
upon any of its properties (including, for certainty, securities of any
entity owned directly or indirectly by the Borrower or XI), whether now
owned or hereafter acquired, other than (a) Permitted Liens or (b) pursuant
to a debt financing permitted under Section 5.3.8;
5.3.7. RESTRICTED PAYMENTS. Make any Restricted Payment other than (i)
Restricted Payments by a Subsidiary to the Borrower or by the Borrower to a
Subsidiary or (ii) redemptions of any Common Shares pursuant to equity
incentives agreements with employees, officers, directors or consultants
which give the Borrower or a Subsidiary the right to repurchase Common
Shares upon the termination of services, to a maximum amount of $ 100,000
in aggregate in any fiscal year of the Borrower;
5.3.8. DEBT. Create, incur, assume, or otherwise become directly or
indirectly liable upon or in respect of, or suffer to exist, any Debt other
than:
(a) in the case of the Borrower, this Debenture;
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(b) in the case of the Borrower or the Subsidiaries, Debt in respect of
Liens permitted by clause (e) of the definition of Permitted Liens;
(c) Debt owing by one Subsidiary to the Borrower or another Subsidiary;
(d) in the case of Points, the Non-Voting Shares, the Class A Convertible
Preferred Shares, Class B Convertible Preferred Shares and Class C
Convertible Preferred Shares (all of which are owned by the Borrower
or XI);
(e) in the case of XI, the XI Debenture;
(f) obligations under Hedging Agreements incurred for bona fide hedging
purposes and not for speculative purposes; and
(g) as otherwise provided in this Agreement.
Notwithstanding this Section 5.3.8 if the Borrower requires additional
capital by way of debt, it shall first advise the Lender of its
requirements in writing. Upon receiving such notice, the Lender shall have
20 days within which to notify the Borrower if it wishes to provide the
required financing on such terms and conditions as may be negotiated
between such parties. During that time, the Borrower shall provide to the
Lender, at its request, all such information as the Lender may reasonably
require to make its determination. In the event that the Borrower and the
Lender are unable to agree upon the terms of the financing within such 20
day period, the Borrower shall deliver, within 5 days following the expiry
of such 20 day period, a term sheet outlining the terms and conditions upon
which it would be prepared to proceed with the financing. The Lender shall
have a further period of 10 days within which to accept or reject the terms
and conditions upon which it would be prepared to proceed with the
financing. In the event that the Lender rejects the terms of financing or
fails to give notice within the prescribed time period as aforesaid, the
Borrower shall be free to pursue obtaining its debt financing with other
Persons on terms no less favourable to the Borrower or more favourable to
such Persons than those set forth in the term sheet provided to the Lender.
5.3.9. FINANCIAL ASSISTANCE. Except as otherwise provided in this
Agreement, provide Financial Assistance, either directly or indirectly, to
any Non-Arm's Length Person except Investments or Acquisitions by the
Borrower in a current or proposed Subsidiary in the Business;
5.3.10. INVESTMENTS AND ACQUISITIONS. Make Investments or Acquisitions, or
provide any Financial Assistance either directly or indirectly to Persons
acting at arm's length except Investments by the Borrower in a Subsidiary
in the Business or as set out in Schedule B attached hereto;
5.3.11. CHARTER DOCUMENTS. Amend its articles, by-laws or any other
constating documents;
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5.3.12. SHAREHOLDER AGREEMENTS. Except in connection with the
Reorganization, enter into a shareholder agreement, pooling agreement,
voting trust or other agreement or understanding with respect to the
voting, acquisition, disposition or other dealing or holding of shares of
XI, Points or ThinOffice (or amend any such existing agreement);
5.3.13. LINES OF BUSINESS. Change in any material respect the nature of its
business or operations from the Business, or the ownership of shares of any
Subsidiary involved in any such business, nor engage directly or indirectly
in any material business activity, or purchase or otherwise acquire any
material property, in either case not reasonably related to or in
furtherance of the conduct of the Business; and
5.3.14. TRANSACTIONS WITH AFFILIATES. Without the prior written consent of
the Lender, such consent not to be unreasonably withheld, directly or
indirectly, purchase, acquire or lease any property from, or sell, transfer
or lease any property to, or otherwise deal with any Affiliate, except (i)
in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's or such Subsidiary's business and upon fair and reasonable
terms that are no less favourable to the Borrower or such Subsidiary, as
the case may be, than those that could be obtained in an arm's length
transaction with an unrelated third party, (ii) transactions between
Subsidiaries and (iii) the payment of management fees or other amounts to
the Borrower.
5.4. EXCEPTIONS
Notwithstanding any other provision of this Debenture including Section
5.3, the following are permitted without the consent of the Lender:
(a) subject to Section 5.3.3, a sale of shares from treasury by the
Borrower provided the price per share is not less that $0.40 (subject
to necessary adjustment in the event of a subdivision, consolidation
or other change to the capital of the Borrower);
(b) a sale of all or substantially all of the assets of the Borrower,
provided the Borrower is thereafter wound up and provided further that
the assets are sold for a price that, upon distribution of the net
proceeds thereof to the shareholders of the Borrower (after paying or
making provisions for all creditors of the Borrower, would result in
net proceeds per Common Share to the Lender, after conversion of the
Maximum Amount of this Debenture into Common Shares and the making of
such distribution, of at least four times the Conversion Price; and
(c) an issuance of shares pursuant to a stock option plan or other
employee incentive program for the Borrower.
5.5. ENVIRONMENTAL COMPLIANCE
5.5.1. The Borrower shall, and shall cause each of the Subsidiaries to,
comply with all Environmental Laws and to promptly remedy any compliance
issues.
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5.5.2. If the Borrower (a) receives notice that any violation of any
Environmental Law may have been committed or is about to be committed by
the Borrower or any other Subsidiary, (b) receives notice that any
administrative or judicial complaint or order has been filed or is about to
be filed against the Borrower or any other Subsidiary alleging violations
of any Environmental Law or requiring the Borrower or any other Subsidiary
to take any action in connection with the release of Substances into the
Environment, or (c) receives any notice from a Governmental Authority or
other Person alleging that the Borrower or any other Subsidiary may be
liable or responsible for costs associated with a response to or clean-up
of a release of a Substance into the Environment or any damages caused
thereby, the Borrower shall provide the Lender with a written summary of
such notice (and a copy of any written notice) within ten days of the
Borrower's or any other Subsidiary's receipt thereof. The Borrower shall
provide evidence satisfactory to the Lender of disbursements made from time
to time to effect such clean-up or remedial action in a timely manner.
5.5.3. The Borrower shall provide to the Lender such information and
reports relating to environmental matters as the Lender may reasonably
request from time to time.
ARTICLE 6.
BOARD REPRESENTATION
6.1. THE LENDER'S BOARD REPRESENTATION
As long as this Debenture remains outstanding, the Borrower shall nominate
one individual proposed by the Lender as its nominee to the board of directors
of the Borrower (the "Board of Directors") in the Borrower's management proxy
circular. For greater certainty, upon completion of the amendment and
restatement of this Debenture, the Lender's nominee to the Board of Directors,
John Orr, shall remain a director of the Borrower. Each individual proposed by
the Lender for the position of director of the Corporation shall be a "resident
Canadian" as that term is defined in the Business Corporations Act (Ontario) and
an individual who is not disqualified under applicable corporate law from acting
as a director. If a director of the Borrower, proposed by the Lender, ceases to
be director for any reason, and the Board of Directors do not fill the vacancy
thereby created by appointing, as soon as reasonably possible, that individual
who is then proposed by the Lender and nominated by the Lender, or if the
directors so fail to act, the Corporation shall convene a meeting of
shareholders to elect a replacement director and the Borrower shall solicit
proxies in favour of the individual proposed by the Lender. Any director
proposed or nominated by the Lender shall be either (i) John Orr, Executive
Director of the Lender or a senior officer of the Lender holding the position of
Executive Director or a more senior position than Executive Director; or (ii)
another person who is subject to the reasonable approval of the Borrower.
6.2. SHAREHOLDERS' MEETINGS
Not earlier than 90 days prior to any shareholder meeting at which any
director proposed by the Lender is to be elected, the Borrower shall request
that the Lender provide it
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with the names of its proposed nominee for election as a director and shall
allow the Lender no less than ten Business Days to respond; the Lender shall
provide such name to the Borrower accompanied by such other information as the
Borrower may reasonably request for inclusion in a management proxy circular,
and (subject to Section 6.1) the Corporation shall solicit proxies in favour of
the nominee of the Lender. If the Borrower does not approve of the person
proposed or nominated by the Lender, the Borrower shall request a new proposed
nominee from the Lender.
6.3. TERMINATION OF ENTITLEMENT
All rights of the Lender to propose a person to be nominated by the
Borrower to be a director pursuant to this Article 6 shall terminate and be of
no further force and effect if this Debenture is repaid in full. If this occurs,
if requested by the Borrower or the Lender so elects, the Lender shall cause its
nominee director to resign.
ARTICLE 7.
EVENTS OF DEFAULT AND REMEDIES
7.1. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an Event of
Default:
7.1.1. DEFAULT IN PAYMENT. If the Borrower defaults in the payment when due
of any of the Obligations which require the payment of money to the Lender;
or
7.1.2. OTHER COVENANTS. If the Borrower or any Subsidiary defaults in the
performance or observance of any term, condition, covenant, or obligation
contained in any Subscriber Document to which it is a party that does not
require the payment of money to the Lender (including, for greater
certainty, the covenants regarding the Reorganization set out in Section
8.2) unless such default is remedied within 15 Business Days after notice
thereof by the Lender to the Borrower; or
7.1.3. REPRESENTATIONS AND WARRANTIES. If any representation or warranty
made by or regarding the Borrower, XI, Points or ThinOffice in the
Subscription Agreement or any other Subscriber Document is found to be
false or incorrect in any way so as to make it materially misleading when
made or deemed to have been made; or
7.1.4. DEFAULT IN OTHER INDEBTEDNESS. If the Borrower, XI, Points or
ThinOffice is in default of any agreement relating to Debt in excess of
$100,000 where such default would entitle the holder to accelerate
repayment of the Debt and such default is not cured in any applicable grace
period or waived in writing.
7.1.5. SUBSCRIBER DOCUMENTS. If any of this Debenture, the Security
Documents, the other Subscriber Documents or any part thereof shall, at any
time after its respective execution and delivery and for any reason, cease
in any way to be in full force and effect or to be a legal, valid, binding
and enforceable obligation of the Borrower or any Subsidiary that is a
party to such document or if the Security or any part of the Security
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shall, at any time after its execution and delivery and for any reason,
cease to constitute a first Lien of the nature and priority specified in or
contemplated by this Debenture or if it is or becomes unlawful for the
Borrower or any of the Subsidiaries to perform or comply with any or all of
its obligations under any of this Debenture, the Security Documents or the
other Subscriber Documents, or if the validity or enforceability of any of
this Debenture, the Security Documents or the other Subscriber Documents is
disputed in any manner by the Borrower or any of the Subsidiaries; or
7.1.6. VOLUNTARY INSOLVENCY ACTIONS. If the Borrower, XI or Points
institutes proceedings for its winding up, liquidation, or takes action to
become a voluntary bankrupt, or consents to the filing of a bankruptcy
proceeding against it, or files a proposal, a notice of intention to make a
proposal, a petition or answer or consent seeking reorganization,
readjustment, arrangement, composition or similar relief under any
bankruptcy law or any other similar applicable law or consents to the
filing of any such petition, or consents to the appointment of a receiver,
liquidator, trustee or assignee in bankruptcy or insolvency of all or a
substantial part of the property of the Borrower, XI or Points or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts generally as they become due or commits any other act of
bankruptcy, or suspends or threatens to suspend transaction of its usual
business, or any action is taken by the Borrower, XI or Points in
furtherance of any of the aforesaid; or
7.1.7. INVOLUNTARY INSOLVENCY PROCEEDINGS. If proceedings are instituted in
any court of competent jurisdiction by any person other than the Borrower,
XI or Points for the winding up, liquidation or dissolution of the
Borrower, XI or Points or for any reorganization, readjustment,
arrangement, composition or similar relief with respect to the Borrower, XI
or Points under any bankruptcy law or any other applicable insolvency law,
or for the appointment of a receiver, liquidator, trustee or assignee in
bankruptcy or insolvency of the whole or any material part of the property
of the Borrower, XI or Points, and
(a) at any time thereafter (i) such proceeding is not being contested by
the Borrower, XI or Points, or (ii) the effect of such proceeding has
not been stayed; or
(b) such proceeding has not been dismissed within 30 days from and
including the day on which it was commenced; or
(c) if any order sought in any such proceeding is granted; or
7.1.8. APPOINTMENT OF RECEIVER. If a receiver, manager, receiver and
manager, trustee, custodian or other similar official is appointed in
respect of the Borrower, XI or Points or any material part of their
respective property and, in the case of any such involuntary appointment,
at any time thereafter either the same is not being contested or the effect
thereof has not been stayed; or
7.1.9. BANKRUPTCY STATUTES. If any proceeding, voluntary or involuntary, is
commenced, or an order or petition is issued, respecting the Borrower, XI
or Points
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pursuant to any statute relating to bankruptcy, insolvency, reorganization
of debts, liquidation, winding-up or dissolution, including any proceeding,
proposal, notice of intention to make a proposal, order or petition under
the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors
Arrangement Act (Canada), the Winding-Up and Restructuring Act (Canada) or
any similar legislation in any other jurisdiction and, in the case of any
such involuntary proceeding,
(a) at any time thereafter (i) such proceeding is not being contested by
the Borrower, XI or Points or (ii) the effect of such proceeding has
not been stayed; or
(b) such proceeding has not been dismissed within 30 days from and
including the day on which it was commenced; or
(c) any order or petition sought in any such involuntary proceeding is
issued; or
7.1.10. JUDGMENTS. If a final judgment is rendered against the Borrower, XI
or Points which might reasonably be expected to have a Material Adverse
Effect and, within 5 Business Days after entry thereof, such judgment has
not been discharged or execution thereof stayed pending appeal or if,
within 5 Business Days after the expiration of any such stay, such judgment
has not been discharged; or
7.1.11. ENCUMBRANCES. If an encumbrancer takes possession of any material
property of the Borrower, XI or Points or if a distress or execution or any
similar process is levied or enforced against any material property of the
Borrower, XI or Points; or
7.1.12. CEASE TO CARRY ON BUSINESS. If the Borrower, XI or Points ceases or
threatens to cease to carry on in the ordinary course its business or a
substantial part thereof; or
7.1.13. QUALIFIED AUDITOR'S REPORT. If any report of the Borrower's or XI's
or Points' auditor contains any materially adverse qualification which is
unacceptable to the Lender; or
7.1.14. CEASE TRADING ORDER. If a cease trading order, stop trading order
or similar order, direction or ruling is issued by any Governmental
Authority in respect of any of the securities of the Borrower, XI, Points
or ThinOffice and is outstanding for a period of 10 consecutive trading
days or any other event or circumstance shall occur which could reasonably
be expected to materially restrict the ability of the Lender to realize on
or transfer the Pledged Assets or to transfer any securities of the
Borrower (including any shares obtainable upon conversion of this
Debenture); or
7.1.15. CEASES TO BE REPORTING ISSUER. The Borrower ceases to be a
reporting issuer not in default of any requirements of the laws in Alberta,
Ontario or British Columbia; or
7.1.16. CHANGE OF CONTROL. If there shall occur a Change of Control in the
Borrower; or
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7.1.17. MATERIAL ADVERSE EFFECT. If there shall occur any event or
circumstance which has, or is reasonably likely to have, a Material Adverse
Effect.
7.1.18. LIQUIDATION EVENT OR DIVIDEND EVENT. If there shall occur any event
or circumstance which is a Liquidation Event or a Dividend Event as such
terms are defined in the articles of amendment of the Borrower dated
December 20, 2001 relating to the conditions attaching to the Series One
Preferred Shares of the Borrower issued to the Lender on the date hereof.
7.2. REMEDIES UPON DEFAULT
Upon the occurrence of any Event of Default, the Lender may by notice given
to the Borrower declare all Obligations to be immediately due and payable and
the Lender may:
7.2.1. realize upon all or any part of the Security; and
7.2.2. take such actions and commence such proceedings as may be permitted
at law or in equity (whether or not provided for herein or in the Security
Documents) at such times and in such manner as the Lender in its sole
discretion may consider expedient,
all without, except as may be required by Applicable Law, any additional notice,
presentment, demand, protest, notice of protest, dishonour or any other action.
The rights and remedies of the Lender hereunder are cumulative and are in
addition to and not in substitution for any other rights or remedies provided by
Applicable Law or by any of the Subscriber Documents.
7.3. SET-OFF
Upon the occurrence of an Event of Default, and subject to any third party
rights with respect to Permitted Liens the Lender is hereby authorized by the
Borrower at any time and from time to time without notice to the Borrower to
combine, consolidate and merge all or any of the Borrower's accounts with, and
liabilities to, the Lender and to set off, appropriate and apply any and all
deposits by or for the benefit of the Borrower with any branch of the Lender,
general or special, matured or unmatured, and any other indebtedness and
liability of the Lender to the Borrower, matured or unmatured, against and on
account of the Obligations when due.
7.4. DISTRIBUTIONS
All distributions under or in respect of any of the Loan Documents shall be
held by the Lender on account of the Obligations without prejudice to any claim
by the Lender for any deficiency after such distributions are received by the
Lender and the Borrower shall remain liable for any such deficiency. All such
distributions may be applied to such part of the Obligations as the Lender may
see fit in its sole discretion, and the Lender may at any time change any
appropriation of any such distributions or other moneys received by it and to
reapply the same on any other part of the Obligations as the Lender may see fit,
notwithstanding any previous application.
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7.5. OVERDUE AMOUNTS
All overdue amounts owing or deemed to be owing hereunder ("overdue
amounts"), whether in respect of principal, interest, fees, expenses or
otherwise, both before and after judgment, and in the case of expenses from the
dates such expenses are incurred, shall (to the extent permitted by law) bear
interest thereon at the rate specified in Section 2.1. Such interest on overdue
amounts shall accrue from day to day, be payable in arrears on demand and shall
be compounded monthly on the last Business Day of each calendar month.
ARTICLE 8.
REORGANIZATION
8.1. REORGANIZATION
The Lender acknowledges the Borrower proposes to complete a reorganization
(the "Reorganization") on the terms set out in the term sheet attached as
Schedule D (the principal terms of which are as follows:
(a) the Borrower and/or XI shall sell all its shares in its Subsidiaries
(other than XI and Points) to third party purchasers or otherwise
liquidate or wind-up such Subsidiaries;
(b) the Lender terminates the Option Agreement and Right of Co-Sale
Agreement in consideration for the amendment and restatement of this
Debenture as set out herein and the issuance to the Lender of one
Series One Preferred Share in the capital of the Borrower;
(c) all shareholders, optionholders and warrantholders of Points, directly
or indirectly, exchange their interests in Points (other than the
Partner Warrants and the Employee Options) for interests in the
Borrower; and
(d) subject to section 8.2, the Borrower, XI and Points amalgamate and
adopt a name reflective of the focus of the business of Points
("Amalco").
8.2. COVENANTS
The Borrower will complete the Reorganization as set out in Schedule D as
soon as possible and will not take actions (or omit to take actions) which would
impede the completion of the Reorganization. Notwithstanding the foregoing the
Lender acknowledges and agrees that any amalgamation of the Borrower, XI and
Points, and the timing thereof, shall be wholly at the discretion of the board
of directors of the Borrower and that any failure to amalgamate the Borrower
with one or both of XI and Points shall not constitute an event of default
pursuant to Section 7.1.2 hereof; provided that the Borrower will not complete
any such amalgamations if the amalgamated entity would be, immediately after the
amalgamation, in Default or if secured parties of XI or Points, as applicable,
do not execute estoppel letters in form and substance satisfactory to the Lender
acting reasonably. The Lender agrees that it will give any consents necessary to
complete the Reorganization on the terms set out in Schedule D.
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8.3. CONFIRMATIONS
(a) Upon completion of the sale or other disposition of ThinOffice,
references in this Debenture to ThinOffice shall no longer be relevant
for the period after the date such sale is completed; and
(b) Upon an amalgamation of the Borrower, XI and Points or any two of
them, references to the pre-amalgamated entities shall be construed as
references to the amalgamated entity from and after the date of
completion of such amalgamation.
ARTICLE 9.
GENERAL
9.1. RELIANCE AND NON-MERGER
All covenants, agreements, representations and warranties of the Borrower
or any Subsidiary made herein or in any other Loan Document or in any
certificate or other document signed by any of its directors or officers and
delivered by or on behalf of the Borrower pursuant hereto or thereto are
material, shall be deemed to have been relied upon by the Lender notwithstanding
any investigation heretofore or hereafter made by the Lender or counsel to or
any employee or other representative of any of the Lender and shall survive the
execution and delivery of this Debenture and the other Loan Documents until the
Borrower shall have satisfied and performed all of its obligations under the
Loan Documents.
9.2. AMENDMENT AND WAIVER
No amendment or waiver of any provision of this Debenture or any Subscriber
Document or consent to any departure by the Borrower or any Subsidiary from any
provision thereof is effective unless it is in writing and signed by an officer
of the Lender. Such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it is given.
9.3. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by facsimile or other means of
electronic communication or by hand-delivery as hereinafter provided. Any such
notice, if sent by facsimile or other means of electronic communication, shall
be deemed to have been received on the day of sending, or if delivered by hand
shall be deemed to have been received at the time it is delivered to the
applicable address noted below. Notice of change of address shall also be
governed by this section. Notices and other communications shall be addressed as
follows:
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(a) if to the Borrower:
134 Peter Street
Suite 300
Toronto, Ontario
M5V 2H2
Attention: Christopher J.D. Barnard, President
Facsimile number: (416)595-6444
with a copy to:
Davies Ward Phillips & Vineberg LLP
44th Floor, 1 First Canadian Place
Toronto, Ontario
M5X 1B1
Attention: William Ainley
Facsimile number: (416)863-0871
(b) if to the Lender:
CIBC Capital Partners
BCE Place
161 Bay Street
8th Floor
Toronto, Ontario
M5J 2S8
Attention: John Orr
Facsimile number: (416)594-8037
with a copy to:
Torys
Suite 3000 Maritime Life Tower
Box 270, TD Centre
Toronto, Ontario
M5K 1N2
Attention: Stephen Donovan and Cameron Koziskie
Facsimile number: 416-865-7380
9.4. TIME
Time is of the essence of this Debenture and the other Subscriber
Documents.
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9.5. FURTHER ASSURANCES
Whether before or after the happening of an Event of Default, the Borrower
shall at its own expense do, make, execute or deliver, or cause to be done,
made, executed or delivered by other Persons, all such further acts, documents
and things in connection with this Debenture and the other Subscriber Documents
as the Lender may reasonably require from time to time for the purpose of giving
effect to this Debenture and the other Subscriber Documents including, without
limitation, for the purpose of facilitating the enforcement of the Security, all
promptly upon the request of the Lender.
9.6. ASSIGNMENT
9.6.1. This Debenture and the other Subscriber Documents shall enure to the
benefit of the Lender and be binding upon the Borrower, in each case
together with their respective successors and any permitted assignee under
this section of some or all of the parties' rights or obligations under
this Debenture and the other Subscriber Documents.
9.6.2. The Borrower shall not assign all or any part of its obligations
under this Debenture or the other Subscriber Documents without the prior
written consent of the Lender.
9.6.3. Subject to section 9.6.4, the Lender shall not assign, transfer or
encumber the Series One Preferred Share or any of its interest therein and
the Borrower shall not recognize as effective any assignment, transfer or
encumbrance of the Series One Preferred Share except in connection with
section 9.6.4.
9.6.4. The Lender may at any time assign, transfer or encumber all or any
part of its rights in respect of the Obligations, this Debenture and the
other Subscriber Documents to or in favour of any Person without the
consent of the Borrower; provided that in all cases, concurrently with any
such assignment, transfer or encumbrance, the Lender shall assign, transfer
or encumber to or in favour of the assignee the same portion of the
Debenture and of the beneficial interest in the Series One Preferred Shares
of the Borrower. Upon any such assignment, the Borrower acknowledges that
customary agency arrangements may need to be implemented between the Lender
and the assignee and certain intercreditor arrangements may need to be
implemented between the holders of this Debenture and the assignee and the
Borrower shall enter into any documents reasonably requested by the Lender
to implement such arrangements. Where such assignment relates only to part
of the Principal Amount of this Debenture, the Lender and the assignee
shall be each entitled to receive (upon surrender of this Debenture to the
Borrower for cancellation) a Debenture representing the part of the
Principal Amount then owned by each of them.
9.6.5. The Lender may provide to any permitted assignee such information,
including confidential information, concerning the Debenture and the
financial position and the operations of the Borrower and the Subsidiaries
as, in the opinion of the Lender, may be relevant or useful in connection
with the Debenture or any portion thereof
-45-
proposed to be acquired by such assignee, provided that each recipient of
such information agrees not to disclose such information to any other
Person.
9.7. ENTIRE AGREEMENT
This Debenture and the other Subscriber Documents constitute the entire
agreement between the parties pertaining to the subject matter described
therein. There are no warranties, conditions, or representations (including any
that may be implied by statute) and there are no agreements in connection with
such subject matter except as specifically set forth or referred to in the
Subscriber Documents. No reliance is placed on any warranty, representation,
opinion, advice or assertion of fact made either prior to, contemporaneous with,
or after entering into the Subscriber Documents, or any amendment or supplement
thereto, by any party to the Subscriber Documents or its directors, officers,
partners, employees or agents, where applicable, to any other party to the
Subscriber Documents or its directors, officers, partners, employees or agents,
where applicable, except to the extent that the same has been reduced to writing
and included as a term of the Subscriber Documents.
IN WITNESS WHEREOF the Borrower has executed this Amended and Restated
Debenture, this 8th day of February, 2002,
EXCLAMATION INTERNATIONAL INCORPORATED
/s/ Illegible
----------------------------------------
By: Illegible
Title: CFO
SCHEDULE A
COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
TO: CIBC CAPITAL PARTNERS
RE: Amended and Restated Debenture dated February 8, 2002 (such debenture as
amended to the date of this certificate and as such debenture may be
further supplemented, amended or restated from time to time being the
"DEBENTURE") between Exclamation International Incorporated, as borrower,
and CIBC Capital Partners, as lender
I, ___________________, [THE CHIEF FINANCIAL OFFICER] of the Borrower,
hereby certify without personal liability on behalf of the Borrower as follows:
1. This Certificate is furnished pursuant to paragraph 4.1.7 of the Debenture
and initially capitalized terms used in this Certificate and not otherwise
defined in this Certificate shall have the respective meanings given to
such terms in the Debenture.
2. I have read and am familiar with the Debenture including, in particular,
the definitions of the various financial terms used in the Debenture, the
covenants contained in Article Four and the Events of Default described in
Article Six of the Debenture.
3. I have made or caused to be made such examinations or investigations as
are, in my opinion, necessary to furnish this Certificate, and I have
furnished this Certificate with the intent that it may be relied upon by
the Lender as a basis for determining compliance by the Borrower with its
covenants and obligations under the Debenture and the Security Documents as
of the date of this Certificate.
4. I have obtained no knowledge that any Default or Event of Default has
occurred and is continuing on the date of this Certificate except
___________________________.
5. Each of the attached financial statements for the [FISCAL QUARTER/FISCAL
YEAR] ending [DATE] (the "REFERENCE DATE") when read with the
reconciliation accompanying such financial statements fairly presents the
consolidated financial condition and results of operations of the Borrower
and the Subsidiaries as at the date of such statements and for the
reporting period included in such statements, and such financial statements
and presentation of financial information in this Certificate and the
Appendices to this Certificate, have been prepared on a consolidated or
unconsolidated (as applicable) basis in accordance with GAAP as at the end
of, and for, the period. No event or circumstance has occurred since [date
of Debenture or last Compliance Certificate whichever is more recent] that
has had or would reasonably be expected to have a Material Adverse Effect
except ______________.
-2-
6. [A LIST OF ALL SUBSIDIARIES ACQUIRED OR FORMED BY THE BORROWER SINCE [THE
DATE OF THE DEBENTURE/THE DATE OF THE LAST COMPLIANCE CERTIFICATE],
TOGETHER WITH DETAILS OF THEIR SHARE OWNERSHIP, IS LISTED IN
EXHIBIT _____.]
7. The following Restricted Payments and Investments have been made since
[date of Debenture or last Compliance Certificate whichever is
later]: _________________.
DATED as of _____________, ____
EXCLAMATION INTERNATIONAL INCORPORATED
By:
-----------------------------------
Name:
---------------------------------
Title: Chief Financial Officer
SCHEDULE B
General Disclosure
1. Changes in Financial Position
The Borrower and Exclamation Inc. have continued to develop their
businesses and the businesses of Points. ThinOffice and other subsidiaries
(exponential entertainment and exclamation Europe) received funding to the
end of fiscal 2001. The resulting effect on the financial statements is a
significant reduction in the consolidated cash position of the Borrower and
the unconsolidated cash position of Borrower, Exclamation, Points,
ThinOffice and other subsidiaries (exponential entertainment and
exclamation Europe).
2. Transfer of assets between the Borrower, Exclamation and any Subsidiaries
Upon completion of the purchase of Points Class C Convertible Preferred
shares by Exclamation Inc., the Borrower and Exclamation Inc. will transfer
to Points all equipment currently being employed by Points.
For greater clarification, this equipment assignment is for equipment
currently being used, or already ordered to be used, exclusively for
Points' business.
Points will establish either an operating or capital lease, along with any
security reported by the lessor, for the equipment for use solely for
purposes of Bigtree.
The Borrower and Exclamation are in the process of transferring all
equipment currently being employed by Bigtree to Bigtree.
Bigtree will establish either an operating or capital lease, along with any
security required by the lessor, for the equipment.
For greater clarification, this equipment assignment is for equipment
currently being used, or already ordered to be used, exclusively for
Bigtree's business.
Prior to the disposition of ThinOffice, the Borrower and Exclamation will
transfer to ThinOffice the hardware and software used by it together with
its intellectual property rights.
3. Exercising Exclamation call on ThinApse shares
Pending board approval, the Borrower is expected to exercise its call on
ThinApse shares currently owned by Global Map Inc.
The last subscription for shares in ThinApse was at a price higher than the
call strike price.
The call is for 50,000 shares at $0.20 each.
-2-
4. Voting Trust
Christopher Barnard, President of the Borrower, and Marc Lavine, Chairman
and CEO of the Borrower, have signed a voting trust to vote their shares in
the Borrower in favour of the election of Mr. Grant McCutcheon to the board
of directors.
5. Shares Pledged in Favour of Air Canada ("AC") and American Airlines ("AA")
The Borrower and Exclamation have committed that AC will own at least
2,711,988 shares in Points and AA will own at least 4,000,000 shares.
Any shares not earned by AC and AA will be sold to AC and AA by Exclamation
as per the terms in the side letters also attached to this Schedule. The
side letters, if unsigned, will not be materially different from the signed
agreements.
6. Granting of Stock Options in Subsidiaries to employees and Directors of the
Borrower
The Borrower and its Subsidiaries have and will continue to grant a
reasonable number of Stock Options to employees and Directors of the
Borrower as a component of their compensation package. The Stock Options
granted may be from any or all of the Borrower and its Subsidiaries.
All such option grants will be approved by the appropriate Board of
Directors and, if applicable, regulatory agencies.
SCHEDULE C
Permitted Liens
1. PPSA (Ontario) Registrations against Exclamation Inc. by third parties:
(a) Secured Party: Compaq Financial Services Canada Corporation
File No.: 865939761
Registration No.: 20000921 1808 1531 5104
(b) Secured Party: Compaq Capital Canada Company
File No.: 848953197
Registration No.: 19990308 1007 7029 9655
(c) Secured Party: Xerox Canada Ltd.
File No.: 861941583
Registration No.: 20000517 1357 1715 5537
(d) Secured Party: Royal Bank of Canada
File No.: 861756723
Registration No.: 20000511 1804 1531 0065
(e) Secured Party: Royal Bank of Canada
File No.: 858466845
Registration No.: 20000117 1820 1531 2605
2. PPSA (Ontario) Registrations against Exclamation International Incorporated
and Exclamation Inc. by CIBC Capital Partners
(a) Secured Party: CIBC Capital Partners
Debtor: Exclamation International Incorporated
File No.: 870507477
Registration No.: 20010309 1811 1531 2961
(b) Secured Party: CIBC Capital Partners
Debtor: Exclamation Inc.
File No.: 870507486
Registration No.: 20010309 1811 1531 2962
3. PPSA (Ontario) security interests to be registered against Exclamation Inc.
in favour of Exclamation International Incorporated as a result of the XI
Debenture.
SCHEDULE D
REORGANIZATION TERM SHEET
NOVEMBER 1, 2001
EXCLAMATION INTERNATIONAL INC.
POINTS.COM INC.
RESTRUCTURING
SUMMARY OF TERMS
(ALL S CANADIAN)
EXCLAMATION INTERNATIONAL INC. XII is an Ontario Corporation whose common
("XII") CURRENT SHAREHOLDINGS: shares are listed on the Canadian Venture
Exchange ("CDNX"). The XII common shares
currently outstanding, and the XII common
shares issuable on the exercise of currently
outstanding options held by XII employees,
share purchase warrants held by CIBC capital
Partners ("CIBC CP") and convertible securities
are set forth on Schedule A attached.
POINTS.COM INC. ("PCI") PCI is an Ontario private corporation. The
CURRENT SHAREHOLDINGS: transfer of PCI common shares is restricted by
its articles and by a unanimous shareholders
agreement ("USA"). The PCI common shares
currently outstanding, and the PCI common
shares issuable on the exercise of currently
outstanding (i) options held by founders and
PCI employees, (ii) Class C shares held by XII
and Kensington Capital Partners ("KCP) and
certain other outside investors ("KS&I"), and
(iii) preferred shares held by XII subject to
the terms of its option agreement with CIBC CP
are set forth in Schedule A attached.
XII PURCHASE OF PCI COMMON XII will purchase from KS&I and KS&I will sell
SHARES FROM KENSINGTON CAPITAL to XII 1,106,559 PCI common shares and 64,910
PARTNERS AND OTHER INVESTORS: Class C shares of PCI and XII will issue from
treasury to KS&I as consideration therefore
6,588,703 XII common shares and 492,971 XII
common shares, respectively. All Class C shares
of PCI held by KS&I other than the 64,910
Class C shares referred to above will be
converted into PCI common shares. In addition
XII will issue to KS&I warrants to purchase
4,187,026 XII common shares, with an exercise
price of $0.25 per XII common share expiring on
November 30, 2004, or such earlier date as CDNX
may require, and will amend and restate the
broker warrants currently held by KCP to
provide that they shall entitle KCP to purchase
-2-
88,525 XII common shares at $0.25 per share and
expire November 30, 2004 or such earlier date
as CDNX may require.
XII will purchase from DWPV and DWPV will sell
to XII 34,343 PCI common shares and XII will
issue from treasury as consideration therefore
204,486 XII common shares and warrants to
purchase 120,902 XII common shares with an
exercise price of $0.25 per XII common share
expiring on November 30, 2004.
The issuances of common shares and share
purchase warrants are subject to CDNX approval.
After completing these purchases XII will own
100% of the issued and outstanding common
shares of PCI and the XII shareholdings will be
as reflected on Schedule B.
AMENDMENT OF XII DEBENTURE XII will amend and restate the currently
HELD BY CIBC CP: outstanding debenture of XII held by CIBC CP on
the terms and subject to the conditions set
forth in Schedule C hereto. The amendment of
the XII debenture held by CIBC CP is subject to
CDNX approval.
PCI EMPLOYEE PUT RIGHT: XII will grant to each holder of outstanding
PCI founders options and employee options that
have an exercise price of less than $1.00 (the
"Specified Options") the right to sell all but
not less than all the PCI common shares
acquired by such holder upon the exercise by
such holder of Specified Options in
consideration for the issuance by XII to such
holders of XII common shares having a fair
market value at the time of such exchange equal
to the fair market value of the PCI common
shares at such date. The parties agree that on
the foregoing basis at the date hereof the PCI
common shares issuable on exercise of all the
Specified Options would be exchangeable with
XII on the basis of 2.5039 XII common shares
for each share of PCI, representing
10,622,511.42 XII common shares in total for the
PCI common shares underlying the Specified
Options.
The Specified Options will be amended to make
XII a party thereto and to provide such put
rights in order that the option
-3-
holders have some liquidity for the shares
under option.
All other PCI founders options and employee
options will remain outstanding and be amended
to contain the same right to sell each PCI
common share acquired on exercise of the option
to XII in exchange for 2.5039 XII common
shares.
The issuance of XII common shares on the
exercise of the put rights will be subject to
the approval of CDNX.
PCI PARTNERS WARRANTS: PCI has issued warrants to partners in its
exchange program to acquire PCI common shares,
and may issue further common shares purchase
warrants to partners in the future.
The PCI USA will remain in effect
notwithstanding that XII will own all of the
outstanding PCI common shares after giving
effect to the foregoing, to govern the parties'
rights in the event any of the partners'
warrants are exercised.
CIBC CP and KS&I will consent to amendments to
the USA to terminate their rights and
obligations under the USA.
XII BOARD OF DIRECTORS: It is proposed that three or four members of
the board of directors of XII will resign and
the vacancies created will be filed by Rob
MacLean, Doug Carty, a nominee of KCP and one
other director to be determined. Rob MacLean
and Chris Barnard will remain as the only
directors of PCI.
XII SALE OF NON-CORE ASSETS: XII's wholly owned subsidiary Exclamation Inc.
will sell its shares of all corporations owned
by it (other than PCI) or their assets and
shall be released from any and all related
obligations and liabilities, so that XII shall
become a single purpose publicly traded holding
corporation. After completing the
restructuring XII will use its cash reserves to
fund PCI's business.
XII AMALGAMATION WITH PCI: At the next annual general meeting of
shareholders of XII, it is XII's current
intention to propose an amalgamation of XII with
XI and PCI. In any event, XII shareholders will
be asked to approve a change in XII's name to
"Points International Inc." Pursuant to the
terms of the partners' warrants and any then
outstanding PCI founders options and employee
options, the holders of such warrants and
options who exercise a warrant or option after
the effective date of
-4-
the amalgamation will receive for each PCI
common share they would have received that
number of common shares of the amalgamated
company as have at the amalgamation date a fair
market value equal to the fair market value of
one PCI common share.
SCHEDULE C
The proposed board of directors of Exclamation International Inc. are:
- Doug Carty
- Rowland Fleming*
- John Thompson
- John Orr
- Jim Kranias
- Marc Lavine
- Christopher Barnard
- Rob MacLean
- Grant McCutcheon
* or Vahan Kololian
POINTS.COM INC. KENSINGTON CAPITAL PARTNERS LIMITED
/s/ Robert MacLean /s/ Tom Kennedy
- ------------------------------------- -------------------------------------
Robert MacLean Tom Kennedy
CIBC CAPITAL PARTNERS LAWRENCE & CO.
/s/ John Orr /s/ Grant McCutcheon
- ------------------------------------- -------------------------------------
John Orr Grant McCutcheon
/s/ Robert MacLean
-------------------------------------
Robert MacLean
/s/ Stephen Moore
-------------------------------------
Stephen Moore
/s/ Jeffrey Shaul
-------------------------------------
Jeffrey Shaul
/s/ Tom Kennedy
-------------------------------------
Tom Kennedy
/s/ John Thompson
-------------------------------------
John Thompson