ANNUAL REPORT
DIRTT 2024
ISSUED 2025 02 26
7.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-39061
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
(Exact name of Registrant as specified in its Charter)
Alberta, Canada
N/A
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
7303 30th Street S.E.
Calgary, Alberta, Canada
T2C 1N6
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (403) 723-5000
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Trading
Symbol(s)
Name of Each Exchange on Which Registered
N/A
N/A
N/A
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Shares, without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the common shares on The
OTC Market on June 30, 2024, was $32,812,276.
The registrant had 189,629,164 common shares outstanding as of February 18, 2025.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to the Annual and Special Meeting of Shareholders, scheduled to be held on May 9, 2025, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
2
TABLE OF CONTENTS
Page
PART I
Item 1.
Business...........................................................................................................................................................
6
Item 1A. Risk Factors .....................................................................................................................................................
13
Item 1B. Unresolved Staff Comments ...........................................................................................................................
23
Item 1C. Cybersecurity ..................................................................................................................................................
24
Item 2.
Properties.........................................................................................................................................................
24
Item 3.
Legal Proceedings ...........................................................................................................................................
25
Item 4.
Mine Safety Disclosures ..................................................................................................................................
25
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
26
Item 6.
[Reserved]
27
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .........................
28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................................................................
50
Item 8.
Financial Statements and Supplementary Data ...............................................................................................
52
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........................
92
Item 9A. Controls and Procedures ..................................................................................................................................
92
Item 9B. Other Information ............................................................................................................................................
92
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .............................................................
92
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..............................................................................
93
Item 11. Executive Compensation .................................................................................................................................
93
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........
93
Item 13. Certain Relationships and Related Transactions, and Director Independence ................................................
93
Item 14. Principal Accounting Fees and Services .........................................................................................................
93
PART IV
Item 15. Exhibits, Financial Statement Schedules .........................................................................................................
94
Item 16. Form 10-K Summary ......................................................................................................................................
99
3
EXPLANATORY NOTE
Currency and Exchange Rate Information
Unless otherwise indicated, references in this Annual Report on Form 10-K (the “Annual Report”) to “$” or “dollars” are
expressed in U.S. dollars (US$). References in this Annual Report to Canadian dollars are noted as “C$.”
Our consolidated financial statements that are included in this Annual Report are presented in U.S. dollars. Unless otherwise
stated, all figures presented in Canadian dollars and translated into U.S. dollars were calculated using the daily average exchange rate
as reported by the H.10 statistical release of the Board of Governors of the Federal Reserve System on December 31, 2024 of
C$1.4400 = US$1.00.
Market and Industry Data
Certain market and industry data contained in this Annual Report, including Item 1. “Business” and Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” are based upon information from government or other
third-party publications, reports and websites or based on estimates derived from such publications, reports and websites. Government
and other third-party publications, reports and websites do not guarantee the accuracy or completeness of their information. While
management believes this data to be reliable, market and industry data are subject to variations and cannot be verified with complete
certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, and other
limitations and uncertainties inherent in any statistical survey.
4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report are “forward-looking statements” within the meaning of “safe harbor”
provisions of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934 (the “Exchange Act”) and “forward-looking information” within the meaning of applicable Canadian securities laws. All
statements, other than statements of historical fact included in this Annual Report, regarding our strategy, future operations, financial
position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking
statements. When used in this Annual Report, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,”
“outlook,” “may,” “will,” “should,” “would,” “could,” “can,” “continue,” the negatives thereof, variations thereon and other similar
expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying
words. In particular and without limitation, this Annual Report contains forward-looking information pertaining to the effect of our
strategic priorities on increasing value creation; the application of our processes and technology and the benefits therefrom, forecast
operating and financial results, including 2025 revenue, and the impact of certain cost-saving measures, including the development,
timing and success of strategic accounts, the outcome of non-dilutive strategy initiatives, the competitiveness of the Company’s
solutions, the liquidity and capital resources of the Company, the effects that current claims against the Company and expiring patents
will have on the Company’s business, financial condition, results of operations and growth prospects; the adaptability and lifespan of
our products; the effect of tariffs on our business, including on our 2025 guidance, and our ability to mitigate any such effects;
potential cost savings as a result of using artificial intelligence technology; our goals relating to defects, deliveries and workplace
injuries; capital expenditures and allocation; our executive management team; and the effect that sustainability-related building
standards established by organizations, such as the U.S. Green Building Council, International Living Future Institute, and the
International WELL Building Institute, among others, will have on demand for our products, systems and services in the U.S. market.
Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management’s
experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may
be appropriate.
Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes
to differ materially from those contained in, or expressed or implied by such statements. Due to the risks, uncertainties and
assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that
could have a material adverse effect on our business, financial condition, results of operations and growth prospects can be found in
Item 1A. “Risk Factors,” Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
elsewhere in this Annual Report. These factors include, but are not limited to, the following:
•
general economic and business conditions in the jurisdictions in which we operate;
•
our ability to successfully implement the Company’s strategic transformation plan to grow DIRTT’s revenue and
manage profitability;
•
inflation and material fluctuations of commodity prices, including raw materials, and our ability to set prices for our
products that satisfactorily adjust for inflation and fluctuations in commodity prices;
•
the effects of tariffs or other trade barriers on exports from Canada to the U.S., and retaliatory measures in response
thereto, including potential increases in the cost of our raw materials and ultimately products;
•
volatility of our share price and potentially limited liquidity for U.S. investors due to our common shares being quoted
on the “OTC Pink Tier”;
•
the availability of capital or financing on acceptable terms, or at all, which may impact our liquidity and impair our
ability to make investments in the business;
•
turnover of our key executives and difficulties in recruiting or retaining key employees;
•
our ability to generate sufficient revenue to achieve and sustain profitability and positive cash flows;
•
our ability to attract, train and retain qualified hourly labor on a timely basis to increase overall productive capacity
in our manufacturing facilities to enable us to capture rising demand in the construction industry;
•
our ability to achieve and manage growth effectively;
•
competition in the interior construction industry;
•
the voting influence our two largest shareholders are able to exercise over the Company due to their ownership of
our common shares;
5
•
competitive behaviors by our co-founders and former executives;
•
the condition and changing trends of the overall construction industry;
•
our reliance on our network of Construction Partners (as defined herein) for sales, marketing and installation of our
solutions;
•
our ability to introduce new designs, solutions and technology and gain client and market acceptance;
•
defects in our designing and manufacturing software and warranty and product liability claims brought against us;
•
the effectiveness of our manufacturing processes and our success in implementing improvements to those processes;
•
the effectiveness of certain elements of our administrative systems and the need for investment in those systems;
•
shortages of supplies of certain key components and materials or disruption in supplies due to global events;
•
global economic, political and social conditions affecting financial markets, such as the war in Ukraine and the
conflict in the Middle East;
•
our exposure to currency exchange rates, tax rates, interest rates and other fluctuations, including those resulting
from changes in laws or administrative practice, or changes in monetary policies;
•
legal and regulatory proceedings brought against us;
•
infringement on our patents and other intellectual property and our ability to protect and enforce our intellectual
property rights, including certain intellectual property rights that are jointly owned with a third party;
•
cyber-attacks and other security breaches of our information and technology systems;
•
damage to our information technology and software systems;
•
our requirements to comply with applicable environmental, health, safety and other similar laws;
•
the impact of environmental, social and governance (ESG) matters on our business, including potentially incurring
additional expenses implementing Canadian, U.S. and other regulations requiring additional disclosures regarding
greenhouse gas emissions and/or broader ESG related-factors;
•
periodic fluctuations in our results of operations and financial conditions;
•
the effect of being governed by the corporate laws of a foreign country, including the difficulty of enforcing civil
liabilities against directors and officers residing in a foreign country;
•
the availability and treatment of government subsidies (including any current or future requirements to repay or
return such subsidies);
•
future mergers, acquisitions, agreements, consolidations or other corporate transactions we may engage in; and
•
other factors and risks described under the heading “Risk Factors” in Item 1A. of this Annual Report.
These above-mentioned risks are not exhaustive. Because of these risks and other risks and uncertainties, our actual results,
performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the
forward-looking statements in this Annual Report. New risk factors emerge from time to time, and it is not possible for our
management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in, or expressed or implied by, any forward-
looking statements. Our past results of operations are not necessarily indicative of our future results. You should not place undue
reliance on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they
were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though
circumstances may change in the future, except as required under applicable securities laws. We qualify all of our forward-looking
statements by these cautionary statements.
6
PART I
Item 1. Business.
Overview
DIRTT designs and manufactures adaptable, sustainable spaces where people work, learn and heal. Since 2004, DIRTT has
grown to become a leader in industrialized construction providing a compelling alternative to conventional construction methods.
DIRTT’s construction system offers unrivaled speed, accuracy, and quality. Our product design and software platform, ICE®
(“ICE” or “ICE Software”), simplifies preconstruction, production, and installation. These advantages provide our end users greater
cost certainty and up to 30% shorter construction schedules compared to conventional construction methods.
DIRTT spaces are built for change and ready to adapt as needs evolve. Our design ensures components are interchangeable and
can be repurposed for small updates or full reconfigurations without major renovation, cost, or waste.
Our approach to industrialized construction combines a portfolio of interior construction products with advanced digital tools.
DIRTT’s first-of-its-kind software called ICE, serves as the engine for our industrialized construction system, enabling projects to be
designed, visualized, organized, configured, priced, and manufactured off-site, with final assembly and installation completed at the
job site. ICE empowers faster decision-making during design with real-time changes, visualization, and pricing information. ICE
connects directly to DIRTT manufacturing facilities for end-to-end integration, precise manufacturing, production management, and
coordination of the DIRTT scope. Our ICE Software is licensed to our Construction Partners (as defined herein), as well as other
third-parties, including Armstrong World Industries, Inc. (“AWI”) which owns a 50% interest in the rights, title and interests in certain
intellectual property rights in a portion of the ICE Software that is used by AWI. In addition to the core ICE platform, our cloud-based
virtual reality tool and app, called ICEreality, connects teams from anywhere in the world to walk through their virtual space together,
while design changes can be made with real-time feedback on pricing.
We believe that our three strategic priorities, namely: a focus on cost-discipline, a continuous improvement philosophy, and a
prudent and measured approach to capital investment will drive increased value creation for our employees, clients, Construction
Partners, and shareholders.
We work with some of the most innovative clients, design teams, and construction professionals. We reach our clients through
an internal sales team and international network of independent DIRTT Construction Partners (“Construction Partners” or “Partners”).
Their DIRTT expertise makes them trusted professionals in their regions for pre-construction considerations, order, installation, and
adaptation of interior spaces. DIRTT Construction Partners work with clients and construction teams, ensuring effective management
and execution of the DIRTT scope on every project. Long term, they support reconfigurations, adaptations, and adjustments,
continuously protecting our clients’ investments in DIRTT while ensuring their spaces stay relevant.
DIRTT was incorporated in Alberta, Canada, under the Business Corporations Act (Alberta) (“ABCA”) on March 4, 2003 and
mostly recently amended and restated its articles on May 5, 2019. Our headquarters are located at 7303 30 Street SE, Calgary, Alberta,
T2C 1N6, Canada, and our telephone number at that address is 403-723-5000. Our manufacturing facilities are in Calgary, Alberta and
Savannah, Georgia.
We completed our initial public offering in Canada in November 2013 and listed our common shares on the Nasdaq Global
Select Market (“Nasdaq”) in October 2019. Our common shares trade on the Toronto Stock Exchange (“TSX”) under the symbol
“DRT”. Effective October 12, 2023, DIRTT’s common shares ceased to trade on the Nasdaq. DIRTT’s common shares are quoted on
the OTC markets on the “OTC Pink Tier” under the symbol “DRTTF.”
Unless otherwise specified or the context otherwise requires, references to “we,” “us,” “our,” “its,” “the Company” or “DIRTT”
mean DIRTT Environmental Solutions Ltd. and, where the context so requires, includes our subsidiaries.
Available Information
We file or furnish annual, quarterly and current reports, proxy statements and other documents with the U.S. Securities and
Exchange Commission (“SEC”) under the Exchange Act. The SEC maintains a website (www.sec.gov) that contains reports, proxy
and information statements, and other information regarding issuers, including DIRTT, that file electronically with the SEC. We are
also subject to requirements of applicable securities laws in Canada, and documents that we file with the securities commissions or
similar regulatory authorities in Canada may be found at www.sedarplus.ca.
7
We make available free of charge through our website (www.dirtt.com) our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section
13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC
and the applicable securities commissions in Canada. In addition to the reports filed or furnished with the SEC and the applicable
securities commissions in Canada, we publicly disclose information from time to time in our press releases, investor presentations
posted on our website and at publicly accessible conferences. References to such information, including references to our
Environmental, Social, and Governance (ESG) Report, and references to our website in this Annual Report, are provided as a
convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or
available through, the website, and such information should not be considered part of this Annual Report.
We will provide without charge to you, upon your request, a copy of our annual report on Form 10-K for the year ended
December 31, 2024, filed with the SEC and the applicable securities commissions or similar regulatory authorities in Canada.
Requests for copies should be addressed to 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, Attention: Investor Relations.
Our Solutions
Our array of products and integrations give our clients the tools to create high-performing interiors that stay relevant into the
future. Unlike conventional prefabricated products, our solutions do not have predetermined shapes, sizes, or configurations,
empowering clients with design freedom to meet their needs. The core of our product philosophy is a construction system that uses a
universal interface. By allowing interchangeable parts, DIRTT can maximize the life cycle for most of our products as well as the
spaces they occupy. Committed to sustainability, we subscribe to non-obsolescence, where new DIRTT components work with
DIRTT products that came before. Our solutions can be disassembled and reconfigured with minimal waste. With both design freedom
and adaptability benefits, client spaces are tailored to their unique needs on day one and can be more easily reconfigured or adapted to
stay relevant on day two and beyond.
Our solutions (“DIRTT Solutions”) are typically able to address over 90% of an interior space. Components are manufactured in
DIRTT facilities and shipped to site for installation. The following table provides a brief description of our primary solutions:
DIRTT Solution Description
Solid Walls
DIRTT’s solid walls offer extensive options with 4”, 6”, and 2” furring wall offerings. Solid walls connect seamlessly to other
products in the DIRTT construction system and enable unique finishes, colors, and configurations. Wall cavities support electric,
network, and technology integrations.
Glass Walls
DIRTT’s glass walls are available as double pane, classic center-mount, or the slimmer Inspire™ profiles. DIRTT glass walls can
accommodate base building variance and acoustic requirements while remaining aesthetically pleasing.
Combination
Walls
Solid and glass walls can be combined for a mix of privacy and transparency. Combination walls can be customized and
configured to fit any design with the benefits of the DIRTT system.
Leaf Folding
Walls®
The retractable modular wall system adds functionality with an effortless solution to quickly adapt space. Like other walls in the
DIRTT portfolio, dimensions and finishes of Leaf™ can be customized.
Headwalls
This modular, multi-trade healthcare headwall system is an efficient, adaptable approach to healthcare construction. With
extensive customization options and integrations, DIRTT Headwalls are an efficient way to meet unique healthcare compliance
requirements.
Doors
DIRTT doors integrate seamlessly with DIRTT solid and glass wall assemblies. A wide range of types and styles are available,
including swing doors, sliding doors, and pivot doors. Door options can meet smoke-rating and acoustic requirements.
Casework
DIRTT offers custom cabinets, closets, and storage solutions with consistent quality and efficient installation. Precision-
manufactured casework is delivered with predictable lead times.
Timber
Traditional craftsmanship meets advanced, custom manufacturing to create striking designs and structural elements. Engineered
to meet local requirements, DIRTT Timber integrates with broader DIRTT scopes to bring natural elements to spaces with rapid
assembly on-site.
Electrical
DIRTT’s modular electrical system supports connected infrastructure needs. The pre-wired, modular distribution system includes
pre-mounted and terminated device boxes installed at the factory to reduce project time and cost on-site. Plug-in connections
allow for quick installations and easy modifications.
Networks
DIRTT’s Fiber to the Edge networks deliver unlimited bandwidth capability and longer-reaching signal strength while reducing
supporting infrastructure needs and material costs. Industry-leading technology and future-ready infrastructure empowers smart
building benefits. Copper-based network options reduce install time and increase flexibility.
Access Floors
Low-profile, fixed-height access floor provides an adaptable foundation for connected infrastructure with long-term accessibility
for easy moves, additions, and changes.
8
In addition to our core product offering, DIRTT enables integrations with technology, custom graphics, writable surfaces, and
Breathe® Living Walls. Further product information can be found on dirtt.com.
Sustainability and Environmental Matters
DIRTT aims to minimize the environmental impact of interior construction through careful material selection, efficient
operations, a system designed for future adaptability, and long product lifecycles. We work with clients to understand their unique
sustainability goals and identify how building with DIRTT can support LEED, WELL, Living Building Challenge, and other green
building standards they may be targeting. Our sustainability team helps to calculate various elements of the DIRTT scope that support
certification.
DIRTT’s agile construction system makes it quick, easy, and cost effective to evolve interior spaces through future
reconfigurations and relocations, while reducing waste compared to conventional construction and demolition. Our agile system is
designed for disassembly to reduce the carbon footprint of new construction and future changes. We further reduce waste through
efficient manufacturing and pre-assembled solutions.
We regularly evaluate the environmental impact of our materials, considering impact on the wellness of the occupants using the
spaces we build and life cycles of the products we make. DIRTT endeavors to use materials with high recycled content, bio-based
content, and low or no volatile organic compounds (VOCs). Most DIRTT assemblies are certified through Science Certification
Systems (SCS) Indoor Advantage Gold, recognizing their low-emitting properties. DIRTT wall panel and casework facilities are
certified to handle materials with FSC® certification (FSC-C006900), ensuring FSC certified products may be specified.
We recognize the vital importance of reducing embodied carbon within DIRTT products. Our environmentally conscious
production facilities are regularly evaluated by cross-functional teams who assess and implement energy efficiency strategies. For
example, to further reduce our operational carbon footprint, DIRTT’s U.S. and Canadian factories are powered by renewable energy
through our purchase of Green-e® and Direct Energy certified renewable energy credits (RECs). We further reduce the impact of our
operations with recycling and waste diversion programs.
DIRTT releases an annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability
and the environment. It also provides disclosure of our current environmental and sustainability impacts. DIRTT has set goals to
reduce landfill waste by the end of 2025 and to source or produce renewable energy to cover 100% of our factory operations.
Further information about DIRTT’s sustainability practices can be found at dirtt.com/sustainability.
Construction Partners and Sales Network
We primarily sell DIRTT Solutions through a network of Construction Partners working in conjunction with local DIRTT sales
representatives, as well as internal DIRTT industry specialists, business development professionals and a dedicated Construction
Partner support team. Construction Partners and local sales representatives are located in cities throughout the United States and
Canada, with additional locations in Saudi Arabia, Mexico, the United Kingdom and Singapore. The use of a dispersed network of
Construction Partners greatly enhances our ability to drive awareness of the DIRTT brand and understanding of our approach to
construction throughout our markets.
As part of our distribution agreements, our Construction Partners are typically required to invest in their own DIRTT Experience
Center (“DXC”) so that they are able to effectively showcase DIRTT Solutions. These DXCs are showrooms that provide mock-ups of
DIRTT Solutions and related product offerings. DIRTT independently maintains DXCs in Calgary and Chicago.
Our Construction Partners operate under agreements that outline sales goals and marketing territories which are generally non-
exclusive. We expect our Construction Partners to build regional DIRTT-dedicated teams and to use our ICE Software in the sales
process. In addition to sales and marketing, our Construction Partners provide value throughout the construction process. At the pre-
construction stage, Construction Partners provide design assistance services to the architect and designer; throughout the construction
process, Construction Partners act as a specialty subcontractor to the general contractor and provide installation and other construction
services. Post-move in, Construction Partners provide warranty work, ongoing maintenance and reconfiguring support. Local DIRTT
sales representatives work closely with the Construction Partners throughout the process to ensure successful project implementation
and the highest client satisfaction. Construction Partners generally place orders for DIRTT Solutions directly with us and pay us
directly for such orders.
At December 31, 2024, we had a total of 71 Construction Partners and 39 sales representatives across North America. We are
not dependent on any one Construction Partner or sales representative.
9
Strategic accounts are a cornerstone in our strategy to drive long-term sustainable and predictable growth. These types of clients
manage large real estate footprints in numerous locations. For these clients, it is advantageous and important to establish consistency
in design and execution, repeatability, and speed to market. While these relationships can take time to develop, once they are
established, the time and resources required to execute additional projects is reduced, which we believe will create profitable,
predictable revenue streams. In return, clients benefit from a single point of accountability at DIRTT, a strong network of partners, full
lifecycle support from established design standards and pre-construction expert support for their architects, designers and general
contractors from field work to post installation support.
In 2024, we launched an additional go-to-market channel called Integrated Solutions. This team provides sales, design,
estimating, and project delivery services with our DIRTT Construction Partners and DIRTT sales representatives. Integrated Solutions
increases our sales network’s capacity as well as targets revenues in channels without existing coverage. There are three key
opportunity areas Integrated Solutions is focusing on; diversifying our customer profile, increasing volumes in smaller markets, and
expanding into new sectors. Through these efforts, Integrated Solutions aims to simplify our go-to-market strategy and increase access
to DIRTT’s portfolio of products.
Manufacturing and Properties
Our DIRTT Solutions are currently manufactured at our facilities in Calgary, Alberta (the “Calgary Facility”) and Savannah,
Georgia (the “Savannah Facility”). In 2023, we announced our intention to permanently close our facility in Rock Hill, South Carolina
(the “Rock Hill Facility”) because the Calgary and Savannah Facilities can meet current demands with annual production capacity of
$400 million in revenue. Currently our wall surfaces (which we call panels), casework and timber solutions are manufactured in
Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. Through distributed
manufacturing, we can shift production of some components among our manufacturing sites, reduce transportation times and costs,
and meet targeted lead times.
Suppliers and Raw Materials
Our inventory balances consist primarily of raw materials, which are kept on hand as components of our custom manufacturing
process. Managing our raw material inventory is essential to our business, given our short lead times from order to shipment and our
high level of order customization. Our key manufacturing materials are aluminum, hardware, wood and glass. For the twelve months
ended December 31, 2024, aluminum accounted for approximately 35% of our purchased materials, while wood, hardware and
finishing powder & paint accounted for approximately 11%, 9%, and 11%, respectively. While we maintain multiple suppliers for key
materials, for the twelve months ended December 31, 2024, (i) one supplier accounted for approximately 65% of our aluminum supply
and two additional suppliers provided 21% and 9%, respectively, (ii) two suppliers accounted for approximately 64% and 25% of our
wood supply, respectively, (iii) one supplier accounted for 100% of our paint and (iv) one supplier accounted for approximately 50%
of our hardware supply.
Materials are sourced domestically and, to a much lesser extent, overseas. Approximately 92% of our materials are
manufactured and purchased in North America. Purchase decisions are made on the basis of quality, cost, and ability to meet delivery
requirements. We do not typically enter into long-term agreements with suppliers. In general, adequate supplies of raw materials are
available to all our operations, but we continue to be impacted by inflationary price pressures across substantially all of our raw
material requirements and aluminum purchases may be subject to market capacity constraints. Additionally, the imposition of tariffs
or other trade barriers may further affect the pricing of our raw materials.
Technology and Development
We continue to focus on developing client-centric innovations and enhancements of both ICE Software and DIRTT Solutions
with a primary focus on improving client experience, increasing market penetration and growing key markets. At December 31, 2024,
we employed 73 employees within our technology and development groups and, including capitalized amounts, invested $7.6 million,
$8.3 million and $10.3 million in 2024, 2023 and 2022, respectively, in innovation activities.
On May 9, 2023, the Company entered into a Partial Patent Assignment Agreement and a Co-Ownership Agreement
(collectively, the “AWI Agreements”) with AWI. The AWI Agreements provide for the partial assignment to AWI and co-ownership
of an undivided 50% interest in certain intellectual property rights (including related patents) in a portion of the Company’s ICE
software that is used by AWI (the “Applicable ICE Code”), in exchange for a cash payment of $10.0 million. As part of the AWI
Agreements, the Company provided AWI a transfer of knowledge concerning the Applicable ICE Code in exchange for an additional
$1 million which was received in the fourth quarter of 2023. Under the AWI Agreements, the Company and AWI will have separate
exclusive fields of use and certain restrictive covenants with respect to the Applicable ICE Code and related intellectual property
rights, each of which survive until either party elects to separate its relationship from the other and for a period of five years thereafter.
10
Clients
DIRTT’s principal geographic markets are the United States and Canada. Our revenue is derived almost entirely from projects
in North America sold by our North American Construction Partners.
Our revenue opportunities primarily come from commercial projects, including both new construction projects and renovations
of existing buildings. Clients range from small owner-managed businesses to multinational Fortune 500 companies across a variety of
industries, including healthcare, education, financial services, government and military, manufacturing, non-profit, energy,
professional services, retail, technology, and hospitality. We view DIRTT Solutions as generally industry agnostic, with applications
in many different industries with minimal adjustments. We are not dependent on any one client or industry segment. In 2024 and
2022, no single Construction Partner represented more than 10% of our revenue, while one client represented more than 10% of our
revenue for the year ended December 31, 2023.
Competition
The overall market for interior construction is fragmented and highly competitive. The principal competitive factors in the
interior construction industry include price (including cost certainty), speed, quality, customization, and service. Our main competitors
are comprised primarily of conventional construction firms, individual tradespeople (including framers, drywall installers, and interior
product designers) and modular systems manufacturers. Additionally, conventional construction firms are beginning to develop
customizable wall paneling and other interior construction solutions and may directly compete with our DIRTT Solutions. We also
compete with commercial furniture manufacturers, such as Teknion Corporation, Haworth Inc., Allsteel Inc. and Steelcase Canada
Ltd., who offer a variety of prefabricated interior wall solutions. We expect competition to increase as new entrants or solutions enter
the interior construction market. See Item 1A. “Risk Factors”.
Seasonality
The construction industry has also historically experienced seasonal slowdowns related to winter weather conditions and holiday
schedules, which affect shipping and on-site installation dates, in the first quarter of each calendar year. Our business has generally,
but not always, followed this trend with a slight time lag, leading to stronger sales in the second half of the year versus the first half.
Weather factors can also influence third-party exterior construction schedules and site conditions, which may in turn affect timing of
interior builds.
Due to the fixed nature of certain manufacturing costs, such as our facilities leases and related indirect operating costs, periods
of higher revenue volume tend to generate higher gross profit and operating income margins, while periods of lower volume tend to
result in lower gross profit and operating income margins. Quarters that contain consistent monthly manufacturing volumes tend to
generate higher gross profit than those where manufacturing levels vary significantly from month to month.
Patent and Intellectual Property Rights
Our success depends, in part, upon our intellectual property rights relating to our products, production processes, our
technology, including our ICE Software, and other operations. We rely on a combination of trade secret, nondisclosure and other
contractual arrangements, as well as patent, copyright and trademark laws, to protect our proprietary rights and competitive advantage.
We register our patents and trademarks as we deem appropriate and take measures to defend patents where we deem others are
infringing on our patents. The following table presents the status as of December 31, 2024, of our issued and pending patents relating
to various aspects of DIRTT Solutions and ICE Software:
Granted
Applications
Jurisdiction
Patents
Pending
Canada
80
27
United States
131
17
Europe (EU Designs and European Patent Office)
32
3
France
5
-
Germany
5
-
Great Britain (UK)
22
-
Singapore
8
-
Total
283
47
Our issued patents expire between 2025 and 2040. We do not believe that the expiration of any individual patent will have a
material adverse effect on our business, financial condition or results of operations. As we develop innovations and new technology,
11
we expect to file additional and supplemental patents to protect our rights in those innovations and new technology. As described in
more detail above, AWI owns a 50% interest in the rights, title and interests in the Applicable ICE Code, including a 50% interest in a
portion of the patent rights that relate to the Applicable ICE Code.
Government Regulations
The operation of our business is subject to stringent and complex laws and regulations pertaining to health, safety, and the
environment. As an owner or operator of various manufacturing facilities, we must comply with these laws and regulations at the
federal, state, provincial and local levels in both the United States and Canada. Failure to comply with environmental laws and
regulations may trigger a variety of administrative, civil, or criminal enforcement actions, including the assessment of monetary
penalties, the imposition of investigative or remedial requirements, or the issuance of orders limiting current or future operations.
Certain environmental statutes impose strict, joint and several liability for costs required to clean up and restore sites where hazardous
substances or industrial wastes have been mismanaged or otherwise released.
While we do not believe that compliance with federal, state, provincial, or local environmental laws and regulations will have a
material adverse effect on our business, financial position or results of operations, we cannot provide any assurances that future
events, such as changes in existing laws or regulations, the promulgation of new laws or regulations, or the development or discovery
of new facts or conditions related to our operations, will not cause us to incur significant costs.
Legal and Regulatory Proceedings
We may be involved from time to time in various lawsuits, claims, investigations, and other legal matters that arise in the
ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships
with Construction Partners, relationships with competitors, employees, and other matters. We may, for example, be a party to various
litigation matters that involve product liability, tort liability, and claims under other allegations, including claims from our employees
either individually or collectively. We do not believe that any current claims, individually or in the aggregate, will have a material
adverse effect on our financial condition, liquidity or results of operations. For additional information regarding our current legal
proceedings, see Item 3. “Legal Proceedings.”
Human Capital Resources
As at December 31, 2024, DIRTT employed 847 employees, 99% full time, 1% part time. We had 842 full-time employees
consisting of 564 employees in production, 79 employees in sales and marketing, 73 employees in technology and development, 67
employees in operations support, and 64 general and administrative employees. At year-end, approximately 46% of our workforce are
salaried employees and approximately 54% are compensated on an hourly basis. As at December 31, 2024, approximately 23% of our
workforce was based in the United States, and approximately 77% was based in Canada. Our 2024 hiring efforts were directed
towards both our manufacturing and non-manufacturing functions.
Workplace Values and Equal Employment Opportunity
DIRTT recognizes the importance of attracting and retaining a talented, multifaceted workforce and fostering a sense of belonging
within the organization. We value our employees for what they bring to our organization, including by embracing those from all
backgrounds and experiences, and we seek to foster a workplace where everyone feels valued, respected and empowered. To support
these values and objectives, we offer employees voluntary opportunities to participate in various learning streams and mentoring
circles. We are committed to principles of equal employment opportunity and make hiring and other employment-related decisions based
on merit, talent, skill, capability needs, and fit.
Culture & Engagement
DIRTT has put measures in place to assess and enhance the level of engagement and satisfaction of our employees. Specific
activities include the deployment of a performance management tool catered to drive discussions around team goals, performance and
development opportunities, and greater transparency around policy and procedures tied to cost and risk mitigation.
In 2024, we conducted an employee engagement survey through a platform called Employee Voice which focused on core
themes of workplace civility, work-life balance, retention and job satisfaction. We had an 84% participation rate in our engagement
survey. Targeted initiatives are being put in place to assess the progression of themes from the survey on overall employee
engagement and experience.
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Additional initiatives related to the progression of a strong workplace culture and active employee engagement include learning
and development opportunities, enhanced communication platforms, employee recognition programs, a company-wide philanthropic
organization, and a strong focus on virtual social events to further support engagement and connection of remote employees.
Connecting to our community is a critical piece of the DIRTT story. We continue to focus on establishing a stronger
community investment program that demonstrates our drive to put community at the center of the business. This involves developing a
strategy, carving out a roadmap of initiatives, and establishing a committee of employees across the organization. As part of our
strategy, we are focusing our efforts on establishing meaningful engagement opportunities, creating inclusive giving campaigns,
driving sustainable impact, and enabling our employees to connect on philanthropic efforts. In 2024, we launched our Hearts & Hands
employee volunteer program which aims to foster a sense of community by encouraging employees to give back to society while
building stronger connections with their colleagues. In the fourth quarter of 2024, we successfully completed our holiday giving
campaign which was a coordinated in-person and virtual effort in support of food banks across North America, focusing on the cities
in which we operate. The support for this campaign helped to reconnect DIRTT employees’ desire to give back with tangible
outcomes for their communities.
Our core commitment to organizational safety resulted in a Total Recordable Incident Frequency (TRIF) of 0.82 in 2024, more
than 80% below the industry average.
We use a range of compensation incentives which vary by role, including annual variable compensation determined based on a
combination of achieving team objectives and financial targets for the Company; quarterly bonuses for our manufacturing personnel
paid on adherence to targets related to safety, quality, delivery, inventory and productivity; and commissions based on sales. We also
use various forms of stock-based compensation as a retention tool and to further align employee interests with the interests of our
shareholders. We monitor our retention by way of voluntary turnover, which was 11% in 2024.
None of our employees are covered by collective bargaining agreements. We have never experienced labor-related work
stoppages or strikes, and we believe we currently have a positive relationship with our employees.
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Item 1A. Risk Factors.
Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below, as well
as the other information in this Annual Report, including our consolidated financial statements and the related notes and Part II, Item
7. entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in any documents
incorporated in this Annual Report by reference, before deciding whether to invest in our common shares. The occurrence of any of
the events or developments described below could harm our business, financial condition, results of operations, and growth prospects.
In such an event, the market price of our common shares could decline, and you may lose all or part of your investment. Although we
have discussed all known material risks, the risks described below are not the only ones that we may face. Additional risks and
uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Certain
statements below are forward-looking statements. See also “Special Note Regarding Forward-Looking Statements” in this Annual
Report.
Risks Related to Our Business and Industry
Our industry is highly competitive, and we may not be successful in educating potential clients about the benefits of our
innovative and unique approach to interior construction as compared to conventional interior construction methods.
We operate in the highly competitive interior construction industry that is constantly developing and changing. We compete
against conventional construction firms, individual tradespeople, modular systems, and commercial furniture manufacturers. New
market entrants and conventional construction firms are also beginning to develop customizable wall paneling and other modular
interior construction solutions, and we expect this trend to continue. In addition, we may face pricing pressure from competitors or
new market entrants who take on projects at reduced prices or employ other competitive strategies. While we believe our innovative
design, quality, schedule and cost certainty, and network of Construction Partners makes us well-positioned in the market, increasing
competition could make it difficult to secure new projects at acceptable operating margins.
Our products are unique and offer an alternative to conventional construction techniques. Although offsite construction methods
are gaining market acceptance, this still represents only a fraction of all construction methods and the overall construction market. Our
ability to grow and increase market share depends, in part, on our success in continuing to increase demand for modular construction
methods and products as an alternative to more traditional construction methods. While we intend to follow a strategy of innovative
product development and strategic marketing efforts to enhance our position, there is no assurance that our solutions will attain a
degree of market acceptance sufficient for sustained profitable operations. Failure to compete effectively by, among other things,
meeting consumer preferences, developing and marketing innovative solutions, maintaining strong client service and distribution
relationships, growing market share, and expanding our solutions capabilities could have a material adverse effect on our liquidity,
financial condition, or results of operations.
Our co-founders’ and former executives’ competitive behavior against us could have an adverse effect on our business,
financial condition and results of operations.
Our co-founders and former executives, Mogens Smed and Barrie Loberg, have started an interior construction and
manufacturing company that we believe competes with us. They, along with a number of our former employees and Construction
Partners who have joined their company, have in-depth knowledge about our business, including our customers, employees, products
and prospects, and we may be adversely affected by increased competition arising out of this business venture. We are engaged in
litigation with Messrs. Smed and Loberg, entities with which they are involved, and other individuals relating to, among other things,
enforcement of non-competition and non-solicitation obligations, and alleged misappropriation of proprietary information by them or
by us. If Messrs. Smed and Loberg further engage in a competitive business against us or if we are not successful in litigation, our
business, financial condition and results of operations may be adversely affected. See Item 3. “Legal Proceedings.”
We depend heavily on our network of Construction Partners, and the loss or inattention of our Construction Partners, or the
failure of our Construction Partners to meet their obligations to us, could materially and adversely affect our business, financial
condition and results of operations.
We currently do not engage in many direct sales projects and rely almost exclusively on our network of Construction Partners to
promote brand awareness, sell and market DIRTT Solutions, and provide design, installation, distribution and other services to clients
on each project. While we are not dependent on any single Construction Partner, sales generated by approximately 10% of our
Construction Partners comprised approximately 34% of our total revenues for 2024 (2023 – 37%) with one Construction Partner
making up approximately 9% of total revenues (2023 - 12%). The loss of any top performing Construction Partners, particularly to our
competitors, may negatively affect our sales, financial condition or results of operations. It may further impair our ability to maintain a
market presence in a particular geographic region until a new Construction Partner relationship is established, which would require
significant time and resources, given DIRTT is typically a standalone line of business in their portfolio.
Although we provide our Construction Partners with training, education, and support, they may be unable to successfully sell
our DIRTT Solutions, execute projects or manage client experiences and relationships. In addition, our Construction Partners and their
14
clients may face financial difficulties or may become insolvent, which could result in the delay or cancellation of their plans to
purchase DIRTT Solutions or lead to our inability to obtain payment of accounts receivable that they may owe. If we are unable to
maintain a successful Construction Partner network, our business, financial condition, and results of operations could be materially
and adversely affected.
The management team is working on a transformation plan, we may not be able to achieve some or all of the anticipated
benefits of this transformation plan.
Our Board of Directors was entirely reconstituted at our annual and special meeting of shareholders held on April 26, 2022 and,
since that meeting, there has been significant turnover in the Company’s leadership. In addition to overseeing the changes to DIRTT’s
leadership, the reconstituted Board of Directors has undertaken an extensive review of DIRTT’s operations, a process which is still
ongoing (see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Outlook”).
In response, the management team is working on a transforming plan to advance the business and grow revenue and manage
profitability. Implementation of this transformation plan will require robust and reliable systems and processes across the organization.
There is also no assurance that successful implementation will lead to sustainable, profitable growth, and may itself be disruptive to
the Company. Failure to implement our transformation plan could materially and adversely affect our near-term sales, commercial
activities, and ability to develop and sustain profitable growth. In addition, the success and timing of our implementation may be
dependent upon external factors outside of our control.
Our strategy also depends in part on our ability to maintain and manage growth effectively. Growth in our headcount and
operations may place significant demands on our management and operational and financial resources. Additionally, managing growth
of our operations and personnel requires continuous improvement of our internal controls and reporting systems and procedures.
Failure to effectively manage growth could result in difficulty providing current DIRTT Solutions and introducing future solutions,
difficulty in securing clients and Construction Partners, declines in quality or client satisfaction, increases in costs or other operational
difficulties. Any of these difficulties could lead to a loss of investor confidence and adversely affect our business performance,
financial condition and results of operations.
Certain elements of DIRTT’s administrative systems may not be effective.
DIRTT has identified the need to upgrade its inventory management and cost accounting systems at some point in the future to enable
scalable growth, and other information technology investments may be required in the future. The Company is currently unable to
estimate the costs and timeline related to such upgrades. However, the success, in whole or in part, of such investments cannot be
guaranteed. If the Company does not successfully or timely upgrade its inventory management and cost accounting systems, it may
experience unforeseen challenges to its inventory and pricing strategies.
Environmental, social and governance (ESG) matters and conservation measures may adversely impact our or our
customers’ business.
Societal expectations on companies to address, environmental and social impacts and investor, regulatory and societal
expectations regarding voluntary and mandatory ESG-related disclosures may result in increased costs, reduced demand for our
customers’ products, reduced profits, increased investigations and litigation, negative impacts on our stock price and reduced access to
capital markets.
15
Moreover, while we may publish voluntary disclosures from time to time, certain statements in those voluntary disclosures may
be based on expectations, assumptions and hypothetical scenarios that may or may not be representative of current or actual risks or
events or forecasts of expected risks or events, including the costs associated therewith. Mandatory ESG-related disclosure is also
emerging as an area where we may be, or may become, subject to required disclosures in certain jurisdictions, and any such mandatory
disclosures may similarly necessitate the use of hypothetical, projected or estimated data, some of which is not controlled by us and is
inherently subject to imprecision. Disclosures reliant upon such expectations, assumptions and hypothetical scenarios are necessarily
uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established
single approach to identifying, measuring and reporting on many ESG matters. Further, we have announced various voluntary ESG
targets in our annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability, the
environment, health and safety, and social initiatives, which are often aspirational. However, we cannot guarantee that we will be able
to meet such voluntary targets in the manner or on such a timeline as initially contemplated, including, but not limited to, any
unforeseen costs, changes to relevant accounting methodologies or technical difficulties associated with achieving such results. Any
actual or perceived failure to meet our ESG targets could adversely impact our reputation and our customers’ image of our products
and result in the loss of business or impede our growth initiatives. Adverse publicity regarding ESG issues and similar matters,
whether or not justified, could have a negative impact on our reputation and may result in the loss of customers and our inability to
secure new customer relationships. Further, our customers may be more selective for products that meet their ESG goals or standards,
such as increasing demand for goods that result in lower emissions, and our products could be less competitive if we are unable to
meet these standards. Despite our efforts to adapt to and address these concerns, our efforts may be insufficient. Additionally, the
implementation of these initiatives may increase our costs. It is difficult to predict how our efforts with respect to social and
sustainability matters will be evaluated by current and prospective investors or by our customers or business partners. Despite our
voluntary actions, we may receive pressure from certain investors, lenders, or other groups to adopt more aggressive ESG-related
goals or policies, but we cannot guarantee that we will be able to pursue or implement such goals because of potential costs or
technical or operational obstacles.
Furthermore, our reputation, as well as our stakeholder relationships, could be adversely impacted as a result of stakeholder
perceptions of statements made by us, our employees and executives, agents, or other third parties or public pressures from investors
or policy groups to change our policies. Certain statements with respect to ESG matters are becoming increasingly subject to
heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading
information or false claims overstating potential ESG benefits. For example, the SEC has recently taken enforcement actions against
companies for ESG-related misconduct, including greenwashing. The SEC, various state agencies, non-governmental organizations
and other private actors have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG-
statements, goals or standards were misleading, false or otherwise deceptive. Additionally, certain employment practices and social
initiatives are the subject of scrutiny by both proponents and detractors of such policies, including by government actors, and the
complex regulatory and legal frameworks applicable to such initiatives continue to evolve. We cannot be certain of the impact of such
regulatory, legal and other developments on our business. Recent political developments in the U.S. may result in increased criticism
or litigation risks, including from U.S. governmental agencies. These sentiments may focus on the Company’s environmental
commitments (such as reducing GHG emissions), its pursuit of certain employment practices or its social initiatives that are alleged to
be political or polarizing in nature or are alleged to violate laws based, in part, on changing priorities of, or interpretations by, federal
agencies or state governments. Consideration of ESG-related factors in the Company’s decision-making could be subject to increased
scrutiny and objection from such anti-ESG parties. As a result, we may face increased litigation risks from private parties and
governmental authorities related to our ESG efforts. Moreover, any alleged claims of greenwashing against us or others in our industry
may lead to negative sentiment. To the extent that we are unable to respond timely and appropriately to any negative publicity, our
reputation could be harmed. Damage to our overall reputation could have a negative impact on our financial results and require
additional resources to rebuild our reputation. Additionally, to the extent ESG matters negatively impact our reputation, we may not be
able to compete as effectively to recruit or retain employees, which may adversely affect our operations. Such ESG matters may also
impact our customers, which may result in reduced demand for certain of our products and services.
As a result of amendments to the Competition Act (Canada), certain public representations by a business regarding the benefits
of the work it is doing to protect or restore the environment or mitigate the environmental and ecological causes or effects of climate
change may violate the Competition Act (Canada)'s deceptive marketing practices provisions. These amendments include substantial
financial penalties and, effective June 20, 2025, a private right of action which will permit private parties to seek an order from the
Competition Tribunal under the deceptive marketing practices provisions. Uncertainty surrounding the interpretation and enforcement
of this legislation may expose the Company to increased litigation and financial penalties, the outcome and impacts of which can be
difficult to assess or quantify and may have a material adverse effect on DIRTT’s business, reputation, financial condition, and results.
16
Risks Relating to Our Products and Software
We are subject to fluctuations in the prices of raw materials and commodities, which could adversely affect our liquidity,
operating margins and financial condition.
We purchase raw materials, including aluminum, glass, and wood, from a number of local and global suppliers. The costs of
these commodities can fluctuate due to changes in global supply and demand, inflation, speculation in commodities futures, and the
imposition of any new, or changes in existing, tariffs, embargoes or other trade barriers, which can also interrupt supply. In addition,
we have not historically entered into long-term agreements with vendors and may be exposed to short-term and long-term price
fluctuations as a result.
Aluminum represents the largest component of our raw materials consumption. We have experienced fluctuations in the price of
aluminum and anticipate that these fluctuations will continue in the future. In particular, during 2021 through 2023, we experienced
significant price inflation across substantially all of our materials, largely due to pandemic-induced supply chain constraints. From
time to time, the U.S. government has imposed tariffs on steel and aluminum and limited the amounts of steel and aluminum coming
into the United States based on the countries of origin of those imports. In 2024, we sourced the majority of our aluminum from North
America and sourced under 10% of our raw materials from outside North America. Nonetheless, substantial, prolonged upward trends
in aluminum and other commodity prices, along with tariffs and import limitations, could significantly increase our costs and
adversely affect our liquidity, operating margins, and financial condition. In particular, additional tariffs imposed by the U.S.
government, and any potential retaliatory measures, may affect us and our suppliers, including on the costs of raw materials and
pricing of our solutions. See also “—New and existing trade policies, tariffs or import/export regulations imposed by the U.S., Canada
or other foreign governments may adversely affect our ability to source and sell our products profitably, or at all.”
We rely on a limited number of outside suppliers for certain key components and materials, and failure or delay in obtaining
the necessary components or materials could delay or prevent the manufacturing or distribution of our DIRTT Solutions.
We rely on certain key suppliers for raw materials and components, including aluminum, glass, wood, paint, and hardware. We
maintain multiple suppliers for key materials, although for the year ended December 31, 2024, (i) one supplier accounted for
approximately 65% of our aluminum supply and two additional suppliers provided approximately 21% and 9%, respectively (ii) two
suppliers accounted for approximately 64% and 25% of our wood supply, (iii) one supplier accounted for 100% of our paint, and (iv)
one supplier accounted for approximately 50% of our hardware supply.
While we believe there are other vendors for most of our key requirements, certain materials and components meeting our
quality standards are available only through a limited number of vendors. If we are required to obtain another source for these
materials or components, we may not be able to obtain pricing on as favorable terms or on terms comparable to our competitors. Any
failure or delay in obtaining the necessary raw materials or components in the quantities and quality required may result in increased
costs and delays in manufacturing or distributing our products, which could have a material adverse effect on our liquidity, financial
condition, or results of operations. A vendor may also choose, subject to existing contracts, to modify its relationship with us due to
general economic concerns or specific concerns relating to that vendor or us, at any time. These modifications might include
additional requirements from our suppliers that we provide them additional security in the form of prepayments or with letters of
credit. Any significant change in the terms that we have with our key suppliers could materially and adversely affect our liquidity,
financial condition, or results of operations.
We may be unsuccessful in designing, introducing, or selling new solutions, solution features, or software, which also may
cause us to become less competitive.
As our competitors and others develop new technologies in the future, we may be placed at a competitive disadvantage if we fail
to keep pace with technological advancements within our industry. Our future success depends in part on our continuing ability to
promote and demonstrate the value of DIRTT Solutions, as well as our ability to develop and sell new solutions, solution features, or
software that differentiate our solutions and achieve market acceptance in a timely and cost-effective manner. We incur significant
costs associated with our research and development that may not result in increased revenue or demand for DIRTT Solutions and that
could negatively affect our results of operations. Rapidly changing technology, evolving regulatory and industry standards, and
changing consumer trends, demands, and requirements require us to continuously innovate and develop new, high-quality solutions,
solutions features and software. Additionally, such rapid technological changes, standards and preferences could render the complex
and proprietary technology of our software and solutions obsolete. We may not be able to implement new technologies on a timely
basis or at an acceptable cost. New solutions, solution features, or software may also be less successful than we anticipated, and such
offerings may fail to achieve market acceptance. If we fail to respond quickly and cost-effectively to a changing market and changing
consumer preferences, our competitive position, financial condition, and results of operations could be adversely affected. Outside of
the ongoing evaluation of new construction market sectors, we are considering various partnerships that aide into the advancement and
development of the construction industry. This includes diversifying our current prefabricated offerings, aligning with sourcing
companies, and establishing initiatives with other companies embracing the mindset of change. While these actions strengthen our
stakes in the prefabrication market, we may be unsuccessful in generating revenue through these initiatives.
17
Our software and products may have design defects, deficiencies, or other unknown risks, and we may incur additional costs
to fix any such defects, deficiencies, or other risks, or be subject to warranty or product liability claims.
Our software and solutions are complex and must meet both the technical requirements of our clients and applicable building
codes and regulations. Our solutions may contain undetected errors or design and manufacturing defects, and our software may
experience quality or reliability problems, or contain bugs or other defects. Software defects may also cause errors in our
manufacturing or miscalculations in ordering and pricing, which could lead us to incur losses and perhaps lose market share to
competitors. Product or software defects could cause us to incur warranty costs, product liability costs, and repair and remediation
costs. Although we maintain warranty reserves based on production, historical claims, and estimates, future warranty claims may
exceed our reserves. Similarly, while we maintain insurance of the types and amounts we consider commercially prudent in view of
industry practice, such insurance coverage may not be sufficient to protect us against substantial claims. Such claims could be
expensive to defend, could divert resources, including the attention of management and other personnel for significant periods, and
regardless of the ultimate outcome could result in negative publicity. Increased costs to address product warranty claims or to defend
against product liability claims, may result in increased expenses and adversely affect our financial condition or results of operations.
Risks Relating to Market Conditions
New and existing trade policies, tariffs or import/export regulations imposed by the U.S., Canada or other foreign
governments may adversely affect our ability to source and sell our products profitability, or at all.
On February 1, 2025, the U.S. government announced a 25% tariff on product imports from certain countries, including Mexico
and Canada, and 10% tariffs on product imports from certain other countries, including China. These actions have resulted in, and may
result in additional retaliatory measures on U.S. goods. Specifically, the Canadian federal government imposed similar tariffs on U.S.
goods imported into Canada in response to the U.S.’s imposition of tariffs.
Further, on February 10, 2025, President Trump issued an Executive Order imposing 25% tariffs on steel and aluminum
imported into the U.S. These tariffs are proposed to become effective March 12, 2025 and would be in addition to any other tariffs on
such imported goods. DIRTT imports raw materials from, and has manufacturing facilities in, both Canada and the U.S. Accordingly,
while the extent and duration of any tariffs imposed by the U.S. or Canada, and the resulting impact on our business, are difficult to
predict at this time, such tariffs may affect our ability to import raw materials and sell our products profitably. The imposition of trade
barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost
or reduce the supply of materials and products available to us, increase shipping times, affect our customers’ construction needs or
budgets, affect the demand for our products or our product mix or require us to modify our supply chain organization, manufacturing
facilities, or other current business practices, any of which could harm our business, financial condition, and results of operations.
Global economic, political and social conditions and financial markets, such as geopolitical conflict or the imposition of
tariffs by the U.S., may impact our ability to do business and adversely affect our liquidity, financial condition, and results of
operations.
Our industry is cyclical and highly sensitive to macroeconomic conditions. Overall declines or reductions in construction and
renovation due to economic downturns, unemployment and office vacancies, changing return-to-office trends, difficulties in the
financial services sector and credit markets, and imposition of tariffs, embargoes or other trade barriers can impact the demand for our
products. Financial difficulties experienced by our suppliers, Construction Partners or clients could also result in, among other things,
inadequate project financing, project delays, inability to pay accounts receivable or disruptions in our supply chain. Political
uncertainty surrounding trade or other international disputes could also have a negative impact on customer confidence, inflation,
interest rates and the economy in general. Any general economic, political, or social conditions that may contribute to financial
difficulties experienced by us, our suppliers, Construction Partners, or clients may adversely affect our liquidity, financial condition
and results of operations.
We are exposed to currency exchange rates, interest rates, tax rates, and other fluctuations, including those resulting from
changes in laws.
Our revenues and expenses are collected and paid in different currencies, including the U.S. dollar and Canadian dollar.
Fluctuations in the relative values of any such currency expose us to foreign exchange risk and could have a material and adverse
effect on our cash flows, revenues and results of operations. We also have currency exchange exposure to the extent of a mismatch
between foreign-currency denominated revenues and expenditures – in particular, where U.S. dollar revenues do not equal U.S. dollar
expenditures. We are not currently using exchange rate derivatives to manage currency exchange rate risks. There are currently no
significant restrictions on the repatriation of capital and distribution of earnings to foreign entities from any of the jurisdictions in
which we operate. There can be no assurance that such restrictions will not be imposed in the future.
Most of DIRTT’s debt is on fixed interest rates. The Fourth Extended RBC Facility (as defined below) is subject to market
interest rates. We are not currently using interest rate derivatives to manage interest rate risks. If interest rates rise, this could have a
material and adverse effect on our cash flows, revenues and results of operations and may adversely affect our ability to access
financing. We are currently undrawn on our Fourth Extended RBC Facility.
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Compliance with new or amended tax laws and regulations could have a material adverse effect on our business. We base our
tax positions upon our understanding of the tax laws (including, applicable tax treaties) of the countries in which we have assets or
conduct business activities. However, our tax positions are subject to review and possible challenges by taxing authorities, including
as to the computation and allocation of income, transfer pricing and other complex issues. This includes adverse changes to the
manner in which Canada, the United States and other countries tax local and foreign corporations and interpret or change their tax
laws and applicable tax treaties, including in light of the increased focus by the U.S. Congress, the Canadian government, the
Organization for Economic Co-operation and Development and other government agencies in jurisdictions where we do business on
issues related to the taxation of multinational corporations. We cannot determine in advance the extent to which such jurisdictions may
amend their tax laws, review our tax positions, or assess additional taxes or interest and penalties on such taxes. In addition, our
effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, our cash management strategies,
local tax rates, or interpretations of tax laws.
Risks Relating to Intellectual Property and Information Security
We may be unable to maintain, protect or enforce our intellectual property rights, and we may be accused of infringing
intellectual property rights of others.
We rely on a combination of contract, copyright, patent, trademark and trade secret laws, confidentiality procedures and other
measures to protect our intellectual property. There is no guarantee that our various contractual rights, patents, copyrights, trademarks
and trade secrets will offer sufficient protection of our products and services or prevent misappropriation of our proprietary rights in
our products, software or processes. We also may not be granted patents, copyrights registrations or trademark registrations on our
pending or proposed applications, and granted applications may be challenged, invalidated or circumvented in the future. Despite our
best efforts to maintain and enforce our intellectual property, monitoring unauthorized use of our intellectual property is difficult and
costly, and the steps we have taken may not be sufficient to effectively prevent third parties from infringing, misappropriating, diluting
or otherwise violating our intellectual property rights. Despite our precautions, it may be possible for unauthorized third parties to use
information that we regard as proprietary to create products or services that compete with ours. We enforce our intellectual property
rights where appropriate, but the cost of doing so may be substantial and could outweigh the potential benefits, and we may be
unsuccessful in our enforcement efforts. Failure to protect or maintain the proprietary nature of our intellectual property could
adversely affect our ability to sell original products and adversely affect our business, financial condition and results of operations.
Additionally, our competitors or other third parties may own, or claim to own, intellectual property in technology areas relating
to our technology, including ICE Software, manufacturing processes, and DIRTT Solutions. Although we do not believe that our
software or DIRTT Solutions infringe or misappropriate the proprietary rights of any third parties, litigation related to such claims,
whether or not meritorious, may subject us to significant liabilities, require us to enter into royalty and licensing arrangements on
unfavorable terms, prevent us from assembling certain of our products or licensing certain of our intellectual property, subject us to
injunctions restricting our sale of products or services, cause severe disruptions to our operations or the marketplaces in which we
compete, or require us to satisfy indemnification commitments with our clients, including contractual provisions under various license
arrangements. A damages award against us could include an award of royalties or lost profits and, if a court finds willful infringement,
treble damages and attorneys’ fees. This may cause us to expend significant costs and resources, and could adversely affect our
business, financial condition or results of operations.
If we are unable to protect our information technology systems against data corruption, cyber-based attacks or network
security breaches, our operations could be disrupted and our reputation and profitability could be negatively affected.
In the ordinary course of our business, we generate, collect and store confidential and proprietary information, including
intellectual property, business information, and other proprietary information. The secure storage, maintenance, and transmission of,
and access to, this information is important to our operations and reputation. We use automated software and hardware solutions to
protect our on-premise and cloud infrastructure; conduct routine third-party evaluations and vulnerability testing to identify and
mitigate risks; and deploy employee training programs throughout the company. Although we have experienced cyber-based attacks,
to our knowledge, we have not experienced any material disruptions or breaches of our information technology systems or platforms.
However, there is no guarantee that our security systems, or processes or procedures designed to protect our information technology
systems are adequate to safeguard against all cybersecurity risks or human error. Any security breach involving the misuse, loss or
other unauthorized disclosure of confidential information of a client, Construction Partner, employee, supplier or Company
information could result in financial losses, exposure to litigation and liability (including regulatory liability), damage to our
reputation, and disruption to our operations, all of which could have a material adverse effect on our business, financial condition or
results of operations. While we maintain commercially prudent cybersecurity insurance consistent with industry practice, such
insurance may not be sufficient to cover all losses relating to data loss or an information security breach.
The regulatory environment related to information security, data collection and use, and privacy is complex and continuously
evolving and compliance with laws, rules, regulations or other requirements could result in additional costs. The costs associated with
information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to
prevent or remediate information security breaches, could be substantial and adversely affect our business. A significant compromise
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of sensitive employee, Construction Partner, client or supplier data in our possession could result in legal damages and regulatory
penalties. In addition, the costs of defending actions, responding to complaints, or remediating breaches could be material.
Damage to our information technology and software systems could impair our ability to effectively provide DIRTT Solutions
and adversely affect our reputation, relationships with clients, financial condition or results of operations.
Our information technology and software networks and systems, which include the processing, transmission and storage of
information, are integrated with our manufacturing processes are essential to our business operations. These systems are vulnerable to,
among other things, damage or interruption from power outages, network failures or natural disasters, loss or corruption of data,
human error, employee misconduct and difficulties associated with upgrades, installations of major software or hardware, and
integration with new systems. While we maintain retention backups to geo-diverse digital and physical locations and have a recovery
data center, the data center and other protective measures we take could prove to be inadequate. Any disruption in our systems or
unauthorized disclosure of information could result in delayed manufacturing and delivery of our DIRTT Solutions, legal claims, a
loss of intellectual property and a disruption in operations, all of which could adversely affect our reputation, relationships with
clients, financial condition or results of operations.
Our core intellectual property in the ICE Code is jointly owned with a third party, who may fail to comply with its contractual
obligations to protect and enforce our intellectual property rights.
AWI owns a 50% interest in the rights, title and interests in certain intellectual property rights in the Applicable ICE Code,
including a 50% interest in the patent rights that relate to the Applicable ICE Code. As part of AWI’s purchase of the Applicable ICE
Code, AWI must comply with contractual obligations designed to protect the Applicable ICE Code from infringement,
misappropriation, misuse or exposure to unauthorized third parties. However, despite our efforts to monitor AWI’s actions, we may
not become aware of AWI’s failure to comply with its obligations or we may not have adequate time to address such failure before
there are adverse impacts to our business. Additionally, even if we attempt to require AWI to comply with its obligations to enforce
our intellectual property rights, AWI may refuse or may not take adequate steps to do so. AWI’s failure to protect or maintain the
proprietary nature of the Applicable ICE Code could adversely affect our ability to sell original products or adversely affect our
business, financial condition or results of operations.
AWI may fail to meet certain security and non-disclosure obligations designed to prevent our competitors or other unauthorized
third parties from accessing the Applicable ICE Code. Despite our efforts to enforce our rights and monitor any inadequacies, we may
not have access to AWI’s internal security or business practices. Additionally, we may not be successful in preventing AWI from
exposing the source code of the Applicable ICE Code to third parties or in protecting our intellectual property rights in the Applicable
ICE Code. Any unauthorized access to the Applicable ICE Code in AWI’s possession could substantially and adversely affect our
business or competitive advantage and management may have to expend significant time and resources to address unauthorized access
and disclosure, all of which could have a material adverse effect on our business, financial condition or results of operations.
Risks Relating to Government Regulations and Enforcement
We may incur significant costs complying with environmental, health and safety laws and related claims, and failure to
comply with these laws and regulations could expose us to significant liabilities, which could materially adversely affect our
business and results of operations.
We are, and may become, subject to laws, regulations, and other requirements with respect to workers’ health and safety and
environmental matters in the United States, Canada and other countries in which we may operate. Environmental laws and regulations
impose, among other things, restrictions, liabilities and obligations in connection with the production, processing, preparation,
handling, storage, transportation, disposal and management of wastes and other substances, and the prevention and remediation of
environmental effects. Health and safety laws and regulations impose, among other things, requirements designed to ensure the
protection of workers. New or more stringent laws and regulations, including those relating to climate change and greenhouse gas
emissions, may be adopted in the future and could impact our facilities, raw material suppliers, the transportation and distribution of
our solutions, and our clients, which could reduce demand for our solutions or cause us to incur additional operating costs. In addition,
certain foreign laws and regulations may affect our ability to export products outside of, or import products into, the United States or
Canada. Failure to comply with these requirements may result in civil or criminal liability, damages and fines, and our operations
could be curtailed, suspended or shutdown and our reputation, ability to attract employees, and results of operations could be
adversely affected. Private lawsuits, including claims for remediation of contamination, personal injury or property damage, or actions
by regional, national, state and local regulatory agencies, including enforcement or cost-recovery actions, may materially increase our
costs.
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These factors may materially increase the amount we must invest to bring our processes into compliance with legal requirements
and impose additional expenses on our operations. In addition, any changes in these laws or regulations or changes in our
manufacturing processes may require us to request changes to our existing permits or obtain new permits. We may also be unable to
obtain or maintain, from time to time, all required environmental regulatory approvals. A delay in obtaining any required
environmental regulatory approvals or the failure to obtain and comply with such approvals could materially adversely affect our
business and results of operations.
Risks Relating to Financial Results
We have had negative cash flow from operating activities.
We had negative cash flow from operating activities for prior years, including the years ended December 31, 2022 and 2021.
Continued negative operating cash flow may compromise our ability to make interest and principal payments on the issued and
outstanding 6.00% convertible unsecured subordinated debentures due January 31, 2026 (the “January Debentures”) and the issued
and outstanding 6.25% convertible unsecured subordinated debentures due December 31, 2026 (the “December Debentures”, and
collectively with the January Debentures, the “Debentures”) on a timely basis, or at all, and to execute our transformation plan. Until
we are able to generate positive cash flow from operating activities over a sustained period, our ability to finance our operations will
be dependent on our cash reserves and available credit facilities and, if required, our ability to obtain additional external financing.
Although we had $7.3 million and $14.8 million in cash provided from operating activities for the years ended December 31, 2024 and
2023, respectively, and we anticipate we will have positive cash flow from operating activities over at least the next twelve months,
we cannot guarantee that such future cash flow will be sufficient, or other changes to our circumstances will not necessitate additional
financial resources to fund our operating activities.
We have undertaken various actions to improve our cash flow and balance sheet in the short term, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources”. Although we anticipate
these actions will strengthen our balance sheet and liquidity position, we cannot guarantee that such future cash flow will be sufficient
or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.
We have experienced a history of losses, and despite certain periods of profitability in recent years, we may not be able to
generate sufficient revenue to achieve and sustain profitability.
We have incurred significant losses since commencing business. We incurred net losses after tax of $14.6 million and $55.0
million for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2024, we have net income
after tax of $14.8 million, but still have an accumulated deficit of $166.1 million. These losses and accumulated deficits were due in
part to the substantial investments made to grow our business and acquire clients, to further develop our service offerings through
product and software development, to ensure that we have sufficient production capacity and capability to deliver on our commitment
of rapid delivery times and to preserve our production, innovation and commercial capabilities through the economic disruption
caused by the global COVID-19 pandemic in anticipation of an increase in construction activity as the pandemic impacts abated. Past
results may not be indicative of our future performance, and there can be no assurance that we will continue to generate net income in
the future.
We have experienced, and may experience in the future, quarterly and yearly fluctuations in results of operations and
financial condition.
Our results of operations and financial condition may continue to fluctuate from one quarter or year to another due to a number
of factors, some of which are outside of our control. For example, we usually experience seasonal slowdowns in the first quarter of
each calendar year, leading to stronger sales in the second half of the year versus the first half, and weather conditions may also delay
delivery and installation on some projects. Furthermore, sales that we anticipate in one quarter may be pushed into another quarter,
affecting both quarters’ results, and our actual or projected results of operations may fail to match our past performance. These events
could in turn cause the market price of our common shares to fluctuate. In particular, if our results of operations do not meet the
expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical results
of operations, the market price of our common shares will likely decline. Due to our high fixed manufacturing costs and operating
expenses, quarterly volatility in sales volumes could result in periods of low operating cash flow and negatively affect our liquidity.
Due to these risk factors, quarter-to-quarter or year-to-year comparisons of our results of operations may not be an indicator of future
performance.
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We have recognized, and may recognize in the future, impairment charges for our goodwill and certain other non-current
assets.
Significant negative industry or economic trends, disruptions to our business, planned or unexpected significant changes in the
use of the assets, and sustained market capitalization declines may result in the impairment of non-current assets. In 2022, we had an
indicator of impairment for our non-current assets. In 2023, we announced our intention to close the Rock Hill Facility, which resulted
in an impairment charge on the reclassification of assets held for use to assets held for sale. As at December 31, 2024, we did not have
any impairment indicators for our non-current assets. Any further charges relating to impairments could have a material adverse
impact on our consolidated statement of operations in the period in which the impairment is recognized.
Risks Related to Our Common Shares and Corporate Structure
Our share price has been and may continue to be volatile, which could cause the value of your investment to decline.
Our common shares are listed on the TSX under the symbol “DRT” and are quoted on the OTC’s Pink Tier under the symbol
“DRTTF.” The price of our common shares has in the past fluctuated significantly, and may fluctuate significantly in the future,
depending upon a number of factors, many of which are beyond our control and may adversely affect the market price of our common
shares. These factors include: (i) variations in quarterly results of operations; (ii) deviations in our earnings from publicly disclosed
forward-looking guidance; (iii) changes in earnings estimates by analysts; (iv) our announcements or our competitors’ announcements
of significant contracts, acquisitions, strategic partnerships or joint ventures; (v) general conditions in the offsite construction and
manufacturing industries; (vi) sales of our common shares by our significant shareholders; (vii) fluctuations in stock market price and
volume; and (viii) other general economic conditions. Additionally, the Shares NCIB and the Share Repurchase from NGEN (each as
defined herein) and any other common share repurchase we may complete in the future, may further decrease the number of
outstanding common shares, which could decrease liquidity in the market of the common shares and increase the volatility of its
trading price.
In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has
been brought against that company. If our share price is volatile, we may become the target of securities litigation in both the United
States and Canada. Securities litigation could result in substantial costs and divert management’s attention and resources from our
business and could have an adverse effect on our business, financial condition and results of operations.
Our common shares are quoted on the OTC’s Pink Tier, and there may be a limited trading market in the Company’s
common shares in the United States. As a result of the limited trading market, investors may experience limited liquidity, and may
experience limited ability to sell shares in the open market.
Our common shares are quoted on the OTC’s Pink Tier under the symbol “DRTTF.” There may be a limited trading market in
the Company’s common shares in the United States. As a result of the limited trading market of our common shares, investors in our
common shares may experience limited demand for their common shares, which may limit their ability to sell their shares in the open
market.
We are governed by the corporate laws of Alberta, Canada, which in some cases have a different effect on shareholders than
the corporate laws of the United States.
We are governed by the ABCA and other relevant laws, which may affect the rights of shareholders differently than those of a
company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying,
deterring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or
otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between
the ABCA and Delaware General Corporation Law (“DGCL”), that may have the greatest such effect include, but are not limited to,
the following: (i) for certain extraordinary corporate transactions (such as amalgamations or amendments to our articles), the ABCA
generally requires the voting threshold to be a special resolution passed by not less than two-thirds of the votes cast by the
shareholders who voted in respect of the resolution, whereas DGCL generally only requires a majority vote; and (ii) under the ABCA,
registered holders or beneficial owners (as defined in the ABCA) of not less than 5% of our common shares in aggregate can
requisition our directors to call a special meeting of shareholders, whereas such right does not exist under the DGCL. We cannot
predict whether investors will find our company and our common shares less attractive because we are governed by the corporate laws
of Alberta, Canada.
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Our two largest shareholders, 22NW and WWT, are able to exercise voting influence over matters which may require
shareholder approval due to their ownership of our common shares, and their interests may conflict with or differ from the interests
of our other shareholders. In addition, the Amended and Restated SRP and the Support Agreement limit the concentration of
ownership of our common shares by shareholders other than 22NW and WWT, which may make it more difficult for a shareholder
to acquire the Company.
As of November 5, 2024, 22NW Fund, L.P. (“22NW”) and Aron English (collectively, the “22NW Group”) and WWT
Opportunity #1 LLC (“WWT”) and Shaun Noll (collectively, the “WWT Group”) owned 29.7% and 27.6% of our outstanding common
shares, respectively, together beneficially owning approximately 57.3% of our outstanding common shares. So long as the 22NW Group
and WWT Group and their respective affiliates continue to directly or indirectly own a significant amount of our common shares, they
will, in certain circumstances, have voting influence over matters requiring shareholder approval, including amendments to our amended
and restated articles of amalgamation, and approval of significant corporate transactions (barring any requirement for such shareholder
to recuse itself from any such vote pursuant to applicable securities law, corporate law or the rules and regulations of any applicable
stock exchanges). Further, Aron English and Shaun Noll, who serve as the investment manager and Managing Member of the 22NW
Group and WWT Group, respectively, also serve as directors on the Company’s Board of Directors. This could have the effect of
delaying or preventing a change of control of the Company, and would make the approval of certain transactions difficult or impossible
without the support of these shareholders.
In addition, the Amended and Restated Shareholder Rights Plan, effective August 2, 2024 (the “Amended and Restated SRP”),
which was ratified by shareholders at a special meeting held on September 20, 2024, was adopted by the Board in order to help ensure
that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition
of control of the Company. The Amended and Restated SRP may discourage, delay, or prevent a change of control or acquisition of the
Company, even if such action may be considered beneficial by some shareholders, and could limit the price that investors would be
willing to pay in the future for the Company’s common shares.
Because we are a corporation incorporated in Alberta and some of our directors and officers are residents of Canada, it may
be difficult for investors in the United States to enforce civil liabilities against us or our directors and officers based solely upon the
federal securities laws of the United States. Similarly, it may be difficult for Canadian investors to enforce civil liabilities against
our directors and officers residing outside of Canada.
We are a corporation amalgamated and existing under the laws of Alberta with our principal place of business in Calgary,
Alberta, Canada. Some of our directors and officers are residents of Canada and a substantial portion of our assets and those of such
persons are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within
the United States upon us or our directors or officers who are not residents of the United States, or to realize in the United States upon
judgments of courts of the United States predicated upon civil liabilities under the Securities Act of 1933. Investors should not assume
that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the
civil liability provisions of the U.S. federal securities laws or the securities or blue sky laws of any state within the United States or (ii)
would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such
state securities or blue sky laws.
Similarly, some of our directors and officers are residents of countries other than Canada and all or a substantial portion of the
assets of such persons are located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within
Canada against these non-Canadian residents. In addition, it may not be possible for Canadian investors to collect from these non-
Canadian residents judgments obtained in courts in Canada predicated on the civil liability provisions of securities legislation of
certain of the provinces and territories of Canada. It may also be difficult for Canadian investors to succeed in a lawsuit in the United
States, based solely on violations of federal, provincial or territorial securities laws.
The repurchase and cancellation of our Debentures in 2024 could adversely affect the price or liquidity of the Debentures.
On March 22, 2024, the Company completed a substantial issuer bid (“Issuer Bid”) in which the Company repurchased for
cancellation C$4.7 million of the January Debentures and C$5.8 million of the principal balance of the December Debentures.
On August 2, 2024, the Company purchased for cancellation an aggregate of C$18,915,000 principal amount of the January
Debentures and C$13,638,000 principal amount of the December Debentures from 22NW (the “Debenture Repurchase”). Following the
Issuer Bid and Debenture Repurchase, C$16,642,000 principal amount of the January Debentures and C$15,587,000 principal amount
of the December Debentures remained outstanding and 22NW no longer held any debentures.
On August 26, 2024, the Company announced a normal course issuer bid for the January Debentures and December Debentures
(the “Debentures NCIB”). For the quarter ended December 31, 2024, C$0.3 million and C$0.01 million principal amounts of the
December Debentures and January Debentures, respectively, were acquired and cancelled.
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The Issuer Bid, the Debenture Repurchase, and the Debentures NCIB have decreased, and the Debentures NCIB may further
decrease, the number of outstanding Debentures, which could decrease liquidity in the market of the Debentures and increase the
volatility of the prices at which they trade. Repurchases of Debentures may also cause the prices of the Debentures to differ from what
they would be in the absence of such repurchase. There can be no assurance any such repurchases will ultimately enhance shareholder
value.
General Risks
Difficulties in recruiting and retaining qualified officers or employees, or experiencing labor shortages or disruptions, could
have a material adverse effect on our business and results of operations.
Our success will depend in part on our ability to attract, develop, and retain qualified personnel as needed. We have undergone
significant changes at a senior management level during recent years. Any changes to members of our senior management may be
disruptive to our operations, including by diverting our Board of Directors’ and management’s time and attention and a decline in
employee morale. If there are any delays in transitions, our business could be negatively impacted. We may be affected by labor
shortages or disruptions, particularly in locations where we operate manufacturing facilities. If we fail to attract or retain qualified
personnel, or experience labor shortages or disruptions, we could incur higher recruiting expenses, a loss of manufacturing
capabilities, or inability to respond to significant increases in demand, all of which could have a material adverse effect on our
business and results of operations.
We may have additional capital needs in the future and may not be able to obtain additional capital or financing on
acceptable terms.
We plan to continually invest in business growth and may require additional funds to respond to business opportunities, such as
expanding our sales and marketing activities, developing new software, acquiring complementary businesses, products or technology,
and expanding or enhancing our manufacturing capabilities, including factory automation. To the extent that our existing capital is
insufficient to meet our requirements, we may need to undertake equity or debt financings to secure additional funds. Further
issuances of equity or convertible debt securities may result in significant share dilution. Additional new equity securities issued could
have rights, preferences and privileges superior to those of our currently issued and outstanding common shares. Additional debt
financings may involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which
may make it more difficult for us to obtain additional capital and to pursue business opportunities. We cannot provide any assurance
that sufficient debt or equity financing will be available for necessary or desirable expenditures or acquisitions, or to cover losses, and
accordingly, our ability to continue to support our business growth and to respond to business challenges could be significantly
limited, and our liquidity could be materially and adversely affected.
We may engage in future mergers, acquisitions, agreements, consolidations, or other corporate transactions that could
adversely affect our business, financial condition, and results of operations.
While we currently have no specific plans to acquire any businesses, we may, in the future, seek to expand our business and
capabilities through acquiring compatible technology, products or businesses. Additionally, we may explore other corporate
transactions, including mergers, agreements, consolidations, or joint ventures, that we believe may be beneficial to our business or
further specific business goals. Acquisitions involve certain risks and uncertainties, including, among other things, (i) difficulty
integrating the newly acquired businesses and operations in an efficient and cost-effective manner; (ii) inability to maintain
relationships with key clients, vendors and other business partners of the acquired businesses; (iii) potential loss of key employees of
the acquired businesses; (iv) exposure to litigation or other claims in connection with our assumption of certain claims and liabilities
of the acquired businesses; (v) diversion of management’s time and focus; and (vi) possible write-offs or impairment charges related
to the acquired businesses. The occurrence of any of these risks could adversely affect our business, financial condition, and results of
operations.
Item 1B. Unresolved Staff Comments.
None.
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Item 1C. Cybersecurity.
The security of our information technology systems and Company data is important to our operations and reputation.
Accordingly, we are committed to identifying and managing cybersecurity risks. Our cybersecurity team performs periodic risk
assessments and, on a quarterly basis, provides our Enterprise Risk Management Committee (“ERM”) information related to the
Company’s cybersecurity, including statistics on attempted cyber-attacks, status of employee information security training awareness,
and information on any security investigations. The cybersecurity team advises the ERM of significant global cyber events that
occurred during the quarter and whether they impacted DIRTT. The cybersecurity team regularly discusses with the ERM the
Company’s cybersecurity posture and whether the Company should implement additional protections and controls to assist the
Company in protecting, responding to, or mitigating potential future cyber-attacks.
DIRTT has developed and implemented a cybersecurity risk management strategy which consists of 5 phases: Identify, Protect,
Detect, Respond, and Recover. Each phase has multiple processes and technologies supporting those processes.
Identify
Identification processes at DIRTT include: system asset identification, threat identification, vulnerability identification and
maintaining cybersecurity policies and standards.
Protect
Protection processes at DIRTT include: cyber awareness training, cyber awareness assessment (each employee is assigned a
cybersecurity awareness grade calculated by a best in class cybersecurity vendor), implementation of identity and access controls,
perimeter and endpoint security, annual vulnerability assessments and remediation, data encryption in transit, key vendor (third
parties) control effectiveness assessment, and pre-implementation of software and systems cybersecurity assessments.
Detect
Detection processes at DIRTT include: automated event collection, collation, analysis, alerting and end user incident reporting.
Respond
Respond processes at DIRTT include: containment, communication, investigation and analysis, and long-term mitigation
planning.
Recover
Recovery processes at DIRTT include: impact identification and analysis, system restoration, internal and external
communications as deemed necessary.
DIRTT engages external assessors annually for specific controls, to assess and provide assurance on the health of DIRTT’s
cybersecurity posture and controls.
DIRTT’s Senior Vice President of Technology (“SVP of Technology”), who reports to the President and Chief Operating
Officer, is responsible for DIRTT’s cybersecurity and has over 15 years of technology experience. The SVP of Technology is
supported by dedicated cybersecurity staff and Governance, Risk and Compliance (“GRC”) staff. DIRTT’s cybersecurity team leader
has over 20 years of experience in cybersecurity, multiple industry standard cybersecurity certifications, and extensive offensive and
defensive cybersecurity tactical skills. DIRTT’s GRC lead has over 20 years of GRC experience and industry standard certifications.
Cybersecurity incidents, response and remediation activities and statuses are reported directly to the SVP of Technology.
The ERM of the Board of Directors oversees risks resulting from cybersecurity threats. DIRTT’s management, represented by
the SVP of Technology, is responsible for identifying, assessing, and managing risks arising from cybersecurity threats. Quarterly,
DIRTT’s SVP of Technology reports to the ERM on the health of DIRTT’s cybersecurity, incidents, and emerging threats and
vulnerabilities that may impact the Company.
As of the date of this Annual Report, the Company has not identified any cybersecurity incidents that have materially affected or
are reasonably likely to materially affect the Company’s results of operations and/or financial condition. See “Item 1A. Risk Factors”
for additional information about cybersecurity risk.
Item 2. Properties.
Our principal executive offices are located in Calgary, Alberta, where we lease approximately 73,000 square feet of office and
manufacturing space. Our lease expires in September 2030. Our principal manufacturing facilities are currently located in Calgary,
Alberta; and Savannah, Georgia. On February 22, 2022, we announced our intention to close the Phoenix manufacturing facility and
DXC. On September 27, 2023, we announced our intention to permanently close the Rock Hill Facility.
25
Our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass
and power components are manufactured in Calgary and Savannah. In Calgary, we lease an aggregate of approximately 400,000
square feet of manufacturing space across four facilities (excluding our principal offices), which leases expire in January 2026,
January 2030, September 2027, and January 2034. In Savannah, we lease approximately 81,000 square feet of manufacturing space,
which lease expires in February 2029. In Phoenix, we lease approximately 130,000 square feet of manufacturing space across two
facilities, which leases expire in March 2027. As at December 31, 2024, all of our Phoenix space is subleased for the remainder of our
lease. In October 2019, we entered into a fifteen-year lease, which DIRTT may extend for two additional five-year periods at its
option, for a panel factory of approximately 130,000 square feet in Rock Hill, South Carolina. Should the need arise, we have the
expansion rights to lease an additional 130,000 square feet of space. We are pursuing options to sublease this area following the
September 27, 2023 announcement of our intention to permanently close operations at this location and do not plan to exercise the
additional five-year extension period. In March 2020, we entered into an eight-year lease, which DIRTT may extend an additional five
years at its option, of approximately 18,000 square feet of space for a DXC in Plano, Texas. During March 2023, we entered into an
agreement to sublease our DXC in Plano to one of our Construction Partners in that region, from April 1, 2023, through October 31,
2028.
In Chicago, Illinois, we own approximately 6,200 square feet of office space, which we use to operate a DXC.
Through distributed manufacturing, we can shift production of some components among our manufacturing sites, reduce
transportation times and costs, and meet targeted lead times. We believe that our current and planned facilities are adequate for our
current needs and that suitable additional or substitute space would be available if needed.
Item 3. Legal Proceedings.
There have been no material developments in the legal proceedings previously disclosed in our Annual Report on Form 10-K
for the year ended December 31, 2023, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 except as
described below regarding DIRTT’s litigation against Falkbuilt Ltd. (“Falkbuilt”), Messrs. Smed and Loberg, and their associates.
With respect to the DIRTT’s lawsuit against Falkbuilt in Utah, on February 5, 2025, the U.S. District Court for the Northern
District of Utah (the “Utah Court”) granted Falkbuilt’s motion to dismiss the case, on the basis of forum non conveniens. In simple
terms, the Utah Court decided that it would not hear DIRTT’s claim in Utah because Canada was more appropriate and Canadian law
applies to most of DIRTT’s claims. Further the Utah Court found that DIRTT’s Canadian company, DIRTT Environmental Solutions
Ltd., owns the trade secrets that were the subject matter of the Utah claim, so whether the theft of those trade secrets occurred in
Canada or abroad, they would result in injury to DIRTT Environmental Solutions Ltd. and should be pursued in Canada. The Utah
Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal
dispute.
In DIRTT’s similar lawsuit against Falkbuilt in Canada, in November 2024, the Court of King’s Bench of Alberta scheduled an
8-week trial commencing February 2, 2026, and running continuously until March 27, 2026. With the trial’s commencement date less
than a year away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s
Bench of Alberta. The Canadian Court will determine whether Falkbuilt, Mogens Smed, Barrie Loberg and others wrongfully caused
DIRTT to suffer damages, which could exceed $50,000,000.
Item 4. Mine Safety Disclosures.
Not applicable.
26
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information; Holders of Record
Our common shares are traded on the TSX under the symbol “DRT” and are quoted on the OTC Markets on the “OTC Pink
Tier” under the symbol “DRTTF”. Quotations of our common shares on the OTC Pink Tier reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of February 17, 2025, there were 189,629,164 common shares outstanding and 153 shareholders of record.
ISSUER PURCHASES OF SECURITIES
Period
(a)
Total Number of
Shares (or Units)
Purchased
(b)
Average Price Paid
per Share (or Unit)
(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or
Programs(1)(2)(3)
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units) that
May Yet Be
Purchased Under the
Plans or
Programs(1)(2)(3)
October 1, 2024 –
October 31, 2024
-
-
-
-
November 1, 2024 –
November 30, 2024
-
-
-
-
December 1, 2024 –
December 31, 2024
58,478
$0.96
58,478
7,456,755
Total
58,478
58,478
7,456,755
(1) The normal course issuer bid for common shares was announced on December 18, 2024 and commenced on December 20, 2024
(the “Shares NCIB”);
(2) The maximum number of common shares approved to be purchased under the Shares NCIB is 7,515,233 common shares;
(3) The expiration date of the Shares NCIB is December 19, 2025.
Dividends
We have not declared or paid any cash dividends on our common shares to date. The declaration and payment of dividends is at
the discretion of the Board of Directors, taking into account (i) our earnings, capital requirements and financial condition, (ii)
restrictions on our ability to pay dividends under the Fourth Extended RBC Facility, and (iii) such other factors as the Board of
Directors considers relevant. The Fourth Extended RBC Facility generally limits our ability to pay any dividends or make any other
distribution on our outstanding common shares. See Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Credit Facility” for more information. If and when our Board of Directors declares cash dividends on our
common shares, such dividends may be declared and paid in either U.S. dollars or Canadian dollars.
27
Recent Sales of Unregistered Securities
None.
Item 6. [Reserved]
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations for the fiscal years
ended December 31, 2024 and 2023 together with our consolidated financial statements and related notes and other financial
information appearing in this Annual Report. The discussion contains forward-looking statements reflecting our current expectations
and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial
position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to
a number of factors, including those described under the headings “Risk Factors” and “Special Note Regarding Forward-Looking
Statements” appearing elsewhere in the Annual Report.
Summary of Financial Results
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized
construction for interior spaces. DIRTT’s system of physical products and digital tools empowers organizations, together with
construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare,
education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and
outcomes.
DIRTT’s proprietary design integration software, ICE® (“ICE” or “ICE software”), translates the vision of architects and
designers into a 3D model that also acts as manufacturing information. ICE is also licensed to our Construction Partners and certain
third parties, including Armstrong World Industries, Inc. (“AWI”) which owns a 50% interest in the rights, title and interests in certain
intellectual property rights in a portion of the ICE software that is used by AWI.
Key Fourth Quarter 2024 Highlights and Other Recent Developments
•
Revenues for the fourth quarter of 2024 were $48.9 million, a decrease of $2.0 million or 4.0% from $50.9 million for the
same period in 2023. The decrease in revenue, as compared to the same period of 2023, was primarily the result of a
higher volume of large projects completed in the fourth quarter of 2023.
•
Gross profit and gross profit margin for the fourth quarter of 2024 was $17.5 million or 35.9% of revenue, a decrease from
$19.2 million or 37.8% of revenue for the same period of 2023. Adjusted Gross Profit and Adjusted Gross Profit Margin
(see “– Non-GAAP Financial Measures”) for the fourth quarter of 2024 was $19.0 million or 38.8% of revenue. This
represents a decrease from $20.1 million or 39.5% of revenue in the fourth quarter of 2023. These decreases in Adjusted
Gross Profit Margin are the result of lower revenues and a $0.7 million increase to our inventory obsolescence provision.
•
Net income after tax for the fourth quarter of 2024 was $4.0 million compared to a $1.0 million net income after tax for
the same period of 2023. The increase in net income is primarily the result of a $2.0 million decrease in operating
expenses (operating expenses in the fourth quarter of 2023 included a $0.8 million impairment charge on the Rock Hill
Facility which was not repeated in the fourth quarter of 2024), a $2.6 million increase in foreign exchange gain, a $0.8
million decrease in interest expense and a $0.3 million decrease in tax expense. These benefits were offset by a $1.7
million decrease in gross profit, and a $1.0 million decrease of gain on sale of software and patents that resulted from the
completion of the knowledge transfer to AWI that occurred in the fourth quarter of 2023 and was not repeated in 2024.
•
Adjusted EBITDA (see “– Non-GAAP Financial Measures”) for the fourth quarter of 2024 was $5.5 million, or 11.2% of
revenue, an improvement of $1.2 million from $4.3 million or 8.5% of revenue for the fourth quarter of 2023. Higher
Adjusted EBITDA was mainly driven by the decrease in operating expenses, offset by the decrease in Adjusted Gross
Profit due to the above noted reasons.
•
Cash on hand increased by $5.7 million in the fourth quarter of 2024 to $29.5 million, compared to a $2.7 million increase
in cash in the fourth quarter of 2023. The increase in cash in the fourth quarter of 2024 was driven by $6.2 million of cash
flows from operations and a positive impact of $0.3 million foreign exchange gain, offset by $0.7 million in capital
expenditures and $0.1 million from repayment of debt and other financing activities .
•
On November 26, 2024, the Company announced that Holly Hess Groos joined our board of directors (“Board” or “Board
of Directors”) and was appointed as the Chair of the Audit Committee.
•
On December 18, 2024, the Company announced a normal course issuer bid for its common shares (the “Shares NCIB”),
which commenced on December 20, 2024 and will terminate no later than December 19, 2025. The Shares NCIB permits
DIRTT to acquire up to 7,515,233 of its common shares. All purchases will be made on the open market through the
facilities of the Toronto Stock Exchange (“TSX”) at the market price of common shares at the time of acquisition. Any
common shares acquired through the Shares NCIB will be immediately cancelled.
29
•
On February 5, 2025, the US District Court for the Northern District of Utah dismissed DIRTT’s lawsuit against Falkbuilt
Ltd. (“Falkbuilt”) in Utah on procedural grounds. In DIRTT’s similar lawsuit against Falkbuilt in Canada, the Court of
King’s Bench of Alberta has scheduled an eight-week trial to commence February 2, 2026. With the Canadian trial
commencing less than a year away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and
abroad in the Court of King's Bench of Alberta.
•
On February 13, 2025, the Company entered into a share repurchase with NGEN III, LP (“NGEN”) pursuant to which the
Company purchased for cancellation 3,920,844 common shares of DIRTT at a purchase price of $0.80 per common share
purchased from NGEN (the “Share Repurchase”). The purchase of $0.80 per share was a 1% discount to the closing price
of the common shares on the TSX on January 27, 2025 (converted into U.S. Dollars using the February 13, 2025 closing
exchange rate published by the Bank of Canada). The common shares repurchased under the Share Repurchase were
counted against DIRTT’s annual normal course issuer bid share limit (the “NCIB Annual Limit”). Following completion
of the Share Repurchase, the Company’s outstanding NCIB Annual Limit was reduced to 3,422,494. The Share
Repurchase closed on February 14, 2025.
Key Annual 2024 Highlights
•
Revenues for the year ended December 31, 2024, were $174.3 million, a decrease of $7.6 million or 4% from $181.9
million for the year ended December 31, 2023. The decrease in revenue, as compared to the same period of 2023, was
primarily the result of three large healthcare projects, one key education project and a larger volume of commercial
projects that were completed in 2023 and were not repeated in 2024. Annual revenue was in line with the expected
guidance range of $165 million to $175 million provided in the second quarter of 2024.
•
Gross profit and gross profit margin for the year ended December 31, 2024, was $64.4 million or 36.9% of revenue, an
increase from $59.5 million or 32.7% of revenue for the year ended December 31, 2023. Adjusted Gross Profit (see “–
Non-GAAP Financial Measures”) for the year ended December 31, 2024, was $68.3 million, an increase from $65.1
million for the year ended December 31, 2023. Adjusted Gross Profit Margin (see “– Non-GAAP Financial Measures”)
for the year ended December 31, 2024, was 39.2%, an improvement from 35.8% for the year ended December 31, 2023.
The improved Adjusted Gross Profit and Adjusted Gross Profit Margin are the result of improved material optimization to
offset the inflationary impacts on material costs. Fixed costs decreased $2.3 million compared to 2023 as we aligned
overhead costs and support costs with current operations after having finalized the decision to close the Rock Hill Facility
in the third quarter of 2023.
•
Net income after tax for the year ended December 31, 2024, was $14.8 million compared to a $14.6 million net loss after
tax for the year ended December 31, 2023. The increase in net income after tax was the result of a $4.8 million increase in
gross profit, a $15.9 million decrease in operating expenses (which includes an $8.2 million decrease in impairment
charge on the Rock Hill Facility and a decrease of $1.9 million in reorganization expenses), a $10.4 million gain on
extinguishment of debt relating to the Issuer Bid, Debenture Repurchase and the Debentures NCIB (each as defined
herein), a $1.1 million increase in interest income, a $0.9 million decrease in interest expense and a $3.6 million increase
in foreign exchange gain, offset by a $7.1 million gain on software sale from 2023 not repeated in 2024, and a $0.2
million decrease in government subsidies.
•
Adjusted EBITDA (see “– Non-GAAP Financial Measures”) for the year ended December 31, 2024 was $15.4 million or
8.8% of revenue, an improvement of $7.5 million from $7.9 million or 4.4% of revenue for the year ended December 31,
2023, for the above noted reasons. Adjusted EBITDA for the year ended December 31, 2024 exceeded the guidance range
of $12 to $15 million.
•
On January 9, 2024, the Company announced the completion of the rights offering to its common shareholders, resulting
in the issuance of 85,714,285 common shares at a price of C$0.35 ($0.26) per whole common share for aggregate gross
proceeds of C$30.0 million ($22.4 million) (the “Rights Offering”). DIRTT issued an aggregate of 67,379,471 common
shares pursuant to the Basic Subscription Privilege and 18,334,814 common shares pursuant to the Additional
Subscription Privilege. As a result of the common shares issued under the Basic Subscription Privilege and Additional
Subscription Privilege, no common shares were available for issuance pursuant to the Standby Purchase Agreement (each
as defined in Note 16 to our Consolidated Financial Statements).
•
On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”), for our
Debentures. Upon expiration of the Issuer Bid on March 22, 2024, DIRTT purchased C$4.7 million aggregate principal
amount of its January Debentures and C$5.8 million aggregate principal amount of its December Debentures, representing
approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at the
time. The Company took up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0
million (including interest of C$0.1 million) resulting in a $2.9 million gain on extinguishment of debt.
30
•
On June 30, 2024, then-Chair of the Board of Directors Mr. Ken Sanders retired from the Board of Directors. On July 1,
2024, the Company announced that the Board of Directors elected Mr. Scott Robinson to serve as Board Chair to replace
Mr. Sanders.
•
On August 2, 2024, the Company and 22NW Fund, L.P. (“22NW”) closed the Debenture Repurchase in which the
Company purchased for cancellation an aggregate of C$18.9 million ($14.0 million) principal amount of the January
Debentures and C$13.6 million ($10.1 million) principal amount of the December Debentures from 22NW. As at
December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January Debentures and C$15.3 million
($10.6 million) principal amount of the December Debentures remained outstanding, and 22NW no longer held any
Debentures.
•
On August 2, 2024, the Board of Directors adopted the Amended and Restated SRP, which superseded the previous
Shareholder Rights Plan adopted on March 22, 2024. The Amended and Restated SRP was approved by the Company’s
shareholders at a special meeting held on September 20, 2024 (the “SRP Meeting”). The Company also entered into a
support and standstill agreement (the “Support Agreement”) with 22NW, DIRTT’s largest shareholder, and WWT
Opportunity #1 LLC (“WWT”), DIRTT’s second largest shareholder. The Support Agreement replaces the previously
announced support and standstill agreement entered into with 22NW on March 22, 2024.
•
On August 28, 2024, the Company commenced the Debentures NCIB, which permits DIRTT to acquire up to
C$1,664,200 principal amount of the January Debentures and C$1,558,700 principal amount of the December Debentures.
As at December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01 million) principal amounts of the
December Debentures and January Debentures, respectively, had been acquired through the Debentures NCIB.
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at January 1, 2025 and January 1, 2024. We
define qualified leads as the quantity of projects being pursued as of the date presented, and define our pipeline as the estimated
potential revenue from qualified leads where a client has engaged DIRTT and is assessing DIRTT as a potential provider of
prefabricated interior solutions. We believe these metrics are helpful to estimate near-term performance, particularly given the
macroeconomic factors that affect our operating environment, including labor availability, interest rate changes, and potential
recessionary impacts on construction projects.
As of January 1, 2025, our twelve-month forward pipeline increased by 3% from January 1, 2024, illustrated in the table below.
As at
January 1, 2025
January 1, 2024
% Change
Twelve-Month Forward Pipeline ($ 000s)
Commercial
147,609
176,789
(17 )
Healthcare
51,214
41,221
24
Government
55,203
34,813
59
Education
24,292
17,117
42
278,318
269,940
3
Leads (#)
1,012
861
18
The January 1, 2024 pipeline included a large commercial project awarded to us in the first quarter of 2024, but the project was
phased over a three-year period. As a result, the twelve-month forward pipeline decreased by $22.9 million while the project value
remained in the full pipeline. After accounting for this phasing, the twelve-month pipeline increased by $31.3 million.
We believe our pipeline has higher integrity and has more projects further along the process, and therefore we are maintaining
our revenue guidance for 2025 at $194 million to $209 million.
Outlook
The segment of construction that DIRTT operates in represents a $40 billion addressable market with increasing expansion
opportunities. DIRTT continues to capture more market share by solving construction’s key challenges through innovative product
development, technology-enabled efficiency, and a simplified installation process. Adoption of offsite, prefabricated construction is
accelerating due to sustainability goals, trade labor shortages, and rising costs. DIRTT pioneered its unique construction method over
20 years ago and remains able to deliver schedule acceleration, cost certainty, unlimited aesthetic customization, and an end product
that can be repurposed and reused to minimize waste. Everything we manufacture is de-mountable and infinitely re-configurable to
adapt to the ever-changing needs of our customers.
31
Last quarter, we shared our strategic priorities through 2027, including revenue growth, continued expansion of DIRTT’s
proprietary ICE software, accelerated innovation, and investment in talent. In the fourth quarter of 2024, we continued mapping our
path to growth with a focus on innovating how we go to market. Our primary source of revenue remains our extensive network of
independent DIRTT Construction Partners (“Construction Partners” or “Partners”). While we continue to develop and expand this
network, including advancing 15 Partners to a higher status tier in 2025, we are also mapping additional growth paths to unlock
greater pipeline. For example, we believe there are geographic areas of North America that lack sufficient coverage by our existing
network into which we can expand and we are also expanding our offering to include more estimating, pre-construction, and
installation services, both directly and through Partners. In 2024, we launched an additional go-to-market channel called Integrated
Solutions. This team provides sales, design, estimating, and project delivery services with our Construction Partners and DIRTT sales
representatives. Integrated Solutions increases our sales network’s capacity as well as targets revenues in channels without existing
coverage. There are three key opportunity areas Integrated Solutions is focusing on; diversifying our customer profile, increasing
volumes in smaller markets, and expanding into new sectors. Through these efforts, Integrated Solutions aims to simplify our go-to-
market strategy and increase access to DIRTT’s portfolio of products.
Raw material prices continue to increase and on February 11, 2025, we announced a price increase of 5% on all orders placed
after March 18, 2025, and price adjustments on certain products in response to market feedback and to mitigate the impact of these
rising costs.
We continue to advance our ICE offering, including the addition of several new features that streamline processes and reduce
customer inquiries. In response to user feedback, we optimized the ICE Manager application to improve the interface and added an
“Early Access” feature to allow beta testers and developers to access applications for further testing and improvement. An update in
December 2024 introduced itemized part pricing and automated casework plan details, saving DIRTT 50 to 75 hours per week in
designer time and improving efficiency for customers. We continue to evaluate artificial intelligence (“AI”) for software development,
including catalogue creation. DIRTT is evaluating a code generative AI resource to develop a web-based freight quoting tool, with the
potential to save approximately 200 hours of development time and remove a manual touch-point for our customers.
DIRTT has made significant strides with product innovation and partnerships. For example, the COVE™, our low-acuity
solution for emergency departments, officially launched in November 2024 and is already earning significant industry recognition. In
addition to previously announced product awards from the 2024 Healthcare Facilities Symposium and Expo, we were recently
awarded the Gold Touchstone Award from the Center for Health Design, and will be recognized in March at the 2025 International
Summit & Exhibition on Health Facility Planning, Design & Construction PDC Summit. In the fourth quarter of 2024, we also
released curved solid corners for our solid wall solution, which is already seeing strong demand with active project quotes in the
market. We are also innovating our market approach through strategic partnerships. In December 2024, DIRTT joined the Siemen’s
Xcelerator program to further drive our digital transformation in the construction sector by leveraging automation, Internet of Things
and digital twin technology to seamlessly connect our physical assets with their digital counterparts. This will help enable continuous
monitoring, predictive maintenance, optimized space utilization, and enhanced process efficiency.
We have a bold operations goal of zero defects, missed deliveries, and workplace injuries. In 2024, DIRTT's on time in full
(OTIF) delivery performance was 99.1%, the highest in our history. We also achieved a total recordable incident rate (TRIF) of 0.82
for 2024, which is 80% below the industry average.
Through the fourth quarter of 2024, the US economy continued its economic expansion post-COVID with inflation reaching
closer to the Federal Reserve 2% target. The recent pause in interest rate cuts by the Federal Reserve highlights a commitment to
reaching a 2% target. The new administration in the United States has expressed support for deregulation, lower taxes, and creating a
favorable economic climate for businesses in America. Return to office mandates have increased, with financial services and
technology leading the way. Additionally, a favorable environment for mergers and acquisitions will be an additional demand driver
for interior construction. The Kastle Systems weekly occupancy index continues to trend upwards. On the other hand, recent reports of
Department of Government Efficiency suggests there may be decreased demand on our General Services Administration Contract,
which represented less than 0.6% of our revenues in 2024. The impact of these various developments on our business is uncertain.
We see continued demand growth in our healthcare segment with national spending growing significantly since pre-COVID and
are dedicating resources to capture this trend. Similarly, national education construction spending surpassed its pre-COVID highs in
2024. Overall, excluding the tariff risk described below, we are observing a supportive macro-economic environment in the United
States that we believe will support increasing demand of our products.
32
The announcement in February 2025 of a 25% tariff on all Canadian imports into the U.S., and Canada’s subsequent
announcement of retaliatory tariffs on U.S. good imported into Canada, has created uncertainty across multiple sectors, including the
construction industry. While Canada and the U.S. have agreed to delay the imposition of such tariffs until March 6, 2025, the ultimate
extent and duration of such tariffs is unknown, and significant uncertainty continues to exist in respect of future tariffs or other trade
barriers in general. In addition, on February 10, 2025, an Executive Order was issued by the White House imposing 25% tariffs on
steel and aluminum entering the U.S., effective March 12, 2025. As at the date hereof, the outcome and extent of these tariffs is
uncertain. 92% of DIRTT’s raw materials are from North America, and DIRTT has manufacturing facilities both in the U.S. and
Canada. Our Canadian facilities import some raw materials from the U.S., and our U.S. facilities import some raw materials from
Canada. While tariffs would have a cost impact on our business, we believe our presence in both Canada and the U.S. provides us with
strategic flexibility. We have been, and continue to be, proactively preparing for potential tariffs and we believe that we have multiple
paths to mitigate the impact of tariffs on our business, including alternative material sourcing and manufacturing locations.
We are maintaining our previously provided 2025 guidance, which is set forth below. Given the significant uncertainty
surrounding tariffs, our 2025 guidance may not be realized should any significant tariff impacts arise subsequent to the date hereof.
•
2025 Revenue: $194 to 209 million
•
2025 Adjusted EBITDA: $18 to 25 million
We finalized our 2025 budget in early January 2025. We plan to increase our capital expenditure by more than 50% from 2024,
as we continue to invest in improving efficiencies in our plants, investing in our DXC footprint and investments in ICE.
Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). These GAAP financial statements include non-cash charges and other charges and benefits that we
believe are unusual or infrequent in nature or that we believe may make comparisons to our prior or future performance difficult.
As a result, we also provide financial information in this Annual Report that is not prepared in accordance with GAAP and
should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP
financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP
financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP
results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of
other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period
to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest
expense on outstanding debt and debt facilities, or foreign exchange movements), asset base (depreciation and amortization), the
impact of under-utilized capacity on gross profit, tax consequences, reorganization expense, unusual or infrequent charges or gains
(such as gain on sale of software and patents, gain on extinguishment of debt and impairment charges), stock-based compensation,
related party expense, and government subsidies. We remove the impact of foreign exchange gain (loss) from Adjusted EBITDA.
Foreign exchange gains and losses can vary significantly period-to-period due to the impact of changes in the U.S. and Canadian
dollar exchange rates on foreign currency denominated monetary items on the balance sheet and are not reflective of the underlying
operations of the Company. In periods where production levels are abnormally low, unallocated overheads are recognized as an
expense in the period in which they are incurred. In addition, management bases certain forward-looking estimates and budgets on
non-GAAP financial measures, primarily Adjusted EBITDA. We have not reconciled forward-looking non-GAAP measures,
including Adjusted EBITDA guidance, to its corresponding GAAP measures due to the high variability and difficulty in making
accurate forecasts and projections, particularly with respect to non-operating income and expenditures, which are difficult to predict
and subject to change.
Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expense, foreign
exchange gains and losses, gain on extinguishment of debt, impairment charges, gain on sale of software and patents, net interest
income on cash deposits, interest expense on outstanding debt and debt facilities, tax expense and related party expense are excluded
from our non-GAAP financial measures because management considers them to be outside of the Company’s core operating results,
even though some of those receipts and expenses may recur, and because management believes that each of these items can distort the
trends associated with the Company’s ongoing performance. We believe that excluding these receipts and expenses provides investors
and management with greater visibility to the underlying performance of the business operations, enhances consistency and
comparativeness with results in prior periods that do not, or future periods that may not, include such items, and facilitates comparison
with the results of other companies in our industry.
33
The following non-GAAP financial measures are presented in this Annual Report, and a description of the calculation for each
measure is included.
Adjusted Gross Profit
Gross profit before deductions for depreciation and amortization
Adjusted Gross Profit Margin
Adjusted Gross Profit divided by revenue
EBITDA
Net income before interest, taxes, depreciation and amortization
Adjusted EBITDA
EBITDA adjusted to remove foreign exchange gains or losses; impairment charges;
reorganization expenses; stock-based compensation expense; government subsidies; unusual
or infrequent charges and gains such as gain on sale of software and patents and gain on
extinguishment of debt; related party expense; and any other non-core gains or losses
Adjusted EBITDA Margin
Adjusted EBITDA divided by revenue
You should carefully evaluate these non-GAAP financial measures, the adjustments included in them, and the reasons we
consider them appropriate for analysis supplemental to our GAAP information. Each of these non-GAAP financial measures has
important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP
financial measures. You should not consider any of these non-GAAP financial measures in isolation or as substitutes for an analysis of
our results as reported under GAAP. You should also be aware that we may recognize income or incur expenses in the future that are
the same as, or similar to, some of the adjustments in these non-GAAP financial measures. Because these non-GAAP financial
measures may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may
not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Results of Operations
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
For the Year Ended December 31,
2024
2023
% Change
($ in thousands)
Revenue
174,313
181,931
(4 )
Gross Profit
64,375
59,542
8
Gross Profit Margin
36.9 %
32.7 %
Operating expenses
Sales and marketing
22,938
25,235
(9 )
General and administrative
19,903
21,655
(8 )
Operations support
7,438
7,832
(5 )
Technology and development
5,262
5,820
(10 )
Stock-based compensation
2,965
2,306
29
Reorganization
1,113
3,009
(63 )
Impairment charge on Rock Hill Facility
530
8,716
(94 )
Related party expense
-
1,524
(100 )
Total operating expenses
60,149
76,097
(21 )
Operating income (loss)
4,226
(16,555 )
126
Operating margin
2.4 %
(9.1 )%
Gain on extinguishment of convertible debt
10,426
-
100
Foreign exchange (loss) gain
2,974
(626 )
575
Interest income
1,587
490
224
Interest expense
(3,995 )
(4,927 )
(19 )
Gain on sale of software and patents
-
7,130
(100 )
Government subsidies
-
236
(100 )
10,992
2,303
377
Net income (loss) before tax
15,218
(14,252 )
207
Current and deferred income tax expense
448
332
35
448
332
35
Net income (loss) after tax
14,770
(14,584 )
201
34
Revenue
Revenue reflects sales to our Construction Partners for resale to their clients and, in limited circumstances, our direct sales to
clients. Our revenue is generally affected by the timing of when orders are executed, particularly large orders, which can add
variability to our financial results and shift revenue between quarters.
The following table sets forth the contribution to revenue of our product and service offerings.
For the Year Ended December 31,
2024
2023
% Change
($ in thousands)
Product
152,856
158,405
(4 )
Transportation
16,066
17,674
(9 )
License fees from Construction Partners
738
840
(12 )
Total product revenue
169,660
176,919
(4 )
Installation and other services
4,653
5,012
(7 )
174,313
181,931
(4 )
Revenue for the year ended December 31, 2024, was $174.3 million, a decrease of $7.6 million or 4% from the year ended
December 31, 2023, primarily due to three healthcare projects, one key education project and a larger volume of high value
commercial projects that were completed in 2023 and were not repeated in 2024.
Installation and other services revenue was $4.7 million for the year ended December 31, 2024, compared to $5.0 million in the
year ended December 31, 2023. This revenue primarily reflects services performed by our ICE design teams for third parties. Except
in limited circumstances, our Construction Partners, rather than the Company, perform installation services.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market
penetration and ensure best practices are shared across local markets. At December 31, 2024, we had 71 (2023 - 72) Construction
Partners servicing multiple locations.
We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government
and education.
For the Year Ended December 31,
2024
2023
% Change
($ in thousands)
Commercial
121,518
116,693
4
Healthcare
21,230
33,970
(38 )
Government
17,114
13,446
27
Education
9,060
11,970
(24 )
License fees from Construction Partners
738
840
(12 )
Total product revenue
169,660
176,919
(4 )
Service revenue
4,653
5,012
(7 )
174,313
181,931
(4 )
35
For the Year Ended December 31,
2024
2023
(in %)
Commercial
72
66
Healthcare
13
19
Government
10
8
Education
5
7
Total Product Revenue(1)
100
100
(1) Excludes license fees from Construction Partners.
Commercial sales increased by 4% for the year ended December 31, 2024. Healthcare revenues decreased by 38% in the year
ended December 31, 2024, from the prior year, primarily due to three large healthcare projects which were completed in 2023 and did
not repeat in 2024. Sales in the healthcare sector tend to be larger individual projects and are subject to timing due to a typically longer
sales cycle, resulting in variability in sales levels. We have made several investments in new product solutions (such as COVE and
Applied Headwalls) and additions to the business development team to increase product placement in future construction projects.
This had led to multiple project commitments set to commence in 2025. Those investments continue in 2025 and are expected to
expand into life sciences. Government sales increased by 27% from the prior year. Similar to healthcare, government revenues tend to
be larger individual projects. We plan to update our government agreements in 2025 and expect an expansion in the number of our
state government agreements. Education sales in 2024 decreased by 24% from the prior year, primarily due to one $1.4 million
education project that was completed in 2023. Our sales team has focused on southern markets with high public funding activity to
build a stronger education pipeline.
Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States.
The following table presents our revenue dispersion by geography:
For the Year Ended December 31,
2024
2023
% Change
($ in thousands)
Canada
23,921
19,934
20
U.S.
150,392
161,997
(7 )
174,313
181,931
(4 )
In 2024, 14% of revenue was from Canada, as compared to 11% in 2023. Historically, approximately 11-15% and 85-89% of
revenues are derived from sales to Canada and the United States, respectively.
Sales and marketing expenses
Sales and marketing expenses decreased by $2.3 million to $22.9 million for the year ended December 31, 2024, from $25.2
million for the year ended December 31, 2023. The decrease was largely made up of a $1.0 million decrease in pass through charges, a
$0.9 million decrease in building and infrastructure costs, a $0.7 million decrease in commissions, and a $0.3 million decrease in
office costs and communication costs. The decreases were offset by an increase of $0.3 million in salaries and benefits and a $0.3
million increase in marketing and tradeshows costs related to the “Partner Camp” event hosted by the Company for our Construction
Partners held at the end of the third quarter of 2024.
General and administrative expenses
General and administrative expenses decreased $1.8 million to $19.9 million for the year ended December 31, 2024, from $21.7
million for the year ended December 31, 2023. The decrease was driven by a $0.9 million decrease in salaries and benefits, a $0.9
million decrease in office costs, a $0.3 million decrease in depreciation, a $0.3 million decrease in communication costs, a $0.2
million decrease in public company costs, a $0.1 million decrease in travel and entertainment, a $0.1 million decrease in building and
infrastructure costs, and a $0.1 million increase in gain on disposal. These decreases were offset by a $1.2 million increase in
professional legal fees as a result of the SRP Meeting, the Debenture Repurchase, the Support Agreement and the Debentures NCIB
which occurred in the third quarter of 2024, and the Shares NCIB that we commenced in the fourth quarter of 2024.
36
Operations support expenses
Operations support is comprised primarily of project managers, order entry and other professionals that facilitate the integration
of our Construction Partner project execution and our manufacturing operations. Operations support expenses of $7.4 million in 2024
decreased $0.4 million from $7.8 million in 2023. The decrease was largely driven by a $0.6 million decrease in salaries and benefits
and was slightly offset by a $0.1 million increase in travel and entertainment costs.
Technology and development expenses
Technology and development expenses relate to non-capitalizable costs associated with our product and software development
teams and are primarily comprised of salaries and benefits of technical staff.
Technology and development expenses decreased by $0.6 million to $5.3 million for the year ended December 31, 2024,
compared to $5.8 million for the year ended December 31, 2023. The decrease was primarily related to a $0.7 million decrease in
salaries and benefits costs, a $0.2 million decrease in building and infrastructure costs, and a $0.1 million decrease in depreciation
expense. These decreases were offset by a $0.3 million write off of a previously capitalized software development project, and a $0.1
million increase in professional services costs.
Stock-based compensation
Stock-based compensation expense for the year ended December 31, 2024, was $3.0 million compared to $2.3 million in 2023.
The increase was due to fair value adjustments on cash settled DSU awards as a result of the increased share price between December
31, 2023 and December 31, 2024.
Reorganization
For the year ended December 31, 2024, we incurred $1.1 million of reorganization costs compared to $3.0 million during the
year ended December 31, 2023. Reorganization expenses for the year ended December 31, 2024 primarily relate to the movement of
inventory and equipment from the Rock Hill Facility for use at our facility in Calgary, Alberta, while the reorganization costs in the
year ended December 31, 2023 were largely made up of termination costs associated with actions taken to streamline our back office
and operational support functions.
Impairment charge on Rock Hill Facility
The Company finalized the decision to close the Rock Hill Facility in the third quarter of 2023. The Company’s reassessment of
the useful lives of the manufacturing equipment at the Rock Hill Facility resulted in an $8.7 million impairment charge in the twelve
months ended December 31, 2023.
Certain assets, including manufacturing equipment, which met held-for-sale criteria at that time were reclassified from property,
plant and equipment. At March 31, 2024, we determined that the assets held for sale balance of $0.5 million was to be reduced to $nil,
resulting in a $0.5 million impairment charge for the first quarter of 2024. We were not able to determine the likelihood of recoverability
based on the current market interest in the equipment.
Related party expense
On March 15, 2023, the Company entered into a Debt Settlement Agreement (the “Debt Settlement Agreement”) with 22NW
and Aron English, 22NW’s principal and a director of DIRTT, (together, the “22NW Group”) who, collectively, beneficially owned
approximately 19.5% of the Company’s issued and outstanding common shares at such time. Pursuant to the Debt Settlement
Agreement, the Company agreed to reimburse the 22NW Group for the costs incurred by the 22NW Group in connection with the
contested director election at the annual and special meeting of shareholders of the Company held on April 26, 2022, being $1.6
million (the “22NW Debt”).
Pursuant to the Debt Settlement Agreement, the Company agreed to repay the 22NW Debt by either, or a combination of (i) a
payment in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW
Group.
In connection with the Debt Settlement Agreement, on March 15, 2023, the Company entered into a share issuance agreement
with the 22NW Group, pursuant to which the Company agreed to repay the 22NW Debt with the issuance to the 22NW Group of
3,899,745 common shares at a deemed price of $0.40 per common share, subject to approval by shareholders.
37
At the annual general and special meeting of shareholders held on May 30, 2023, shareholders voted to approve the issuance of
common shares, and on June 2, 2023, the Company issued 3,899,745 common shares to 22NW Group as repayment for the 22NW Debt.
Upon settlement, the debt was revalued at the higher of the deemed price of $0.40 per common share and the May 30, 2023, market
price of $0.38 per common share, resulting in a recovery from the balance recorded at March 31, 2023 which had been valued at a price
of $0.53 per common share.
Gain on extinguishment of convertible debt
During the year ended December 31, 2024, C$43.4 million ($31.8 million) in principal amount of Debentures was repurchased
for cancellation through the Issuer Bid, Debenture Repurchase, and Debentures NCIB which triggered an extinguishment of debt. The
gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the difference between the repayment
and the net carrying value of the extinguished principal less unamortized issuance costs of C$1.2 million ($0.9 million) (refer to Note 7
of our Consolidated Financial Statements for additional information).
Foreign exchange gain (loss)
In the year ended December 31, 2024, we had a foreign exchange gain of $3.0 million compared to a loss of $0.6 million in the
year ended December 31, 2023, due to the weakening of the Canadian dollar relative to the U.S. dollar.
Interest income
Interest income increased to $1.6 million for the year ended December 31, 2024, compared to $0.5 million in the year ended
December 31, 2023, as we benefited from higher interest rates on higher cash balances.
Interest expense
Interest expense decreased by $0.9 million from $4.9 million for the year ended December 31, 2023, to $4.0 million for the year
ended December 31, 2024. This decrease is largely due to repayment of debt throughout the year ended December 31, 2024, offset by
$0.9 million of unamortized issuance costs related to Debentures that were expensed as a result of the repurchase and cancellation of
such debt.
Government subsidies
The Company was not eligible and did not receive any new government subsidies in the year ended December 31, 2024. The
Company received $0.2 million of interest with the collection of the Employee Retention Credit (“ERC”) during the year ended
December 31, 2023.
Gain on sale of software and patents
On May 9, 2023, we entered into a Co-Ownership Agreement and a Partial Patent Assignment agreement (collectively, the
“AWI Agreements”) with AWI. The AWI Agreements provided for a cash payment from AWI to the Company of $10.0 million in
exchange for the partial assignment to AWI and resulting co-ownership of a 50% interest in the rights, title and interests in certain
intellectual property rights in the Applicable ICE Code, including a 50% interest in the patent rights that relate to the Applicable ICE
Code. Pursuant to the AWI Agreements, we also provided AWI a transfer of knowledge concerning the source code of the Applicable
ICE Code. In exchange for completing the knowledge transfer, we received an additional cash payment of $1.0 million in the fourth
quarter of 2023. The AWI Agreements provide that we and AWI have separate exclusive fields of use and includes certain restrictive
covenants with respect to the Applicable ICE Code and related intellectual property, which survive until either party elects to separate
from its relationship with the other and for five years thereafter. We concurrently entered into an Amended and Restated Master
Services Agreement (the “ARMSA”) with AWI, under which AWI has also prepaid for certain development services to be provided
by DIRTT. The ARMSA will automatically terminate if the AWI Agreement is terminated or expires and may also be terminated if
either party breaches the exclusive fields of use or restrictive covenants in the AWI Agreement.
The $11.0 million of proceeds on the sale of the 50% interest in the Applicable ICE code, pursuant to the AWI Agreement, was
received during the second quarter of 2023. In accordance with GAAP, the proceeds were first applied to the net book value of the
related costs of software of $2.9 million and patents (other assets) of $0.9 million. The residual amount of $7.1 million was recognized
as a gain in the consolidated statement of operations. Further, $1.8 million was received during 2023 as a prepayment under the ARMSA,
which payment was recognized into revenue during 2023 and the first quarter of 2024. Part of the proceeds of this transaction were used
to settle one of our equipment leases of $1.6 million and resulted in the release of $0.4 million of restricted cash.
38
Income tax
The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income.
Income tax expense for the year ended December 31, 2024, was $0.4 million, compared to $0.3 million for the same period of 2023.
For the year ended December 31, 2024, the Company recorded valuation allowances of $3.8 million (2023 - $4.2 million) against
deferred tax assets incurred during the year as the Company has experienced cumulative losses in recent years. Due to the Company’s
history of negative earnings, it is not more likely than not that the Company’s deferred tax assets will be utilized in the near term.
As at December 31, 2024, we had C$86.1 million of loss carry-forwards in Canada and $51.3 million in the United States. These
loss carry-forwards will begin to expire in 2032.
Net income after tax
Net income after tax increased to $14.8 million or $0.07 net income after tax per share (diluted) in the year ended December 31,
2024, from a net loss after tax of $14.6 million or $0.13 net loss after tax per share in the year ended December 31, 2023. The
increased income is primarily the result of a $4.8 million increase in gross profit and a $15.9 million decrease in operating expenses
(which includes an $8.2 million decrease in impairment charge on the Rock Hill Facility and a decrease of $1.9 million in
reorganization expenses), a $10.4 million gain on extinguishment of debt relating to the Issuer Bid, Debenture Repurchase and the
Debentures NCIB, a $1.1 million increase in interest income, a $0.9 million decrease in interest expense and a $3.6 million increase in
foreign exchange gain, offset by a $7.1 million gain on sale of software and patents from the AWI sale in 2023 that did not repeat in
2024, and a $0.2 million decrease in government subsidies.
Three Months Ended December 31, 2024 Compared to the Three Months ended December 31, 2023
For the Three Months Ended December 31,
2024
2023
% Change
($ in thousands)
Revenue
48,890
50,933
(4 )
Gross Profit
17,539
19,238
(9 )
Gross Profit Margin
35.9 %
37.8 %
Operating expenses
Sales and marketing
5,773
6,933
(17 )
General and administrative
5,112
5,652
(10 )
Operations support
1,907
2,268
(16 )
Technology and development
1,281
1,765
(27 )
Stock-based compensation
1,060
(237 )
547
Reorganization
169
152
11
Impairment charge on Rock Hill Facility
-
764
100
Total Operating expenses
15,302
17,297
(12 )
Operating income
2,237
1,941
15
Operating margin
4.6 %
3.8 %
Gain on extinguishment of convertible debt
17
-
100
Foreign exchange gain (loss)
2,057
(567 )
463
Interest income
275
219
26
Interest expense
(471 )
(1,291 )
(64 )
Gain on sale of software and patents
-
985
(100 )
1,878
(654 )
387
Net income before tax
4,115
1,287
220
Current and deferred income tax expense
77
332
(77 )
77
332
(77 )
Net income after tax
4,038
955
323
39
Our fourth quarter revenue was $48.9 million, a decrease of $2.0 million or 4% from $50.9 million for the same period in 2023.
Historically, our fourth quarter revenue is lower than second and third quarter revenues due to seasonality. The fourth quarter of 2023
had a higher commercial volume of commercial projects, offset by the benefit from four large commercial projects that were
completed in the fourth quarter of 2024.
Annual 2024 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Years Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the years ended December 31, 2024, 2023, and 2022 of Adjusted Gross Profit
to our gross profit and Adjusted Gross Profit Margin to gross profit margin, which are the most directly comparable GAAP measures
for the periods presented:
For the Year Ended December 31,
2024
2023
2022
($ in thousands)
Gross profit
64,375
59,542
28,160
Gross profit margin
36.9 %
32.7 %
16.4 %
Add: Depreciation and amortization expense
3,953
5,525
10,789
Adjusted Gross Profit
68,328
65,067
38,949
Adjusted Gross Profit Margin
39.2 %
35.8 %
22.6 %
For the year ended December 31, 2024, gross profit and gross profit margin increased to $65.0 million or 36.9% from $59.5
million or 32.7% for the prior year. Adjusted Gross Profit and Adjusted Gross Profit Margin increased $68.3 million or 39.2% for the
year ended December 31, 2024, from $65.1 million or 35.8% for the year ended December 31, 2023.
The improvement in Adjusted Gross Profit was a result of material optimization to offset the inflationary impacts on material
costs. Fixed costs decreased $2.3 million compared to 2023 as we aligned overhead costs and support with current operations after
having finalized the decision to close the Rock Hill Facility in the third quarter of 2023. Idle facility costs incurred since the
suspension of operations at the Rock Hill Facility were $1.7 million for the year ended December 31, 2024, compared to $2.0 million
for the previous year, and are included in cost of sales. We are pursuing options to sublease the Rock Hill Facility to offset idle facility
costs in 2025 and beyond.
40
EBITDA and Adjusted EBITDA for the Years Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the results of 2024, 2023 and 2022 of EBITDA and Adjusted EBITDA to our
net income (loss), and of Adjusted EBITDA Margin to net income (loss) margin, which are the most directly comparable GAAP
measures for the years presented:
For the Year Ended December 31,
2024
2023
2022
($ in thousands)
Net income (loss) after tax for the period
14,770
(14,584 )
(54,963 )
Add back (deduct):
Interest expense
3,995
4,927
5,160
Interest income
(1,587 )
(490 )
(51 )
Tax expense
448
332
21
Depreciation and amortization
6,575
8,934
15,119
EBITDA
24,201
(881 )
(34,714 )
Foreign exchange (gain) loss
(2,974 )
626
(1,445 )
Stock-based compensation
2,965
2,306
4,277
Reorganization expense(3)
1,113
3,009
13,461
Gain on extinguishment of convertible debt(3)
(10,426 )
-
-
Impairment charge on Rock Hill Facility (3)
530
8,716
-
Gain on sale of software and patents(3)
-
(7,130 )
-
Related party expense (2)
-
1,524
-
Government subsidies(3)
-
(236 )
(7,765 )
Adjusted EBITDA
15,409
7,934
(26,186 )
Net Income (Loss) Margin(1)
8.5 %
(8.0 )%
(31.9 )%
Adjusted EBITDA Margin
8.8 %
4.4 %
(15.2 )%
(1)
Net income (loss) divided by revenue.
(2)
The related party transaction is a non-recurring transaction that is not core to our business and is excluded from the Adjusted
EBITDA calculation (refer to Note 24 of the consolidated financial statements).
(3)
Reorganization expenses, the gain on sale of software and patents, the gain on extinguishment of convertible debt, the
impairment charge on the Rock Hill Facility, related party expense and government subsidies are not core to our business and
are therefore excluded from the Adjusted EBITDA calculation (refer to Note 4, Note 5, Note 6 and Note 7 of the consolidated
financial statements).
For the year ended December 31, 2024, Adjusted EBITDA and Adjusted EBITDA Margin increased by $7.5 million to $15.4
million or 8.8% of revenue from $7.9 million or 4.4% of revenue in the same period of 2023. This reflects a $3.3 million increase in
Adjusted Gross Profit, discussed above, a $1.9 million decrease in salaries and benefits costs, a $1.7 million decrease in pass through
charge and commissions as a result of lower revenues, a $1.2 million decrease in building and infrastructure costs, a $1.0 million
decrease in office costs, offset by a $1.3 million increase in professional services as a result of the SRP Meeting held in the third
quarter as well as costs associated with the Debenture Repurchase, the Support Agreement, the Shares NCIB, the Debentures NCIB
and a $0.3 million net increase in individual costs.
41
Reconciliation of Q4 2024 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three Months Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the three months ended December 31, 2024, 2023, and 2022 of Adjusted Gross
Profit to our gross profit, and Adjusted Gross Profit Margin to gross profit margin, which is the most directly comparable GAAP
measures for the periods presented:
For the Three Months Ended December 31,
2024
2023
2022
($ in thousands)
Gross profit
17,539
19,238
11,589
Gross profit margin
35.9 %
37.8 %
27.3 %
Add: Depreciation and amortization expense
1,441
869
1,997
Adjusted Gross Profit
18,980
20,107
13,586
Adjusted Gross Profit Margin
38.8 %
39.5 %
32.0 %
EBITDA and Adjusted EBITDA for the Three Months Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the results of three months ended December 31, 2024, 2023 and 2022 of
EBITDA and Adjusted EBITDA to our net income (loss) after tax, and of Adjusted EBITDA Margin to net income (loss) margin,
which are the most directly comparable GAAP measures for the years presented:
Three months ended December 31,
2024
2023
2022
($ in thousands)
Net income (loss) for the period
4,038
955
(5,906 )
Add back (deduct):
Interest expense
471
1,291
1,225
Interest income
(275 )
(219 )
(1 )
Income tax expense
77
332
37
Depreciation and amortization
2,033
1,718
2,917
EBITDA
6,344
4,077
(1,728 )
Foreign exchange (gain) loss
(2,057 )
567
425
Stock-based compensation
1,060
(237 )
731
Reorganization expense(3)
169
152
1,180
Gain on extinguishment of convertible debt(3)
(17 )
-
-
Impairment charge on Rock Hill Facility (3)
-
764
-
Gain on sale of software and patents(3)
-
(985 )
-
Adjusted EBITDA
5,499
4,338
608
Net Income (Loss) Margin(1)
8.3 %
1.9 %
(13.9 )%
Adjusted EBITDA Margin
11.2 %
8.5 %
1.4 %
(1)
Net income (loss) divided by revenue.
(2)
The related party transaction is a non-recurring transaction that is not core to our business and is excluded from the Adjusted
EBITDA calculation (refer to Note 24 of the consolidated financial statements).
(3)
Reorganization expenses, the gain on sale of software and patents, the gain on extinguishment of convertible debt, the
impairment charge on the Rock Hill Facility and government subsidies are not core to our business and are therefore excluded
from the Adjusted EBITDA calculation (refer to Note 4, Note 5, Note 6 and Note 7 of the consolidated financial statements).
42
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
Discussion and analysis of our financial condition and results of operations for the fiscal year ended December 31, 2023,
compared to the fiscal year ended December 31, 2022, is included under the heading Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023,
as filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on February 21, 2024.
Liquidity and Capital Resources
As at December 31, 2024, the Company had $29.3 million of cash on hand and C$14.4 million ($10.0 million) of available
borrowings, compared to $24.7 million of cash on hand and C$13.6 million ($10.3 million) of available borrowings as at December
31, 2023. Through the year ended December 31, 2024, the Company generated $4.4 million in cash flows compared to $10.9 million
over fiscal year 2023. Gross profit for the year ended December 31, 2024, was $65.0 million, or 36.9% of revenue, compared to the
same period in 2023, which generated gross profit of $59.5 million, or 32.7% of revenue. Cash flows were increased in 2024 by the
proceeds of the Rights Offering (as defined herein) of $21.3 million and improved operational results, offset by a $21.5 million
repayment of debt under the Issuer Bid, Debenture Repurchase and Debentures NCIB. In 2023, the Company benefited from the
receipt of $11.0 million of cash from the AWI sale (no similar transaction occurred in 2024), and a receipt of the $7.3 million of
government subsidies.
The Issuer Bid, Debenture Repurchase, Debentures NCIB and Shares NCIB were initiated after careful consideration of cash
flow, and the Company continues to evaluate uses of cash on hand. As discussed in the “Risk Factors” section, proposed tariffs on
Canadian exports into the United States may have a material impact on future cash flows and liquidity, which the Company will
continue to monitor.
We have executed upon several initiatives to improve liquidity over the last two years. In May 2023, we entered into an
agreement with AWI resulting in the receipt of $12.8 million of cash throughout 2023. In May 2024, we extended our agreement to
sublease our Plano DXC to one of our Construction Partners in that region. Under the sublease agreement, the subtenant has assumed
responsibility for the monthly rent, utilities, maintenance, taxes and other costs as of April 1, 2023, through October 31, 2028,
providing us annualized savings of approximately $1.0 million. In September 2024, we entered into an agreement to sublease the
remainder of our facility in Phoenix. Under the sublease agreement, the subtenant has assumed responsibility for the monthly rent,
utilities, maintenance, taxes and other costs as of October 1, 2024, through March 31, 2027, providing us annualized savings of
approximately $0.6 million. We are continuing to pursue sublease opportunities for the Rock Hill Facility and expect these initiatives
to result in positive cash inflows in 2025.
On November 21, 2023, the Company announced the Rights Offering, which closed on January 9, 2024, for aggregate gross
proceeds of C$30.0 million (net proceeds of $21.3 million).
In January 2021, we issued C$40.3 million of January Debentures for net proceeds after costs of C$37.6 million ($29.5 million).
The January Debentures accrue interest at a rate of 6.00% per annum and are convertible into common shares of DIRTT at an exercise
price of C$4.65 per common share, or if not converted will mature and be repayable on January 31, 2026. As a result of the Rights
Offering, the conversion price was adjusted to C$4.03 per common share. Interest and principal are payable in cash or shares at the
option of the Company.
On December 1, 2021, we issued C$35.0 million of the December Debentures for net proceeds after costs of C$32.7 million
($25.6 million). The December Debentures accrue interest at a rate of 6.25% per annum and are convertible into common shares of
DIRTT at an exercise price of C$4.20 per common share, or if not converted, will mature and be repayable on December 31, 2026. As
a result of the Rights Offering, the conversion price was adjusted to C$3.64 per common share. Interest and principal are payable in
cash or shares at the option of the Company.
43
On February 15, 2024, the Company announced the Issuer Bid, under which the Company offered to repurchase for
cancellation: (i) up to C$6,000,000 principal amount of the January Debentures at a purchase price of C$720 per C$1,000 principal
amount of January Debentures; and (ii) up to C$9,000,000 principal amount of the December Debentures at a purchase price of C$600
per C$1,000 principal amount of December Debentures. Holders of Debentures who validly tendered and did not withdraw their
Debentures received the applicable purchase price, plus a cash payment for all accrued and unpaid interest up to, but excluding, the
date on which such Debentures were taken up by the Company. The applicable purchase price was denominated in Canadian dollars
and payments of amounts owed to holders of deposited Debentures, including for interest, were made in Canadian dollars. The Issuer
Bid expired on March 22, 2024 and DIRTT purchased C$4.7 million ($3.5 million) aggregate principal amount of the January
Debentures and C$5.8 million ($4.3 million) aggregate principal amount of the December Debentures, representing approximately
11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at that time. The Company took
up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0 million ($5.2 million) (comprised of
C$6.9 million ($5.1 million) repayment on principal and interest of C$0.1 million ($0.1 million)).
On August 2, 2024, the Company entered into an agreement with 22NW, to purchase for cancellation an aggregate of
C$18,915,000 principal amount of the January Debentures at a purchase price of C$684.58 per C$1,000 principal amount of January
Debentures and C$13,638,000 principal amount of the December Debentures at a purchase price of C$665.64 per C$1,000 principal
amount of December Debentures, for an aggregate purchase price of C$22,104,591.45, inclusive of a cash payment for all accrued and
unpaid interest up to, but excluding, the date on which such Debentures were purchased by the Company. The purchase price of each
series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a discount of approximately 4% to the
average trading price of the applicable series of Debentures on the TSX for the 20 trading days preceding August 2, 2024. Following
the Debenture Repurchase, 22NW no longer held any Debentures.
On August 28, 2024, the Debentures NCIB commenced and will terminate no later than August 27, 2025. Under the Debentures
NCIB, DIRTT is permitted to acquire up to C$1,664,200 principal amount of the January Debentures and C$1,558,700 principal
amount of the December Debentures. As at December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01 million)
principal amounts of the December Debentures and January Debentures had been acquired through the Debentures NCIB,
respectively. As at December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January Debentures and C$15.2
million ($10.6 million) principal amount of the December Debentures were outstanding.
On February 4, 2024, the Company entered into a Litigation Funding Agreement with a third party for the funding of up to $4.0
million of litigation costs in respect of specific claims against Falkbuilt, Inc., Falkbuilt Ltd. and Henderson. In return, the Company
has agreed to pay from any proceeds received from the settlement of such claims, a reimbursement of funded amounts plus diligence
and underwriting costs, plus a multiple of such funded amount based on certain milestones. As part of this agreement, the Company is
subject to a general security arrangement over its assets. The agreement was terminated in December 2024. The Company is currently
considering whether to pursue further litigation funding, as we believe we have sufficient funds to finance the litigation. There is
additional timeline certainty as the Canadian litigation trial date has been set for February 2, 2026.
On December 20, 2024, the Shares NCIB commenced and will terminate no later than December 19, 2025. Under the Shares
NCIB, DIRTT is permitted to acquire up to 7,515,233 common shares. All purchases will be made on the open market at the market
price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB will be immediately
cancelled. As at December 31, 2024, 58,478 common shares had been repurchased and cancelled for proceeds of C$0.1 million ($0.04
million).
On February 13, 2025, the Company entered into the Share Repurchase with NGEN to purchase for cancellation 3,920,844
common shares of DIRTT (“Common Shares”) currently held by NGEN (the “NGEN Shares”) at a purchase price of $0.80 per NGEN
Share. Following the Share Repurchase, there were 189,643,903 Common Shares outstanding, and NGEN no longer held any
Common Shares. The NGEN Shares repurchased under the Share Repurchase were counted against the NCIB Annual Limit.
Following completion of the Share Repurchase, the Company’s outstanding NCIB Annual Limit is 3,422,494 Common Shares.
As explained above, initiating the share buyback was done after careful consideration of cash flow and with consideration to the
risk of proposed tariffs.
44
We have assessed the Company’s liquidity as at December 31, 2024, taking into account our sales outlook for the next twelve
months, our existing cash balances and available credit facilities. Based upon this analysis, we believe the Company has sufficient
liquidity to remain a going concern for at least the next twelve months.
To the extent that existing cash and cash equivalents and available facilities are not sufficient to fund future activities, we may
seek to raise additional funds through equity or debt financings. If additional funds are raised through the incurrence of indebtedness,
such indebtedness may have rights that are senior to holders of our Debentures and our equity securities or contain instruments that
may be dilutive to our existing shareholders. Any additional equity or debt financing may be dilutive to our existing shareholders.
While we believe we can access capital markets when needed or under acceptable terms, there can be no assurance we will be able to
do so.
In February 2021, we entered into a loan agreement governing a C$25.0 million senior secured revolving credit facility with the
Royal Bank of Canada (“RBC”), as lender (the “RBC Facility”). Under the RBC Facility, the “Borrowing Base” is a maximum of
90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book
value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior
ranking claims. On February 9, 2023, the Company extended the RBC Facility. The maximum availability under the Extended RBC
Facility was subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Effective October 2023,
inventory was scoped out of the Borrowing Base. On February 9, 2024, the Company extended the Extended RBC Facility (the
“Second Extended RBC Facility”). The Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of
C$15 million and a one-year term. Available borrowings under the Extended RBC Facility as at December 31, 2024, were C$14.4
million ($10.0 million). On February 11, 2025, the Company extended the Second Extended RBC Facility (the “Third Extended RBC
Facility”) for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company entered into the Fourth Extended RBC Facility (the “Fourth Extended RBC Facility”). The
Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of
C$25.0 million and matures on November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at
the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case
plus 175 basis points. The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export
Development of Canada of C$5 million. The Company has also entered into a bonding facility with Great Midwest Insurance
Company, and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. (“Skyward”), which allows
access to a $15 million bonding facility subject to an individual maximum of $5 million. Under the terms of the facility with Skyward,
any bonds issued will be secured through Letters of Credit issued pursuant to the Fourth Extended RBC Facility.
The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which, as of
December 31, 2024, C$4.4 million ($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0
million equipment leasing facility in the United States of which $13.3 million has been drawn and repaid, as of December 31, 2024,
(the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”) with RBC, and one of its
affiliates. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. In connection with the Company’s decision
to close the Rock Hill Facility, we settled the liability related to the U.S. Leasing Facility ($7.8 million). The U.S. Leasing Facility is
no longer available to be drawn on. With the settlement of this liability, we released $2.6 million of restricted cash during 2023.
The following table summarizes our consolidated cash flows for the years indicated:
For the Year Ended December 31,
2024
2023
2022
($ in thousands)
Net cash flows provided by (used in) operating activities
7,344
14,821
(44,260)
Net cash flows (used in) provided by investing activities
(1,900)
7,657
(4,024)
Net cash flows used in financing activities
(415)
(11,605)
(874)
Effect of foreign exchange on cash, cash equivalents and
restricted cash
(597)
(13)
(11)
Net increase (decrease) in cash, cash equivalents and
restricted cash
4,432
10,860
(49,169)
Cash, cash equivalents and restricted cash, beginning of
period
25,099
14,239
63,408
Cash, cash equivalents and restricted cash, end of
period
29,531
25,099
14,239
45
For the Year Ended December 31,
2024
2023
2022
Cash and cash equivalents
29,288
24,744
10,821
Restricted cash
243
355
3,418
Total cash, cash equivalents and restricted cash
29,531
25,099
14,239
Operating Activities
Net cash flows provided by operating activities were $7.3 million for the year ended December 31, 2024, compared to $14.8
million provided by operating activities for the year ended December 31, 2023. The decrease in cash flows provided by operations is
due to the receipt of $7.3 million cash proceeds from government subsidies, which was not repeated in 2024, offset by $5.9 million in
other working capital changes. This decrease was offset by an increase in cash flows due to improved operational results (including a
$7.5 million increase in Adjusted EBITDA and a $1.9 million decrease in reorganization expenses) in the year ended December 31,
2024 compared to 2023.
Investing Activities
Cash flows provided by investing activities during the year ended December 31, 2023, benefited from $11.0 million of proceeds
from the AWI transaction which was not repeated in 2024.
We invested $1.4 million in property, plant and equipment during the year ended December 31, 2024, which was consistent with
the prior year’s investment in property, plant and equipment of $1.2 million. Expenditures consisted of $0.5 million of leasehold
improvements, $0.2 million of marketing investments, $0.3 million of information technology investments and $0.4 million of
manufacturing upgrades for the year ended December 31, 2024. We invested $1.6 million on capitalized software during the year
ended December 31, 2024, compared to $1.8 million for the year ended December 31, 2023.
Financing Activities
For the year ended December 31, 2024, $0.4 million of cash was used in financing activities, comprising $21.5 million
repayment of debt under the Issuer Bid, Debenture Repurchase, Debentures NCIB and $0.2 million relating to employee tax payments
on vesting RSUs, $0.1 million of scheduled repayments under the Canada Leasing Facility, offset by $21.3 million of proceeds
received from the Rights Offering. For the year ended December 31, 2023, $11.6 million of cash was used in financing activities
mainly driven by $2.2 million of scheduled repayments and $9.4 million of early repayments under the U.S. Leasing Facility and the
Canada Leasing Facility.
Consolidated cash flows for the quarter as indicated:
For the Three Months Ended December 31,
2024
2023
2022
($ in thousands)
Net cash flows provided by operating activities
6,222
10,134
3,249
Net cash flows (used in) provided by investing activities
(741)
568
(429)
Net cash flows (used in) provided by financing activities
(126)
(8,193)
928
Effect of foreign exchange on cash, cash equivalents and
restricted cash
309
153
62
Net increase in cash, cash equivalents and restricted
cash
5,664
2,662
3,810
Cash, cash equivalents and restricted cash, beginning of
period
23,867
22,437
10,429
Cash, cash equivalents and restricted cash, end of
period
29,531
25,099
14,239
46
Credit Facility
On February 12, 2021, the Company entered into the RBC Facility. Under the RBC Facility, the Borrowing Base is up to a
maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75%
of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential
prior ranking claims. Interest is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered
Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the “Aggregate Excess Availability”, defined as the Borrowing Base
less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash is less than C$5.0 million, the
Company is subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if
the FCCR has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account
equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities. Should an event of default occur or the
Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash
dominion period whereby the Company’s bank accounts would be blocked by RBC and daily balances will set-off any borrowings and
any remaining amounts made available to the Company.
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility has
a maximum borrowing base of C$15 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75
basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time
that the trailing twelve-month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to one-year’s worth of
Leasing Facilities payments must be maintained.
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The maximum
availability under the Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15 million and a
one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate
or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case, plus 200 basis points. At December 31,
2024, available borrowings were C$14.4 million ($10.0 million) (2023 – C$13.6 million ($10.3 million) of available borrowings),
calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. The Second Extended
RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during the first
quarter of 2024 (the Company had $0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company entered
the Third Extended RBC Facility for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed
negotiations.
On February 20, 2025, the Company entered into the Fourth Extended RBC Facility. The Fourth Extended RBC Facility is
subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on
November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as
adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. The
Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5
million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is
part of or added to Skyward, which allows access to a $15 million bonding facility subject to an individual maximum of $5 million.
Under the terms of the facility with Skyward, any bonds issued will be secured through Letters of Credit issued pursuant to the Fourth
Extended RBC Facility.
The Company has a C$5.0 million equipment leasing facility in Canada under the Canada Leasing Facility of which C$4.4
million ($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0 million equipment leasing facility
in the United States of which $13.3 million has been drawn and repaid under the U.S. Leasing Facility with RBC. The Canada Leasing
Facility has a seven-year term and bears interest at 4.25%.
As part of the decision to close the Rock Hill Facility, the Company fully settled the liability related to the U.S. Leasing Facility
of $7.8 million in the fourth quarter of 2023. The U.S. Leasing Facility is no longer available to be drawn on. With the settlement of
this liability, $2.6 million was released from restricted cash during 2023.
The Company did not make any draws on the Leasing Facilities during the years ended December 31, 2024 and 2023.
We are restricted from paying dividends unless Payment Conditions (as defined in the Fourth Extended RBC Facility) are met,
including having a net borrowing availability of at least C$5 million over the proceeding 30-day period, and having a trailing twelve-
month fixed charge coverage ratio above 1.10:1 and certain other conditions. The Fourth Extended RBC Facility is currently secured
by substantially all of our real and personal property located in Canada and the United States.
47
Contractual Obligations
The following table summarizes DIRTT’s contractual obligations at December 31, 2024:
Payments due by period
Less than
Greater than
1 year
1 to 3 years
3 to 5 years
5 years
Total
($ in thousands)
Accounts payable and accrued
liabilities
16,352
-
-
-
16,352
Other liabilities
3,217
-
-
-
3,217
Customer deposits and deferred revenue
4,028
-
-
-
4,028
Current and long-term portion of long-
term debt and accrued interest1
1,461
23,371
123
-
24,955
Lease liabilities (undiscounted)
5,812
9,627
7,906
16,196
39,541
Purchase obligations
4,238
-
-
-
4,238
Total
35,108
32,998
8,029
16,196
92,331
(1)
Includes principal and interest. Refer to Note 14 of our Consolidated Financial Statements for additional information.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing in Item 8 of this
Annual Report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult,
subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under
different assumptions and conditions. We prepare our financial statements in conformity with GAAP. As a result, we are required to
make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates,
judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Critical
estimates and assumptions made by management include:
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies
We have warranty obligations with respect to manufacturing defects on most of our manufactured products. Warranty periods
generally range from one to ten years. We have recorded a reserve for estimated warranty and related costs based on historical
experience and periodically adjust these provisions to reflect actual experience. We assess the adequacy of our warranty accrual on a
quarterly basis, and adjust the previous amounts recorded, if necessary, to reflect the change in estimate of the future costs of claims
yet to be serviced. Typically, product deficiencies requiring our warranty are identified and remediated within a year of production.
The following provides information with respect to our warranty accrual. At December 31, 2024 and 2023, we had $0.8 million and
$0.9 million, respectively, accrued for warranty and other provisions, and third-party costs associated with remedying deficiencies
were $0.6 million during the fiscal year ended December 31, 2024, as compared to $1.2 million during the fiscal year ended December
31, 2023.
We establish reserves for estimated legal contingencies when we believe a loss on litigation is probable and the amount of the
loss can be reasonably estimated. Revisions to contingent liability reserves are reflected in operations in the period in which there are
changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for
contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the
probable cost by evaluating historical precedent as well as the specific facts relating to each contingency (including the opinion of
outside advisors). Should the outcome differ from our assumptions and estimates, or other events result in a material adjustment to the
accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in
the period the new information becomes known. At December 31, 2024 and 2023, we had $0.05 million provided for legal provisions.
Estimates of useful lives of depreciable assets, the fair value of long-term assets used for impairment calculations and the
fair value less costs to sell for assets held for sale
We evaluate the recoverability of our property, plant, and equipment (“PP&E”), capitalized software costs and right of use
assets when events or changes in circumstances indicate a potential impairment exists. If impairment is indicated, the impairment loss
is measured as the amount the assets carrying value exceeds the fair value of the assets.
48
Our determination of the fair value associated with long-term assets involves significant estimates and assumptions, including
those with respect to the determination of asset groups, future cash inflows and outflows, discount rates, and asset lives. These
significant estimates require considerable judgment, which could affect our future results if the current estimates of future
performance and fair values change.
We estimate the useful lives of PP&E, capitalized software costs and right of use assets based on the period over which the
assets are expected to be available for use. The estimated useful lives are reviewed annually and are updated if expectations differ
from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the
relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation and
experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the
estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would
be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the PP&E and capitalized
software assets would increase the recorded expenses and decrease the non-current assets.
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to
sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other
actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify
for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively
marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the
plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is
classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this
measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale
criteria are met. We estimate the fair value less costs to sell based on market prices and discussions with potential buyers on the assets
that are held for sale. The amounts and timing that the assets held for sale are sold could be impacted on the ability to market and sell
the assets held for sale, and find a suitable buyer.
Estimates of future taxable earnings used to assess the realizable value of deferred tax assets
We use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and
liabilities arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts reported in our
Consolidated Financial Statements. Deferred income tax assets also reflect the benefit of unutilized tax losses that can be carried
forward to reduce income taxes in future years. Such method requires the exercise of significant judgment in determining whether or
not it is more likely than not our deferred tax assets may be realized and, therefore, can be recognized in our Consolidated Financial
Statements. Also, estimates are required to determine the expected timing upon which tax assets will be realized and upon which tax
liabilities will be settled. We assess the ability to recover our deferred tax assets every quarter and concluded that a valuation
allowance was required against our deferred tax assets at December 31, 2024 of $30.0 million (2023 - $34.5 million).
Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company and its subsidiary operate
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation
and application of complex tax laws. Our provision for income taxes reflects a combination of income earned and taxed in the various
U.S. federal and state, and Canadian federal and provincial, jurisdictions. Jurisdictional tax law changes, increases or decreases in
permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances,
and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
We have no liability for uncertain tax positions. However, should we accrue for such liabilities, when and if they arise in the
future, we will recognize interest and penalties associated with uncertain tax positions as part of our income tax provision.
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the
ultimate payout amount
We use a fair-value based approach for measuring stock-based compensation and record compensation expense over an award’s
vesting period based on the award’s fair value at the date of grant. Our awards vest based on service conditions, and compensation
expense is recognized on a straight-line basis. Stock-based compensation expense is recognized only for those awards that ultimately
vest.
49
Estimates of ability and timeliness of customer payments of accounts receivable
Our expected credit loss reflects reserves for customer receivables to reduce receivables to amounts expected to be collected.
Management uses significant judgment in estimating expected credit losses. In estimating the Company’s current estimate of expected
credit losses, management considers historical credit loss experience as well as forward-looking information in order to establish rates
for each class of financial receivable with similar risk characteristics. While we believe these processes effectively address our
exposure for doubtful accounts and credit losses which have historically been within expectations, changes in the economy, industry,
or specific customer conditions may require adjustments to the expected credit loss. We have a contract with a trade credit insurance
provider, whereby a portion of our trade receivables are insured. The trade credit insurance provider determines the coverage amount,
if any, on a customer-by-customer basis. Based on our trade receivables balance as at December 31, 2024 and 2023, approximately
82% and 93%, respectively, of that balance was covered by the trade credit insurance provider.
At December 31, 2024, we had an allowance for expected credit loss of $0.1 million (2023 - $0.1 million).
Recent Accounting Pronouncements
Please refer to Note 3 to our Consolidated Financial Statements presented elsewhere in this Annual Report.
50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our financial assets and liabilities consist primarily of cash and cash equivalents, restricted cash, trade and accrued receivables,
other receivables, deposits and long-term receivables, accounts payable and accrued liabilities, other liabilities, and long-term debt and
accrued interest. We are exposed to market, credit and liquidity risks associated with financial assets and liabilities. We currently do
not use financial derivatives to reduce exposures from changes in foreign exchange rates, commodity prices, or interest rates. We do
not hold or use any derivative instruments for trading or speculative purposes. Our Board of Directors has responsibility for the
establishment and approval of overall risk management policies, including those related to financial instruments. Management
performs continuous assessments to ensure that all significant risks related to financial instruments are reviewed and addressed in light
of changes to market conditions and operating activities.
Credit risk
Our principal financial assets are cash and cash equivalents, trade and accrued receivables, other receivables and deposits.
Our credit risk is primarily concentrated in our trade and accrued receivables as we do not believe that we are exposed to any
significant credit risk related to our cash and cash equivalents and prepaid expenses. The amounts disclosed in the consolidated
balance sheet for trade and accrued receivables and other receivables are net of allowances for doubtful accounts. Allowances are
provided for the Company’s current estimate of all expected credit losses using the lifetime expected credit loss model. As at
December 31, 2024 and 2023, our allowance was $0.1 million. In order to manage and assess our risk, management maintains credit
policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables
and the financial well-being of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31,
2024, approximately 82% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed
creditworthy by the insurer and excluding accounts receivable from government entities, that have arisen since April 1, 2020, when
the trade credit insurance became effective. Our trade balances are spread over a broad Construction Partner base, which is
geographically dispersed. No single Construction Partner accounted for greater than 10% of revenue in 2024 (2023- one). In addition,
and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign currency exchange rates, will affect our
income or the value of the financial instruments held.
Foreign exchange risk
The majority (approximately 85% to 90%) of our revenue is collected in U.S. dollars, and approximately 40% of our costs are
also incurred in U.S. dollars. Most other revenue and costs are denominated in Canadian dollars. As a result, we are exposed to
fluctuations in the U.S. dollar against the Canadian dollar, which could have a positive or negative impact on our revenue and costs.
The recent strengthening of the U.S. dollar versus the Canadian dollar in 2024 has had a positive impact on results.
51
Our financial instruments are exposed primarily to fluctuations in the Canadian dollar. The following table details our exposure
to currency risk at the reporting dates and a sensitivity analysis to changes in currency. The sensitivity analysis includes Canadian
dollar-denominated monetary items and adjusts their translation at period end for their respective change in the Canadian dollar. For
the respective weakening of the Canadian dollar, there would be an equal and opposite impact on net income (loss) and
comprehensive income (loss).
Effect of net
income and
comprehensive
income for the
Amount
Change in
year ended
(C$ in thousands)
Currency (%)
December 31, 2024
Cash and cash equivalents
4,387
10 %
439
Trade and accrued receivables
5,593
10 %
559
Other receivables
481
10 %
48
Other assets
333
10 %
33
Accounts payable and accrued liabilities
15,659
10 %
1,566
Other liabilities
3,342
10 %
334
Current portion of long-term debt and accrued
interest
113
10 %
11
Long-term debt
31,231
10 %
3,123
Total
61,139
10 %
6,113
Commodity price risk
We consume raw materials such as aluminum, hardware, wood and veneer, timber, plastic, electrical wiring and components,
paint and powder, fabric and vinyl. While aluminum represents the largest component of our raw materials’ expenditures, overall
aluminum spend comprises only approximately 10% of product revenues and, therefore, absolute exposure to price fluctuations has a
minimal impact on profitability.
Interest rate risk
In February 2021, we entered into the RBC Facility which was extended on February 9, 2023 under the Extended RBC Facility.
On February 9, 2024, the Company extended the Extended RBC Facility under the Second Extended RBC Facility. The Second
Extended RBC Facility has a maximum borrowing base of C$15 million and a one-year term. Interest is calculated as at the Canadian
or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the
Term SOFR Adjustment, in each case, plus 200 basis points. On February 20, 2025, the Company entered into the Fourth Extended
RBC Facility. The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances
to a maximum of C$25.0 million and matures on November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50
basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR
Adjustment, in each case plus 175 basis points. We did not draw on the facilities during 2022, 2023 or 2024 and were, therefore not
exposed to any interest rate risk.
The Company’s Leasing Facilities and Debentures bear interest at fixed interest rates and are therefore not subject to interest
rate risk.
52
Item 8. Financial Statements and Supplementary Data.
INDEX
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 271) ...................................
53
Consolidated Balance Sheets, as at December 31, 2024 and 2023 ......................................................
55
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended
December 31, 2024, 2023 and 2022 ................................................................................................
56
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31,
2024, 2023 and 2022 .......................................................................................................................
58
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 .....
59
Notes to the Consolidated Financial Statements .................................................................................
61
53
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of DIRTT Environmental Solutions Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DIRTT Environmental Solutions Ltd. and its
subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of
comprehensive income (loss), of changes in shareholders’ equity and of cash flows for each of the three years in the
period ended December 31, 2024, including the related notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission (SEC) and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts
or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
54
Revenue from Contracts with Customers – Product Sales
As described in Notes 2 and 20 to the consolidated financial statements, the Company’s revenue recognized from product
sales was $153 million for the year ended December 31, 2024. The Company recognizes revenue upon transfer of control
of promised goods to customers at the transaction price, an amount that reflects the consideration the Company expects
to receive in exchange for those goods. The Company’s main performance obligation to customers is the delivery of
products in accordance with purchase orders. Each purchase order defines the transaction price for the products
purchased under the arrangement. The Company’s standard sales terms are Free On Board shipping point.
The principal consideration for our determination that performing procedures relating to revenue from contracts with
customers is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s
revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included, among others (i) testing revenue
recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders,
invoices, bills of lading and subsequent cash receipts; and (ii) confirming a sample of outstanding customer invoice
balances as of December 31, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such
as invoices, bills of lading and subsequent cash receipts.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta, Canada
February 26, 2025
We have served as the Company’s auditor since 2017, which includes periods before the Company became subject
to SEC reporting requirements.
55
DIRTT Environmental Solutions Ltd.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
As at December 31, As at December 31,
2024
2023
ASSETS
Current Assets
Cash and cash equivalents
29,288
24,744
Restricted cash
243
355
Trade and accrued receivables, net of expected credit losses of
$0.1 million at December 31, 2024 and at December 31, 2023
19,494
15,787
Other receivables
416
484
Inventory
15,109
16,577
Prepaids and other current assets
2,609
4,023
Assets held for sale
-
1,555
Total Current Assets
67,159
63,525
Property, plant and equipment, net
20,199
25,077
Capitalized software, net
2,548
2,450
Operating lease right-of-use assets, net
25,369
29,813
Other assets
2,945
3,452
Total Assets
118,220
124,317
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
16,352
19,880
Other liabilities
3,217
2,482
Customer deposits and deferred revenue
4,028
5,290
Current portion of long-term debt and accrued interest
359
841
Current portion of lease liabilities
5,619
5,255
Total Current Liabilities
29,575
33,748
Long-term debt
21,993
55,267
Long-term lease liabilities
24,062
28,201
Total Liabilities
75,630
117,216
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 193,605,237 issued and outstanding
at December 31, 2024 and 105,377,667 issued and outstanding at December 31, 2023
219,023
196,128
Additional paid-in capital
8,206
7,954
Accumulated other comprehensive loss
(18,541)
(16,125)
Accumulated deficit
(166,098)
(180,856)
Total Shareholders’ Equity
42,590
7,101
Total Liabilities and Shareholders’ Equity
118,220
124,317
Refer to Note 2 for policy on Common Shares.
Refer to Note 22 for Commitments.
Refer to Note 25 for Subsequent Events.
The accompanying notes are an integral part of these consolidated financial statements.
56
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars, except per share data)
For the Year Ended December 31,
2024
2023
2022
Product revenue
169,660
176,919
166,256
Service revenue
4,653
5,012
5,905
Total revenue
174,313
181,931
172,161
Product cost of sales
107,468
119,728
140,058
Service cost of sales
2,470
2,661
3,943
Total cost of sales
109,938
122,389
144,001
Gross profit
64,375
59,542
28,160
Expenses
Sales and marketing
22,938
25,235
26,950
General and administrative
19,903
21,655
25,462
Operations support
7,438
7,832
9,498
Technology and development
5,262
5,820
7,555
Stock-based compensation
2,965
2,306
4,277
Reorganization
1,113
3,009
13,461
Impairment charge on Rock Hill Facility
530
8,716
-
Related party expense
-
1,524
-
Total operating expenses
60,149
76,097
87,203
Operating income (loss)
4,226
(16,555 )
(59,043 )
Gain on extinguishment of convertible debt
10,426
-
-
Foreign exchange gain (loss)
2,974
(626 )
1,445
Interest income
1,587
490
51
Interest expense
(3,995 )
(4,927 )
(5,160 )
Government subsidies
-
236
7,765
Gain on sale of software and patents
-
7,130
-
10,992
2,303
4,101
Net income (loss) before tax
15,218
(14,252 )
(54,942 )
Income taxes
Current and deferred income tax expense
448
332
21
448
332
21
Net income (loss) after tax
14,770
(14,584 )
(54,963 )
Net income (loss) per share
Net income (loss) per share - basic
0.08
(0.13 )
(0.55 )
Net income (loss) per share - diluted
0.07
(0.13 )
(0.55 )
Weighted average number of shares outstanding (in thousands)
Basic
190,542
116,135
99,826
Diluted
240,239
116,135
99,826
Refer to Note 24 for Related Party Transactions included in this statement.
The prior year comparatives have been revised in line with current year presentation - refer to Earnings per share in Note 19.
The accompanying notes are an integral part of these consolidated financial statements.
57
DIRTT Environmental Solutions Ltd.
Consolidated Statement of Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars)
For the Year Ended December 31,
2024
2023
2022
Net income (loss) after tax for the period
14,770
(14,584 )
(54,963 )
Exchange differences on translation of foreign operations
(2,416 )
(19 )
(190 )
Comprehensive income (loss) for the period
12,354
(14,603 )
(55,153 )
The accompanying notes are an integral part of these consolidated financial statements.
58
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Stated in thousands of U.S. dollars, except for share data)
Accumulated
Number of
Additional
other
Total
Common
Common
paid-in
comprehensive
Accumulated
shareholders’
shares
shares
capital
loss
deficit
equity
As at December 31, 2021
85,345,433
181,782
13,200
(15,916 )
(111,300 )
67,766
Stock-based compensation
-
-
3,943
-
-
3,943
Issued on vesting of RSUs and Share Awards
3,149,061
7,088
(7,088 )
-
-
-
RSUs and Share Awards withheld to settle employee tax
obligations
-
-
(1,032 )
-
(9 )
(1,041 )
Issued for employee share purchase plan
720,901
296
-
-
-
296
Issued on private placement
8,667,449
2,181
-
-
-
2,181
Foreign currency translation adjustment
-
-
-
(190 )
-
(190 )
Net loss for the year
-
-
-
-
(54,963 )
(54,963 )
As at December 31, 2022
97,882,844
191,347
9,023
(16,106 )
(166,272 )
17,992
Stock-based compensation
-
-
1,713
-
-
1,713
Issued on vesting of RSUs and Share Awards
1,886,868
2,756
(2,756 )
-
-
-
Issued for employee share purchase plan
1,708,210
502
-
-
-
502
Issued to settle related party debt
3,899,745
1,523
-
-
-
1,523
RSUs and Share Awards withheld to settle employee tax
obligations
-
-
(26 )
-
-
(26 )
Foreign currency translation adjustment
-
-
-
(19 )
-
(19 )
Net loss for the year
-
-
-
-
(14,584 )
(14,584 )
As at December 31, 2023
105,377,667
196,128
7,954
(16,125 )
(180,856 )
7,101
Stock-based compensation
-
-
1,532
-
-
1,532
Issued on vesting of RSUs
1,363,328
1,124
(1,124 )
-
-
-
Issued on Rights Offering
85,714,285
21,272
-
-
-
21,272
RSUs withheld to settle employee tax obligations
-
-
(162 )
-
(12 )
(174 )
Issued for employee share purchase plan
1,208,435
544
-
-
-
544
Cancelled from Normal Course Issuer Bid
(58,478 )
(45 )
6
-
-
(39 )
Foreign currency translation adjustment
-
-
-
(2,416 )
-
(2,416 )
Net income for the year
-
-
-
-
14,770
14,770
As at December 31, 2024
193,605,237
219,023
8,206
(18,541 )
(166,098 )
42,590
The accompanying notes are an integral part of these consolidated financial statements.
59
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
For the Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income (loss) for the period
14,770
(14,584 )
(54,963 )
Adjustments:
Depreciation and amortization
6,575
8,934
15,119
Impairment charge on Rock Hill Facility
530
8,716
-
Stock-based compensation
2,965
2,306
3,342
Foreign exchange loss (gain)
(3,152 )
1,099
(1,813 )
Gain on extinguishment of convertible debt
(10,426 )
-
-
Gain on sale of software and patents
-
(7,130 )
-
Accretion of convertible debentures
1,491
698
676
Loss (gain) on disposal
422
153
(133 )
Changes in operating assets and liabilities:
Trade and accrued receivables
(4,005 )
(1,833 )
(179 )
Other receivables
113
7,406
(4,432 )
Inventory
447
5,961
(4,716 )
Prepaid and other assets, current and long term
1,215
474
129
Accounts payable and accrued liabilities
(2,742 )
2,137
260
Other liabilities
(12 )
(421 )
(109 )
Customer deposits and deferred revenue
(1,240 )
243
2,477
Current portion of long-term debt and accrued interest
(437 )
(40 )
(149 )
Lease liabilities
830
702
231
Net cash flows (used in) provided by operating activities
7,344
14,821
(44,260 )
Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts
payable changes
(1,400 )
(1,242 )
(2,394 )
Capitalized software development expenditures
(1,636 )
(1,794 )
(1,677 )
Other asset expenditures
(153 )
(398 )
(443 )
Recovery of software development expenditures
249
127
263
Proceeds on sale of property, plant, and equipment
15
14
227
Proceeds on sale of assets held for sale
1,025
-
-
Proceeds on sale of software and patents
-
10,950
-
Net cash flows (used in) provided by investing activities
(1,900 )
7,657
(4,024 )
Cash flows from financing activities:
Repayment of long-term debt
(21,486 )
(11,579 )
(2,470 )
Net proceeds received from Rights Offering
21,272
-
-
Employee tax payments on vesting of RSUs
(162 )
(26 )
(1,041 )
Common share repurchase
(39 )
-
-
Proceeds issued on private placement
-
-
1,990
Proceeds received on long-term debt
-
-
647
Net cash flows used in financing activities
(415 )
(11,605 )
(874 )
Effect of foreign exchange on cash, cash equivalents and
restricted cash
(597 )
(13 )
(11 )
Net increase (decrease) in cash, cash equivalents and
restricted cash
4,432
10,860
(49,169 )
Cash, cash equivalents and restricted cash, beginning of period
25,099
14,239
63,408
Cash, cash equivalents and restricted cash, end of period
29,531
25,099
14,239
Supplemental disclosure of cash flow information:
Interest paid
(2,874 )
(3,977 )
(4,423 )
Income taxes received (paid)
(754 )
4
3,212
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within
the consolidated balance sheets.
For the year ended December 31,
2024
2023
2022
Cash and cash equivalents
29,288
24,744
10,821
Restricted cash
243
355
3,418
Total cash, cash equivalents and restricted cash
29,531
25,099
14,239
60
The accompanying notes are an integral part of these consolidated financial statements.
61
DIRTT Environmental Solutions Ltd.
Notes to the Consolidated Financial Statements
(Amounts stated in thousands of U.S. dollars unless otherwise stated)
1. GENERAL INFORMATION
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized
construction. DIRTT’s system of physical products and digital tools empowers organizations, together with construction and design
leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public
sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and outcomes.
DIRTT’s proprietary design integration software, ICE® (“ICE” or “ICE software”), translates the vision of architects and
designers into a 3D model that also acts as manufacturing information. ICE is also licensed to unrelated companies and Construction
Partners of the Company. As of May 9, 2023, Armstrong World Industries, Inc. (“AWI”) owns a 50% interest in the rights, titles and
interest in certain intellectual property rights in a portion of the ICE Software that is used by AWI.
DIRTT is incorporated under the laws of the province of Alberta, Canada, its headquarters is located at 7303 – 30th Street S.E.,
Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary, AB, Canada T2P 4K7.
DIRTT’s common shares trade on the Toronto Stock Exchange under the symbol “DRT”. Effective October 12, 2023, DIRTT’s
common shares ceased to trade on The Nasdaq Capital Markets. DIRTT’s common shares are quoted on the OTC Markets on the
“OTC Pink Tier” under the symbol “DRTTF”.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements (“Financial Statements”), including comparative figures, have been prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”).
In these Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars.
DIRTT’s financial results are consolidated in Canadian dollars, the Company’s functional currency, and the Company has adopted the
U.S. dollar as its reporting currency. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.
Principles of consolidation
The Financial Statements include the accounts of DIRTT and its subsidiary. All intercompany balances, income and expenses,
unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated upon consolidation.
Basis of measurement
These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets
held for sale and stock-based compensation that are measured at fair value, as explained in the accounting policies below. Historical
cost is generally based on the fair value of the consideration given in exchange for assets.
Use of estimates
The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions
and events as of the date of the Financial Statements. Estimates are based on historical data and experience, as well as various other
factors that management considers reasonable under the circumstances. Actual outcomes can differ from these estimates.
Significant estimates and assumptions made by management include:
•
Estimates of ability and timeliness of customer payments of trade receivables;
•
Estimates of useful lives of depreciable assets as well as the fair value of long-term assets and future cash flows used for
impairment calculations;
•
Determining the fair value less costs to sell of the assets held for sale;
62
•
Estimates of future taxable earnings used to assess the realizable value of deferred tax assets and the ability to recognize a
deferred tax asset;
•
Estimates of inventory obsolescence based on slow moving inventory items;
•
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiary
operate;
•
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of
the ultimate payout amount; and
•
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies.
Segments
Management has determined that DIRTT has one operating segment. The Company’s chief executive officer, president and
chief operating officer, and chief financial officer, who are DIRTT’s chief operating decision makers, review financial information on
a consolidated and aggregate basis, together with certain operating metrics principally, to make decisions about how to allocate
resources and to measure the Company’s performance.
Foreign currency translation
DIRTT Environmental Solutions Ltd. is a Canadian company and its functional currency is the Canadian dollar. DIRTT’s
wholly owned subsidiary, DIRTT Environmental Solutions Inc., is domiciled in the United States and its functional currency is the
U.S. dollar.
Assets and liabilities denominated in foreign currencies, other than those held through foreign subsidiaries, are translated into
the transacting company’s functional currency at the year-end exchange rate for monetary items, and at the historical exchange rates
for non-monetary items. Foreign currency revenues and expenses are translated at the exchange rates in effect on the dates of the
related transactions. Foreign exchange gains and losses, other than those arising from the translation of the Company’s net investments
in its foreign subsidiary, are included in income.
The accounts of the Company’s U.S. dollar subsidiary is translated into Canadian dollars, and the Financial Statements are
translated into U.S. dollars for financial statement presentation. Assets and liabilities are translated using year-end exchange rates, and
revenues, expenses, gains and losses are translated using average monthly exchange rates. Foreign exchange gains and losses arising
from the translation of the Company’s assets and liabilities are included in “comprehensive income (loss) for the year”.
Cash and cash equivalents and restricted cash
Cash and cash equivalents include cash on hand held at banks and cash equivalents, which are defined as highly liquid
investments with original maturities of three months or less. Restricted cash is a reserve account not available for immediate or
general business use and is required as collateral to commercial credit cards or when certain requirements are not met under the terms
of the Company’s senior secured credit facility (as defined in Note 14).
Trade and other receivables, net of expected credit losses
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company
estimates its allowance for doubtful accounts using the current expected credit loss methodology, which is designed to capture the
Company’s current estimate of all expected credit losses.
Inventory
Inventory is comprised of raw materials and work in progress. The Company does not typically carry a significant amount of
finished goods inventory. Inventory is valued at the lower of weighted average cost and net realizable value. Net realizable value is
based on an item’s usability in the manufacturing of the Company’s products. The Company records an allowance for obsolescence
when the net realizable value of inventory items declines below weighted average cost. Net realizable value is determined based on
current market prices for inventory less the estimated cost to sell. Work in progress is valued at an estimate of cost, including
attributable overheads, based on stage of completion.
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Fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods
where production levels are abnormally low, unallocated overheads are separately recognized as an expense in the period in which
they are incurred.
Assets held for sale
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan
to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other
actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify
for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively
marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the
plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is
classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this
measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale
criteria are met. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset.
The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no
longer classified as held for sale.
Leases
The Company categorizes leases at their inception as either operating or finance leases. Leases where the Company assumes
substantially all of the rewards or ownership and leases where ownership is transferred at the end of the lease term, or by way of a
bargain purchase option, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to
the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance
charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges
are recognized in the statement of operations.
The Company’s Leasing Facilities (as defined in Note 14) are accounted for as finance leases as ownership of the equipment is
expected to return to the Company at the end of the lease term. These transactions are not accounted for as a sale of the underlying
equipment as the Company continues to control the equipment.
For leases categorized as operating, the Company determines if an arrangement is a lease or contains a lease element at
inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or
equipment for a period of time in exchange for consideration. Operating leases are separately disclosed as operating lease right-of-use
(“ROU”) assets, with a corresponding lease liability split between current and long-term components on the balance sheet. Operating
leases with an initial term of 12 months or less are not included on the balance sheet.
The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the
right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments
arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of
lease payments over the lease term.
Property, plant and equipment
Property, plant and equipment are recorded at cost, including direct costs, attributable indirect costs and carrying costs, less
accumulated depreciation and any accumulated impairment losses. Expenditures for repairs and maintenance are expensed as incurred,
while renewals and betterments are capitalized.
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Depreciation is charged to the consolidated statement of operations on a straight-line basis over the estimated useful lives of the
assets. The estimated useful lives of the Company’s property, plant and equipment are as follows:
Building .............................................................................. 25 years
Manufacturing equipment ................................................... 10 years
Leasehold improvements .................................................... Over term of lease (1
to 13 years)
Office equipment................................................................. 5 years
Tooling and prototypes ....................................................... 4 years
Computer equipment ........................................................... 3 years
Vehicles .............................................................................. 3 years
When assets are disposed of or retired, the cost and accumulated depreciation and impairment losses are removed from the
respective accounts and any resulting gain or loss is reflected in operating expenses.
Capitalized software costs
The Company capitalizes costs related to internally developed software during the application development stage when (i) the
preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is
probable that the project will be completed and performed as intended. Capitalized costs include costs of personnel and related
expenses for employees and third parties directly attributable to the projects. Capitalization of these costs ceases once the project is
substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements
are also capitalized. Costs related to preliminary project activities and post implementation activities, including training, maintenance
and minor modifications or enhancements are expensed as incurred. Capitalized software costs are amortized on a straight-line basis
over the estimated useful life of the developed asset, which is five years. Management evaluates the useful lives of these assets on an
annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the
assets.
Software development is considered internal-use as it is used to design and sell the DIRTT products and is not included in the
end client’s product. Revenues received from Construction Partners for ICE Software are recognized as revenues as they are
considered an element of the product sale. Any incidental third-party revenues received for the ICE Software are credited against
capitalized software costs. The Company follows this accounting policy for cloud computing arrangements that are considered a
service contract, however, these projects are capitalized to prepaids and other assets on the balance sheet and are expensed as an
operating cost, as opposed to amortization, over the expected term of the software service contract.
Impairment of long-lived assets
Management evaluates the recoverability of the Company’s property, plant and equipment, capitalized software costs and ROU
assets when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances
considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not
limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets,
significant negative industry or economic trends, and changes in the Company’s business strategy. Impairment testing is performed at
an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities (an “asset group”). In determining if impairment exists, the Company estimates the undiscounted cash flows to be
generated from the use and ultimate disposition of the asset group. If impairment is indicated based on a comparison of the assets’
carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the
assets exceeds the fair value of the assets.
Convertible Debentures
The Company accounts for convertible debentures as liabilities. Embedded features included in the convertible debentures that
require bifurcation are accounted for separately. Costs incurred directly related to the issuance of convertible debentures are presented
as a direct deduction against the carrying amount of the convertible debentures and are amortized to interest expense using the
effective interest method.
65
Income taxes
Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of
operations and comprehensive income (loss) except to the extent it relates to items recognized directly in equity.
Current tax
Current tax expense is based on the results for the year, adjusted for items that are not taxable or not deductible. Current tax is
calculated using tax rates and laws that were enacted at the end of the reporting period. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established
where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated balance sheet. Deferred income tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period
during which the change occurs.
When appropriate, the Company records a valuation allowance against deferred tax assets to reflect that these tax assets may not
be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not
that all or some portion of the Company’s deferred tax assets will not be realized, based on management’s judgment using available
evidence about future events.
At times, tax benefits claims may be challenged by a tax authority. Tax benefits are recognized only for tax positions that are
more likely than not sustainable upon examination by tax authorities. The amount recognized is measured as the largest amount of
benefit that is greater than 50% likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax
benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
Revenue recognition
The Company accounts for revenue in accordance with topic 606, Revenue from Contracts with Customers, (“ASC 606”) and
Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers. Under ASC 606, an entity recognizes revenue in a
manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in
exchange for those goods or services.
The Company recognizes revenue upon transfer of control of promised goods or services to customers at the transaction price,
an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is
calculated as selling price net of variable consideration which may include estimates for sales incentives related to current period
product revenue. Revenue is measured at the fair value of the consideration received or receivable, after discounts, rebates and sales
taxes or income taxes and duties.
Product sales
The Company recognizes revenue upon transfer of control of products to the customer, which typically occurs upon shipment.
The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each
purchase order defines the transaction price for the products purchased under the arrangement. Construction Partners typically sell
DIRTT product to end clients and issue purchase orders to the Company to manufacture the product. Construction Partners utilize ICE
licenses to sell DIRTT products. The ICE licenses sold to Construction Partners are not considered a separate performance obligation
as they are not distinct, and ICE license revenue is recognized in conjunction with product sales. The Construction Partner ICE
Software revenue is recognized over the license period.
66
The Company’s standard sales terms are Free On Board shipping point, which comprise the majority of sales. The Company
usually requires a 50% progress payment on receipt of certain orders, excluding certain government orders or in some special
contractual situations. Customer deposits received are recognized as a liability on the balance sheet until revenue recognition criteria is
met. At the point of shipment, the customer is generally required to pay the balance of the sales price within 30 days. The Company’s
sales arrangements do not have any material financing components. In addition, the Company’s customer arrangements do not
produce contract assets that are material to its consolidated financial statements.
The Company provides sales commissions to internal and external sales representatives which are earned in the period in which
revenue is recognized.
The Company accounts for product transportation revenue and costs as fulfillment activities and presents the associated costs in
costs of goods sold in the period in which the Company sells its product.
Contracts containing multiple performance obligations
The Company offers certain arrangements whereby a customer can purchase products and installation together, which are
generally capable of being distinct and accounted for as separate performance obligations. Where multiple performance obligations
exist, the Company determines revenue recognition by (1) identifying the contract with the customer, (2) identifying the performance
obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations
based on the relative standalone selling prices, typically based on cost plus a reasonable margin, and (5) recognizing revenue as the
performance obligations are satisfied.
Installation and other services
The Company provides installation and other services for certain customers as a distinct performance obligation. Revenue from
installation services is recognized over time as the service is performed.
Principal vs Agent Considerations
The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling
the product or service sales to customers. In certain instances, the Company facilitates contracting of certain sales on behalf of
Construction Partners. The Company records these revenues on a gross basis when the Company is obligated to fulfill the service and
has the risk associated with service delivery. The Company records these revenues on a net basis when the Construction Partner has
the obligation to fulfill the services and has the risk associated with service delivery.
Construction Partner rebates
Rebates to Construction Partners (“Partner Rebates”) are accrued for and recognized as a reduction of revenue at the date of the
sale to the customer. Partner Rebates include amounts collected directly by the Company owed to Construction Partners in accordance
with their Construction Partner agreements, being the difference between the price to the end customer and the Construction Partners’
price. Other sales discounts are deducted immediately from sales invoices.
Contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled
receivable when revenue is recognized prior to invoicing. As the Company’s contracts are less than one year in duration, the Company
has elected to apply the practical expedients to expense costs related to costs to obtain contracts and not disclose unfulfilled
performance obligations. As deferred revenue and customer deposits are typically recognized during the year, the Company does not
account for financing elements.
Warranties
The Company provides a warranty on all products sold to its clients and Construction Partner’s clients. Warranties are not sold
separately to customers. Provisions for the expected cost of warranty obligations are recognized based on an analysis of historical
costs for warranty claims relative to current activity levels and adjusted for factors based on management’s assessment that increase or
decrease the provision. Warranty provision is recognized in cost of goods sold. Warranty claims have historically not been material
and do not constitute a separate performance obligation.
67
Stock-based compensation
The Company follows the fair value-based approach to account for options, share awards and restricted share units (“RSUs”).
Compensation expense and an increase in “Additional paid-in capital” are recognized for options and RSUs over their vesting period
based on their estimated fair values on the grant date, as determined using the Black-Scholes option pricing model for the majority of
options and the market value of the Company’s common shares on the grant date for share awards and RSUs. Certain executive RSUs
have performance conditions and are valued using a Monte Carlo model.
On exercise of stock options and RSUs, the recorded fair value of the option or RSU is removed from “Additional paid-in
capital” and credited to “Share capital”. For options, any consideration paid by employees is credited to “Share capital” when the
option is exercised. The Company’s stock options and RSUs are not shares of the Company and have no rights to vote, receive
dividends, or any other rights as a shareholder of the Company.
Stock-based compensation expense is also recognized for performance share units (“PSUs”) and deferred share units (“DSUs”)
using the fair value method. Compensation expense is recognized over the vesting period and the corresponding amount is recorded as
a liability on the balance sheet.
The Company measures the DSUs granted under the 2023 and 2024 LTIP (the “New DSUs”) using the closing price of the
Company’s common shares on the grant date as the present intention is to settle the New DSUs in equity. This is recognized as an
increase to stock-based compensation and the corresponding liability on the balance sheet.
Technology and development expenditures
Technology and development expenses are comprised primarily of salaries and benefits associated with the Company’s product
and software development personnel which do not qualify for capitalization. These costs are expensed as incurred and exclude certain
information technology costs used in operations which are classified as general and administrative costs.
Government subsidies
The Company accounts for government subsidies on an accrual basis when the conditions for eligibility are met. The Company
has adopted an accounting policy to present government subsidies as other income. The nature, significant terms and conditions of
government subsidies are disclosed in the Financial Statements.
Common shares
In lieu of a par value for common shares, the Company has elected to calculate any cancellation of common shares using the
stated value of shares. The excess of purchase cost over stated value of shares cancelled upon repurchase will be recorded as
additional paid-in capital.
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year and
adjusted for any change in capital structure events triggering retroactive changes to weighted average number of common shares
outstanding. Diluted earnings per share is calculated using the treasury stock method for determining the dilutive impact of stock
options, RSUs, PSUs, PRSUs and New DSUs. The Company follows the “if converted” method for accounting for the impact of
convertible debentures on net income (loss) per share, whereby interest charges applicable to the convertible debentures are added to
the numerator and the convertible debentures are assumed to have been converted at the beginning of the period (or time of issuance,
if later), and the resulting common shares are added to the denominator.
Fair value of financial instruments
ASC 820, “Fair Value Measurements,” requires entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the consolidated balance sheet, for which it is practicable to estimate fair value. Fair value
is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
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The Company’s fair value analysis is based on the degree to which the fair value is observable and grouped into categories
accordingly:
•
Level 1 financial instruments are those which can be derived from quoted market prices (unadjusted) in active markets for
similar financial assets or liabilities.
•
Level 2 financial instruments are those which can be derived from inputs that are observable for the asset or liability,
either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 2 financial instruments include current and
long-term debt. The carrying amounts of these instruments approximates fair value due to limited changes to interest rates
and the Company’s credit rating since issuance.
•
Level 3 financial instruments are those derived from valuation techniques that include inputs for the financial asset or
liability which are not based on observable market data (unobservable inputs). The Company does not have any Level 3
financial instruments.
The carrying amounts of cash and cash equivalents and restricted cash; trade and accrued receivables, other receivables;
accounts payable and accrued liabilities; other liabilities; and customer deposits approximate fair value due to their short-term nature.
3. ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS ISSUED
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07 “Segment Reporting (Topic
280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant
segment expenses on an annual and interim basis. This guidance was effective for the annual periods beginning the year ended
December 31, 2024, and for interim periods beginning January 1, 2025.
On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax
Disclosures” (the “ASU-2023-09”) further disaggregated information on an entity’s tax rate reconciliation and income taxes paid. The
amendments in ASU-2023-09 are effective for fiscal years beginning after December 15, 2024, on a prospective basis with an option
of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be
limited to disclosures.
On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement
Expenses” (the “ASU-2024-03”) which requires further disaggregated information on an entity’s types of expenses presented to better
understand the components of an entity’s expense captions. The amendments within ASU-2024-03 are effective for annual reporting
periods starting December 15, 2026, and interim periods beginning after December 15, 2027, on a prospective basis with an option of
retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited
to disclosures.
On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible
Debt Instruments” (the “ASU-2024-04”) which requires discussing an entity’s assessment of induced conversion and debt
extinguishment of convertible debt instruments. The amendments in ASU-2024-04 are effective for fiscal years beginning after
December 15, 2025, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the
adoption of this standard.
Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted
or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material
impact on its Financial Statements.
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4. GOVERNMENT SUBSIDIES
In the United States, the Employee Retention Credit (“ERC”) was established by Section 2301 of the Coronavirus Aid, Relief,
and Economic Security Act to provide an incentive for employers to keep their employees on their payroll during COVID-19 closures.
The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and
October 1, 2021, for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations
fully or partially suspended during the quarter due to COVID-19. During the third quarter of 2022, the Company determined it was
eligible for the ERC for the first three quarters of 2021 and filed a claim for $7.3 million in payroll tax credits ($7.1 million net of
expenses). As at December 31, 2023, the $7.3 million of these claimed credits (plus an additional $0.2 million of interest) were
received.
For the twelve months ended December 31, 2024, no government subsidies were claimed or received.
5. REORGANIZATION AND ASSETS HELD FOR SALE
The Company had undertaken a number of reorganization initiatives beginning in 2022. In the year ended December 31, 2024,
there were no new initiatives.
Closure of Phoenix Aluminum Manufacturing Facility (the “Phoenix Facility”)
On February 22, 2022, we commenced the process of closing our Phoenix Facility, shifting related manufacturing to both our
Savannah and Calgary aluminum manufacturing facilities. The closure of the Phoenix Facility was substantially completed in the
second quarter of 2022. The Company entered into a sublease arrangement during the second quarter of 2022, commencing July 1,
2022, which exceeds the contractual lease commitments under the Right of Use assets. During the year ended December 31, 2024, the
Company entered into a sublease agreement for the Phoenix Facility that commenced on October 1, 2024 and terminates on March 24,
2027.
Workforce Reductions, Board and Management Changes
In February and July of 2022, we announced our intention to eliminate a portion of our salaried workforce, including
manufacturing and office positions, along with other cost reduction initiatives. The Company’s Board of Directors was reconstituted
following a proxy contest in April 2022, which was deemed a change of control under the Company’s insurance policy resulting in
additional insurance expenditures. Further, the Company made changes to several executive officer roles during the year ended
December 31, 2022. During the year ended December 31, 2023, we continued to review costs, resulting in the elimination of
additional salaried positions in the second and third quarters of 2023. These actions resulted in the Company incurring certain one-
time termination costs. During the year ended December 31, 2024, no termination costs related to restructuring were incurred.
Temporary Suspension of Operations and Subsequent Closure at the Rock Hill Facility
On August 23, 2022, we announced the temporary suspension of operations at our Rock Hill Facility, shifting related
manufacturing to our Calgary manufacturing facility. Costs associated with this idle facility, included in costs of sales, were $1.7
million for the year ended December 31, 2024 (2023 - $2.0 million).
On September 27, 2023, we announced our intention to permanently close the Rock Hill Facility. We have moved certain assets
to our other facilities and disposed of the remaining assets. The assets disposed of were reclassified and measured as assets held for
sale (see table below) as at December 31, 2023. As a result of this decision, we incurred $8.7 million of impairment charges associated
with the transfer of assets from held for use to held for sale. During the year ended December 31, 2024, all assets have been moved out
of the facility and are in the process of being set up at our other facilities. The Company will continue to maintain the Rock Hill
Facility building lease and is pursuing a sublease arrangement. Based on prevailing market prices in the area, no impairment indicators
exist as at December 31, 2024 for the Right of Use asset of $6.2 million and the related leasehold improvements of $2.5 million.
Reorganization costs incurred related to the above-mentioned initiatives:
For the year ended December 31,
2024
2023
2022
Termination benefits
-
2,162
7,042
Insurance costs on change of control
-
-
3,691
Phoenix facility closure
-
99
756
Professional Services
-
-
1,021
Rock Hill Facility temporary suspension and closure of operations
1,101
295
129
Other costs
12
453
822
Total reorganization costs
1,113
3,009
13,461
70
Reorganization costs in accounts payable and accrued liabilities at January 1, 2024
596
Reorganization expense
1,113
Reorganization costs paid
(1,592)
Reorganization costs in accounts payable and accrued liabilities at December 31, 2024
117
Of the $0.1 million reorganization costs in accounts payable and accrued liabilities as at December 31, 2024 (December 31, 2023
- $0.6 million), $0.07 million relates to termination benefits (December 31, 2023 - $0.5 million) and $0.03 million relates to Rock Hill
Facility reorganization costs (December 31, 2023 - $0.1 million). The Company has moved the remaining assets at the Rock Hill
Facility to other operating locations.
Assets held for sale
Assets classified as held for sale as at December 31, 2023, of $1.6 million consisted of manufacturing equipment previously used
in the Rock Hill Facility (refer to Note 11). As part of the decision to permanently close the Rock Hill Facility, $10.3 million of assets
were assessed against the assets held for sale criteria and reclassified from property, plant and equipment to assets held for sale in the
third quarter of 2023. The assets were measured at the lower of the net book value versus the fair value less cost to sell resulting in an
impairment charge of $8.7 million. During the three months ended March 31, 2024, $1.0 million of the assets held for sale were sold.
At March 31, 2024, the assets held for sale balance was reduced from $0.5 million to $nil, resulting in a $0.5 million impairment charge
for the first quarter as we were not able to determine the likelihood of a sale based on the market interest at that time. These assets were
subsequently disposed.
As at December 31,
2024
2023
Assets held for sale, opening
1,555
-
Proceeds from sale of assets held for sale
(1,025 )
-
Impairment charge on reassessment
(530 )
(8,716 )
Net book value transferred from property, plant and equipment
-
10,271
Assets held for sale, ending
-
1,555
To move the assets or dispose of the assets at the Rock Hill Facility, the Company fully settled the principal balance of the U.S.
leasing facility in the fourth quarter of 2023. Principal payments of $7.8 million and interest penalties of $0.4 million were incurred
(refer to Note 14). As a result of this settlement, $2.6 million of restricted cash was released to the Company in the fourth quarter of
2023.
Discontinuation of Reflect Product Line and Other Charges Incurred
In August 2022, the Company discontinued the Reflect and other product lines, resulting in a one-time inventory write-down of
$1.0 million, and an acceleration of amortization expense associated with ICE development for Reflect.
Additionally, the Company accelerated the depreciation of certain items of property, plant and equipment associated with the
closure of the Phoenix Facility resulting in additional depreciation incurred in the first quarter of 2022.
These costs were included in cost of sales:
For the Year Ended December 31,
2024
2023
2022
Provision for inventory of discontinued product lines
-
-
1,035
Accelerated amortization associated with product line discontinuation
-
-
1,019
Accelerated depreciation and amortization associated with closure of the
Phoenix Facility
-
-
1,054
Incremental cost of sales
-
-
3,108
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6. GAIN ON SALE OF SOFTWARE AND PATENTS
There were no sales of software and patents during the year ended December 31, 2024.
On May 9, 2023, the Company entered into a Co-Ownership Agreement (the “Co-Ownership Agreement”) and a partial patent
assignment agreement with AWI. The agreements provided for a cash payment from AWI to the Company of $10.0 million, subject to
certain routine closing conditions, in exchange for the partial assignment to AWI and resulting co-ownership of a 50% interest in the
rights, title and interests in certain intellectual property rights in a portion of the ICE software that is used by AWI (the “Applicable
ICE Code”), including a 50% interest in the patent rights that relate to the Applicable ICE Code. Under the Co-Ownership Agreement,
the Company also agreed to provide AWI a transfer of knowledge concerning the source code of the Applicable ICE Code. In
exchange for completing the knowledge transfer, the Company received an additional cash payment of $1.0 million in the fourth
quarter of 2023. The Co-Ownership Agreement provides that the Company and AWI have separate exclusive fields of use and
restrictive covenants with respect to the Applicable ICE Code and related intellectual property, which survive until either party elects
to separate from its relationship with the other and for five years thereafter. The Company concurrently entered into an Amended and
Restated Master Services Agreement (the “ARMSA”) with AWI, under which AWI had also prepaid certain development services to
be provided by DIRTT. The ARMSA will automatically terminate if the Co-Ownership Agreement is terminated or expires, and may
also be terminated if either party breaches the exclusive fields of use or restrictive covenants in the Co-Ownership Agreement.
The $11.0 million of proceeds on the sale of the 50% interest in the Applicable ICE code, pursuant to the Co-Ownership
Agreement, during 2023. In accordance with GAAP, the proceeds were first applied to the net book value of the related costs of
software of $2.9 million and patents (other assets) of $0.9 million. The residual amount of $7.1 million was recognized as a gain in the
consolidated statement of operations. Further, $1.8 million was received during 2023 as a prepayment under the ARMSA, which was
recognized into revenue during 2023 and the first quarter of 2024. Part of the proceeds of this transaction were used to settle one of
our equipment leases of $1.6 million and resulted in the release of $0.4 million of restricted cash during 2023 (refer to Note 14).
7. GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES
On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the
Company offered to repurchase for cancellation: (i) up to C$6.0 million principal amount of its issued and outstanding January
Debentures (as defined in Note 14) at a purchase price of C$720 per C$1,000 principal amount of January Debentures, and (ii) up to
C$9.0 million principal amount of its issued and outstanding December Debentures (as defined in Note 14), at a purchase price of C$600
per C$1,000 principal amount of December Debentures.
C$4.7 million ($3.5 million) aggregate principal amount of the January Debentures and C$5.8 million ($4.3 million) aggregate
principal amount of December Debentures were validly deposited and not withdrawn at the expiration of the Issuer Bid on March 22,
2024, representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding
at that time. The Company took up all the Debentures (as defined in Note 14) tendered pursuant to the Issuer Bid for aggregate
consideration of C$7.0 million ($5.2 million) (comprised of C$6.9 million ($5.1 million) repayment on principal and interest of C$0.1
million ($0.1 million)).
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Fund, LP (“22NW”),
pursuant to which the Company purchased for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures
at a purchase price of C$684.58 per C$1,000 principal amount of January Debentures and C$13,638,000 principal amount of the
December Debentures at a purchase price of C$665.64 per C$1,000 principal amount of December Debentures, for an aggregate
purchase price of C$22,104,591.45, inclusive of a cash payment for all accrued and unpaid interest up to, but excluding, the date on
which such Debentures were purchased by the Company (the “Debenture Repurchase”). The Debenture Repurchase closed on August
2, 2024. The purchase price of each series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a
discount of approximately 4% to the average trading price of the applicable series of Debentures on the Toronto Stock Exchange (the
“TSX”) for the 20 trading days preceding August 2, 2024. Following the Debenture Repurchase, C$16.6 million ($12.0 million) principal
amount of the January Debentures and C$15.6 million ($11.2 million) principal amount of the December Debentures remained
outstanding and 22NW no longer holds any Debentures.
On August 28, 2024, the Company commenced the Debentures NCIB, which will terminate no later than August 27, 2025. Under
the Debentures NCIB, DIRTT is permitted to acquire up to C$1,664,200 principal amount of the January Debentures and C$1,558,700
principal amount of the December Debentures. As at December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01
million) principal amounts of the December Debentures and January Debentures, respectively, were acquired through the Debentures
NCIB.
72
In accordance with GAAP, it was determined that the C$29.2 million ($21.4 million) repayment on convertible debt through the
Issuer Bid, the Debenture Repurchase, and the Debentures NCIB, triggered an extinguishment of C$43.4 million ($31.8 million) of
principal amount of debt. The gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the
difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$1.2
million ($0.9 million) (refer to Note 14).
8. LEASES
The Company leases office and factory space under various operating leases. As the Company’s leases do not provide an
implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in
determining the present value of lease payments. The Company gives consideration to instruments with similar characteristics when
calculating its incremental borrowing rate. The Company’s operating leases have remaining lease terms of 1 year to 13 years. Lease
terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The weighted average remaining lease term and weighted average discount rate at December 31, 2024, was eight years (2023 -
nine years) and 7.1% (2023 – 6.3%), respectively.
The Company entered into a sublease arrangement for part of the Phoenix Facility during the second quarter of 2022, commencing
July 1, 2022. The Company entered in to an additional sublease arrangement for the remaining part of the Phoenix Facility during the
third quarter of 2024, commencing October 1, 2024. Additionally, the Company entered into a sublease agreement for the Plano DXC
to one of our Construction Partners in that region, in which the subtenant has assumed responsibility for all monthly rent, utilities,
maintenance, taxes and other costs as of April 1, 2023, through December 31, 2024. The Plano sublease agreement was extended for an
additional four years, through October 31, 2028.
The following table includes ROU assets included on the balance sheet at December 31, 2024 and 2023:
ROU Assets
Cost
Accumulated
depreciation
Net book value
At January 1, 2023
48,061
(17,571)
30,490
Disposals
(2,667 )
2,308
(359)
Modifications
3,866
(196)
3,670
Depreciation expense
-
(4,312)
(4,312)
Exchange differences
596
(272)
324
At December 31, 2023
49,856
(20,043)
29,813
Disposals
(958 )
958
-
Modifications
572
-
572
Depreciation expense
-
(3,945)
(3,945)
Exchange differences
(2,113 )
1,042
(1,071)
At December 31, 2024
47,357
(21,988)
25,369
As at December 31, 2024 and 2023 the Company determined that there were no impairment indicators.
73
The components of the lease cost for the years ended December 31, 2024 and 2023 were as follows:
For the year ended December 31,
2024
2023
2022
Operating lease cost (1)
Fixed lease cost
6,069
6,688
6,719
Sublease income
(1,908 )
(1,393 )
(344 )
Total operating lease cost
4,161
5,295
6,375
(1) The lease costs, net of sublease income, are reflected in the Consolidated Statements of Operations and Comprehensive Income (Loss) as
follows:
For the year ended December 31,
2024
2023
2022
Cost of goods sold
4,183
4,427
4,647
Selling and marketing
269
793
1,356
General and administrative
(304 )
(113 )
107
Technology and development
13
188
265
Total operating lease cost
4,161
5,295
6,375
The following table includes lease liabilities included on the balance sheet at December 31, 2024 and 2023:
Lease Liability
2024
2023
At January 1,
33,456
33,423
Disposals
-
(406 )
Modifications
572
3,866
Accretion
2,129
2,272
Repayment of lease liabilities
(5,339 )
(5,942 )
Exchange differences
(1,137 )
243
At December 31,
29,681
33,456
Current lease liabilities
5,619
5,255
Long-term lease liabilities
24,062
28,201
In February 2024, the New York DXC lease reached the end of the lease term.
In April 2024, the Company modified an existing agreement for a Calgary manufacturing facility to extend the leasing term for
an additional three years. Undiscounted cash flows associated with this modification are $1.3 million. The rent obligations have been
discounted at a rate of 11.57% to determine the lease liability.
The following table includes maturities of operating lease liabilities at December 31, 2024:
2025
5,812
2026
5,303
2027
4,324
2028
4,135
2029
3,771
Thereafter
16,196
Total
39,541
Total lease liability
29,681
Difference between undiscounted cash flows and lease
liability
9,860
74
9. TRADE AND ACCRUED RECEIVABLES
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company
estimates an allowance for credit losses using the lifetime expected credit loss at each measurement date, taking into account historical
credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with
similar risk characteristics. Adjustments to this estimate are recognized in the statement of operations.
In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of
individual receivables and systematic monitoring of aging of trade receivables and the financial wellbeing of our customers. In
addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2024, approximately 83% of our trade accounts
receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding
accounts receivable from government entities. In addition, and where possible, we collect a 50% deposit on sales, excluding
government and certain other clients.
Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the year ended
December 31, 2024, no single Construction Partner accounted for greater than 10% of revenue, compared to 2023 in which one
Construction Partner accounted for greater than 10% of revenue.
As at December 31,
2024
2023
Current
16,677
12,070
Overdue
2,916
3,818
19,593
15,888
Less: expected credit losses
(99)
(101)
19,494
15,787
No change to our expected credit loss was required during the year ended December 31, 2024, or December 31, 2023.
Receivables are generally considered to be past due when over 60 days old, unless there is a separate payment arrangement in place
for the collection of the receivable.
10. INVENTORY
As at December 31,
2024
2023
Raw material
14,198
16,787
Allowance for obsolescence
(863)
(1,666)
Work in progress
1,774
1,456
15,109
16,577
As of December 31, 2024, the Company had $0.9 million (2023 - $1.7 million) provided for inventory that is not expected to be
used in future production and the associated expense has been recorded to cost of goods sold. During 2024, the Company wrote off
$1.7 million of inventory against the provision (2023 - $1.0 million) and made an additional provision of $1.0 million (2023 -
$0.9 million). In addition, the Company recorded direct write offs against inventory of $0.1 million (2023 - $0.5 million). Production
overheads capitalized in work in progress were $0.4 million at December 31, 2024 (2023 - $0.2 million).
75
11. PROPERTY, PLANT AND EQUIPMENT, NET
Office and
computer
equipment
Factory equipment
Leasehold
improvements
Total
Cost
At December 31, 2022
27,456
66,109
39,763
133,328
Additions
790
320
132
1,242
Disposals
(127 )
(375 )
(2,186 )
(2,688 )
Transferred to assets held for sale
-
(13,260 )
-
(13,260 )
Exchange differences
6
870
619
1,495
At December 31, 2023
28,125
53,664
38,328
120,117
Additions
866
375
159
1,400
Disposals
(1,003 )
(4,709 )
(2 )
(5,714 )
Exchange differences
(580 )
(3,146 )
(1,677 )
(5,403 )
At December 31, 2024
27,408
46,184
36,808
110,400
Accumulated depreciation and
impairment
At December 31, 2022
20,524
38,821
32,461
91,806
Depreciation expense
2,041
3,661
1,824
7,526
Disposals
(127 )
(272 )
(2,098 )
(2,497 )
Transferred to assets held for sale
-
(2,989 )
-
(2,989 )
Exchange differences
124
687
383
1,194
At December 31, 2023
22,562
39,908
32,570
95,040
Depreciation expense
1,778
2,491
1,190
5,459
Disposals
(877 )
(4,780 )
(2 )
(5,659 )
Exchange differences
(592 )
(2,403 )
(1,644 )
(4,639 )
At December 31, 2024
22,871
35,216
32,114
90,201
Net book value
At December 31, 2023
5,563
13,756
5,758
25,077
At December 31, 2024
4,537
10,968
4,694
20,199
As at December 31, 2024, the Company had $0.4 million of assets in progress of completion which were excluded from assets
subject to depreciation (2023 – $0.2 million).
On September 27, 2023, the Company announced its intention to permanently close the Rock Hill Facility in South Carolina.
$10.3 million of manufacturing equipment at Rock Hill was transferred to assets held for sale during the year ended December 31,
2023 (refer to Note 5).
As at December 31, 2024 and 2023 the Company determined that there were no impairment indicators warranting an
impairment test.
76
12. CAPITALIZED SOFTWARE, NET
For the Year Ended December 31,
2024
2023
Cost
As at January 1
30,252
34,546
Additions
1,636
1,794
Recovery of software development expenditures
(249 )
(127 )
Disposals
(316 )
(6,641 )
Exchange differences
(2,481 )
680
As at December 31
28,842
30,252
Accumulated amortization
As at January 1
27,802
30,140
Amortization expense
680
840
Disposals
-
(3,766 )
Exchange differences
(2,188 )
588
As at December 31
26,294
27,802
Net book value
2,548
2,450
The disposal of capitalized software in 2023 with a net book value of $2.9 million, relates to the AWI transaction (refer to Note
6).
Estimated amortization expense on capitalized software is $0.9 million in 2025, $0.8 million in 2026, $0.7 million in 2027, $0.5
million in 2028, and $0.2 million in 2029.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES
As at December 31
2024
2023
Trade accounts payable
11,243
12,378
Accrued liabilities
2,895
5,500
Wages and commissions payable
1,540
1,688
Rebates accrued(1)
674
314
16,352
19,880
(1)
In 2024, $1.9 million of rebates were earned (2023 - $2.6 million) and $1.6 million were paid (2023 - $4.4 million).
Other liabilities
As at December 31
2024
2023
Warranty and other provisions(1)
849
873
Deferred share unit liability
2,028
1,086
Sublease deposits
206
184
Income taxes payable
-
289
Other equipment lease liability
84
-
Other provisions
50
50
Other liabilities
3,217
2,482
(1)
The following table presents a reconciliation of the warranty provisions balance:
As at December 31,
2024
2023
As at January 1,
873
1,278
Additions to warranty provision
640
1,208
Payments related to warranties
(664 )
(1,613 )
849
873
77
14. LONG-TERM DEBT
Revolving
Credit Facility
Leasing
Facilities
Convertible
Debentures
Total Debt
Balance at December 31, 2022
-
11,812
53,623
65,435
Accretion of issue costs
-
-
698
698
Accrued interest
-
526
3,411
3,937
Interest payments
-
(526 )
(3,451 )
(3,977 )
Principal repayments
-
(11,579 )
-
(11,579 )
Exchange differences
-
251
1,343
1,594
Balance at December 31, 2023
-
484
55,624
56,108
Current portion of long-term debt and accrued interest
-
79
762
841
Long-term debt
-
405
54,862
55,267
Balance at December 31, 2023
-
484
55,624
56,108
Accretion of issue costs
-
-
1,491
1,491
Accrued interest
-
35
2,402
2,437
Interest payments
-
(35 )
(2,839 )
(2,874 )
Principal repayments
-
(78 )
(21,408 )
(21,486 )
Gain on extinguishment
-
-
(10,426 )
(10,426 )
Exchange differences
-
(33 )
(2,865 )
(2,898 )
Balance at December 31, 2024
-
373
21,979
22,352
Current portion of long-term debt and accrued interest
-
78
281
359
Long-term debt
-
295
21,698
21,993
Revolving Credit Facility
On February 12, 2021, the Company entered into a loan agreement governing a C$25.0 million senior secured revolving credit
facility with the Royal Bank of Canada (“RBC”), as lender (the “RBC Facility”). Under the RBC Facility, the Company is able to
borrow up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the
lesser of (i) 75% of the book value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory less any
reserves for potential prior ranking claims (the “Borrowing Base”). Interest was calculated at the Canadian or U.S. prime rate plus
30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the “Aggregate
Excess Availability”, (defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including
unrestricted cash), is less than C$5.0 million, the Company was subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1
on a trailing twelve-month basis. Additionally, if the FCCR has been below 1.10:1 for the three immediately preceding months, the
Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing
Facilities (defined below). Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five
consecutive business days, the Company would enter a cash dominion period whereby the Company’s bank accounts would be
blocked by RBC and daily balances will offset any borrowings and any remaining amounts made available to the Company.
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility has
a maximum borrowing base of C$15 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75
basis points or the Canadian Dollar Offered Rate or Term Secured Overnight Financing Rate (“Term SOFR”) plus 200 basis points
plus the Term SOFR Adjustment (as defined in the amended loan agreement governing the Extended RBC Facility). Under the
Extended RBC Facility, if the trailing twelve-month FCCR is not above 1.25 for three consecutive months, a cash balance equivalent
to one year’s worth of Leasing Facilities payments must be maintained. Effective October 2023, inventory was scoped out of the
Borrowing Base.
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The Second
Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Interest is
calculated at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA
or Term SOFR plus the Term SOFR Adjustment, in each case plus 200 basis points. At December 31, 2024, available borrowings are
C$14.4 million ($10.0 million) (December 31, 2023 – C$13.6 million ($10.3 million) of available borrowings), calculated in the same
manner as the RBC Facility described above, of which no amounts have been drawn. The Second Extended RBC Facility removed the
three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during 2024 (the Company had $0.4
million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility
for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
78
On February 20, 2025, the Company entered into the Fourth Extended RBC Facility. The Fourth Extended RBC Facility is
subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on
November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as
adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. The
Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5
million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is
part of or added to Skyward, which allows access to a $15 million bonding facility subject to an individual maximum of $5 million.
Under the terms of the facility with Skyward, any bonds issued will be secured through Letters of Credit issued pursuant to the Fourth
Extended RBC Facility.
Leasing Facilities
The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which C$4.4 million
($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0 million equipment leasing facility in the
United States of which $13.3 million has been drawn and repaid (the “U.S. Leasing Facility” and, together with the Canada Leasing
Facility, the “Leasing Facilities”) with RBC. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. Refer to
Note 5 on the decision to permanently close the Rock Hill Facility. As part of this decision, the Company fully settled the $7.8 million
principal balance of the U.S. Leasing Facility in the fourth quarter of 2023. The U.S. Leasing Facility is no longer available to be
drawn on. With the settlement of this liability, $2.6 million was released from restricted cash.
The Company did not make any draws on the Leasing Facilities during 2024 or 2023. The associated financial liabilities are
shown on the consolidated balance sheet in the current portion of long-term debt and accrued interest and long-term debt.
Convertible Debentures
On January 25, 2021, the Company completed a C$35.0 million ($27.5 million) bought-deal financing of convertible unsecured
subordinated debentures (the “January Debentures”) with a syndicate of underwriters. On January 29, 2021, the Company issued a
further C$5.25 million ($4.1 million) of the January Debentures under the terms of an overallotment option granted to the
underwriters. The January Debentures will mature and be repayable on January 31, 2026 (the “January Debentures Maturity Date”)
and accrue interest at the rate of 6.00% per annum payable semi-annually in arrears on the last day of January and July of each year
commencing on July 31, 2021 until the January Debentures Maturity Date. Interest and principal are payable in cash or shares at the
option of the Company. The January Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any
time prior to the close of business on the business day prior to the earlier of the January Debentures Maturity Date and the date
specified by the Company for redemption of the January Debentures. Costs of the transaction were approximately C$2.7 million,
including the underwriters’ commission. As a result of the Rights Offering (as defined herein) (refer to Note 16), the conversion price
of the January Debentures was adjusted to C$4.03 per common share representing a conversion rate of 248.1390 common shares per
C$1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for
cancellation C$4.7 million ($3.5 million) of the principal balance of the January Debentures, and paid C$0.04 million ($0.03 million)
of the interest payable on such January Debentures (refer to Note 7). On August 2, 2024, the Company completed the Debenture
Repurchase and repurchased for cancellation C$18.9 million ($14.0 million) principal amount of the January Debentures held by
22NW. On August 26, 2024, the Company announced the Debentures NCIB, which commenced on August 28, 2024. During the
fourth quarter of 2024, the Company repurchased for cancellation C$0.01 million ($0.01 million) principal amount of January
Debentures as part of the Debentures NCIB. As at December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January
Debentures was outstanding.
79
On December 1, 2021, the Company completed a C$35.0 million ($27.4 million) bought-deal financing of convertible
unsecured subordinated debentures (the “December Debentures” and, collectively with the January Debentures, the “Debentures”)
with a syndicate of underwriters. The December Debentures will mature and be repayable on December 31, 2026 (the “December
Debentures Maturity Date”) and accrue interest at the rate of 6.25% per annum payable semi-annually in arrears on the last day of
June and December of each year commencing on June 30, 2022 until the December Debentures Maturity Date. Interest and principal
are payable in cash or shares at the option of the Company. The December Debentures will be convertible into common shares of
DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the December
Debentures Maturity Date and the date specified by the Company for redemption of the December Debentures. Costs of the
transaction were approximately C$2.3 million, including the underwriters’ commission. As a result of the Rights Offering (refer to
Note 16), the conversion price of the December Debentures was adjusted to C$3.64 per common share representing a conversion rate
of 274.7253 common shares per C$1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the
Company repurchased for cancellation C$5.8 million ($4.3 million) of the principal balance of the December Debentures and paid
C$0.08 million ($0.06 million) of the interest payable on such December Debentures (refer to Note 7). On August 2, 2024, the
Company repurchased for cancellation C$13.6 million ($10.1 million) principal amount of December Debentures held by 22NW. On
August 26, 2024, the Company announced the Debentures NCIB which commenced on August 28, 2024. During the fourth quarter of
2024, the Company repurchased for cancellation C$0.3 million ($0.2 million) principal amount of December Debentures as part of the
Debentures NCIB. As at December 31, 2024, C$15.3 million ($10.6 million) principal amount of the December Debentures was
outstanding.
15. INCOME TAXES
Reconciliation of income taxes
The following reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense. The
Canadian statutory rate includes federal and provincial income taxes. This rate was used because Canada is the domicile of the parent
entity of the Company.
For the Year Ended December 31,
2024
2023
2022
Net income (loss) before tax
15,218
(14,252 )
(54,942 )
Canadian federal statutory income tax rate
15.0 %
15.0 %
15.0 %
Expected income tax
2,283
(2,138 )
(8,241 )
Effect on taxes resulting from:
Provincial and state income taxes
1,024
(1,368 )
(5,165 )
Valuation allowance
(3,809 )
4,224
13,590
Non-deductible expenses
176
189
422
Non-deductible stock-based compensation
-
-
23
Tax rate impacts
618
(243 )
(665 )
Adjustments related to prior year tax filings
156
(332 )
57
Income tax expense
448
332
21
Current tax expense
448
332
21
Deferred tax recovery
-
-
-
Income tax expense
448
332
21
Effective income tax rate
2.9 %
(2.3 )%
0.0 %
The provision for income taxes is comprised of federal, state, provincial and foreign taxes based on pre-tax income. In the
United States, the CARES Act of 2020 allows, among other provisions, for the recovery of taxes paid over the preceding five years
from current year losses.
The Company’s U.S. subsidiary’s result was taxable income for the year ended December 31, 2024. The Company utilized
prior year operating losses against this income; however, U.S. tax law does not allow for the full offset of losses against current year
taxable income to reduce tax payable to zero. This resulted in current tax payable of $0.4 million in 2024 (2023 - $0.3 million).
80
Deferred tax assets and liabilities
Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2024 and 2023 were as follows:
As at December 31, 2024
Assets
Liabilities
Net
Operating losses
29,134
-
29,134
Research and development expenditures
354
-
354
Property and equipment
-
(2,576)
(2,576)
Capitalized software and other assets
-
(1,187)
(1,187)
Valuation allowance
-
(30,049)
(30,049)
Other
4,324
-
4,324
Net deferred taxes
33,812
(33,812)
-
As at December 31, 2023
Assets
Liabilities
Net
Operating losses
35,690
-
35,690
Research and development expenditures
367
-
367
Property and equipment
-
(3,883)
(3,883)
Capitalized software and other assets
-
(1,033)
(1,033)
Valuation allowance
-
(34,529)
(34,529)
Other
3,388
-
3,388
Net deferred taxes
39,445
(39,445)
-
Summary of temporary difference movements during the year:
Balance
Recognized
Foreign
Balance
January 1,
2024
in Income
Exchange
December 31, 2024
Operating losses
35,690
(5,771)
(785)
29,134
Research and development expenditures
367
(4)
(9)
354
Property and equipment
(3,883)
1,216
91
(2,576)
Capitalized software and other assets
(1,033)
(168)
14
(1,187)
Valuation allowance
(34,529)
3,809
671
(30,049)
Other
3,388
918
18
4,324
Net deferred taxes
-
-
-
-
Balance
Recognized
Foreign
Balance
January 1,
2023
in Income
Exchange
December 31,
2023
Operating losses
33,740
1,431
519
35,690
Research and development expenditures
336
22
9
367
Property and equipment
(6,017)
2,182
(48 )
(3,883 )
Capitalized software and other assets
(1,599)
583
(17 )
(1,033 )
Valuation allowance
(29,812)
(4,224)
(493 )
(34,529 )
Other
3,352
6
30
3,388
Net deferred taxes
-
-
-
-
For the year ended December 31, 2024, the Company recorded valuation allowances of $3.8 million against deferred tax assets
incurred during the year. A valuation allowance is recognized to the extent that it is more likely than not that the deferred tax assets
will not be realized (2023 – $4.2 million).
On an annual basis, the Company and its subsidiary file tax returns in Canada and various foreign jurisdictions. In Canada, the
Company’s federal and provincial tax returns for the years 2020 to 2023 remain subject to examination by taxation authorities. In the
United States, both the federal and state tax returns filed for the years 2019 to 2023 remain subject to examination by the taxation
authorities.
81
Tax loss carryforwards and other tax pools
The significant components of the Company’s net future income tax deductions in these consolidated financial statements are
summarized as follows:
2024
2023
2024
2023
C$
C$
$
$
Non-capital loss carry-forwards
86,108
114,119
51,312
55,469
Undepreciated capital costs
5,637
3,903
2,815
5,626
Share issuance costs
2,444
2,454
-
-
Scientific research and experimental development
tax incentives
1,971
1,971
-
-
Total future tax deductions
96,160
122,447
54,127
61,095
16. RIGHTS OFFERING
On November 21, 2023, the Company announced that the Board of Directors had approved a rights offering (the “Rights
Offering”) to its common shareholders for aggregate gross proceeds of C$30.0 million ($22.4 million).
In connection with the Rights Offering, the Company entered into a standby purchase agreement, dated November 20, 2023 (the
“Standby Purchase Agreement”) with 22NW and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns
(collectively and including WWT Opportunity #1 LLC (“WWT”), to which 726 transferred all of their common shares to on
December 1, 2023, the “Standby Purchasers”). Subject to the terms and conditions of the Standby Purchase Agreement, each Standby
Purchaser agreed to exercise its Basic Subscription Privilege (as defined below) in full and to collectively purchase from the
Company, at the subscription price, all common shares not subscribed for by holders of Rights (as defined below) under the Basic
Subscription Privilege or Additional Subscription Privilege (as defined below), up to a maximum of C$15.0 million each, so that the
maximum number of common shares that could be issued in connection with the Rights Offering would be issued and the Company
would receive aggregate gross proceeds of C$30.0 million ($22.4 million). As described below, no standby fee was paid to the
Standby Purchasers in connection with the Rights Offering; however, DIRTT reimbursed the Standby Purchasers for their reasonable
expenses in the amount of $0.03 million each.
On January 9, 2024, the Company announced the completion of the Rights Offering to its common shareholders and the
issuance of 85,714,285 common shares at a price of C$0.35 ($0.26) per whole common share for aggregate gross proceeds of C$30.0
million ($22.4 million) and aggregate net proceeds of $21.3 million ($1.1 million of costs associated with the Rights Offering). Each
right distributed under the Rights Offering (each, a “Right”) entitled eligible holders to subscribe for 0.81790023 common shares,
exercisable for whole common shares only, meaning 1.22264301 Rights were required to purchase one common share (the “Basic
Subscription Privilege”). In accordance with applicable law, the Rights Offering included an additional subscription privilege (the
“Additional Subscription Privilege”) under which eligible holders of Rights who fully exercised the Rights issued to them under their
Basic Subscription Privilege, were entitled to subscribe for additional common shares, on a pro rata basis, that were not otherwise
subscribed for under the Basic Subscription Privilege.
DIRTT issued an aggregate of 67,379,471 common shares pursuant to the Basic Subscription Privilege and 18,334,814 common
shares pursuant to the Additional Subscription Privilege. As a result of the common shares issued under the Basic Subscription
Privilege and Additional Subscription Privilege, no common shares were available for issuance pursuant to the Standby Purchase
Agreement.
17. STOCK-BASED COMPENSATION
In May 2020, shareholders approved the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (the “2020 LTIP”).
The 2020 LTIP replaced the predecessor incentive plans, being the Performance Share Unit Plan (“PSU Plan”) and the Amended and
Restated Stock Option Plan (“Stock Option Plan”). Following the approval of the 2020 LTIP, no further awards will be made under
either the Stock Option Plan or the PSU Plan, but both remain in place to govern the terms of any awards that were granted pursuant to
such plans and remain outstanding.
82
In May 2023, shareholders approved the DIRTT Environmental Solutions Ltd. Amended and Restated Long-Term Incentive
Plan (the “2023 LTIP”) at the annual and special meeting of shareholders. The 2023 LTIP gives the Company the ability to award
options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other
share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In
accordance with the 2023 LTIP, the sum of (i) 12,350,000 common shares plus (ii) the number of common shares subject to stock
options previously granted under the Stock Option Plan that, following May 30, 2023, expire or are cancelled or terminated without
having been exercised in full, were reserved for issuance under the 2023 LTIP. Upon vesting of certain LTIP awards, the Company
may withhold and sell shares as a means of meeting DIRTT’s tax withholding requirements in respect of the withholding tax
remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant
date fair value of the instrument, the excess amount is credited to retained earnings or deficit.
In May 2024, shareholders approved the DIRTT Environmental Solutions Ltd. Second Amended and Restated Long-Term
Incentive Plan (the “2024 LTIP”) at the annual and special meeting of shareholders. The effective date of the 2024 LTIP is May 9,
2024. The 2024 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share
units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers,
consultants and directors of the Company and its affiliates. In accordance with the 2024 LTIP, the sum of (i) 27,350,000 common
shares plus (ii) the number of common shares subject to stock options previously granted under the Stock Option Plan that, following
May 22, 2020, expire or are cancelled or terminated without having been exercised in full, have been reserved for issuance under the
2024 LTIP. Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT’s tax
withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair
value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained
earnings or deficit.
Deferred share units (“DSUs”) have historically been granted to non-employee directors under the Deferred Share Unit Plan for
Non-Employee Directors (as amended and restated, the “DSU Plan”) and settleable only in cash. The 2024 LTIP gives the Company
the ability to settle DSUs in either cash or common shares, while consolidating future share-based awards under a single plan. The
terms of the DSU Plan are otherwise materially unchanged as incorporated into the 2024 LTIP. Effective May 30, 2023, no new
awards will be made under the DSU Plan, but awards previously granted under the DSU Plan will continue to be governed by the
DSU Plan. DSUs are settled following cessation of services with the Company.
Stock-based compensation expense
For the Year Ended December 31,
2024
2023
2022
Equity-settled awards
2,466
2,331
3,943
Cash-settled awards
499
(25)
334
2,965
2,306
4,277
The following summarizes RSUs, PRSUs (as defined herein), share awards, PSUs and DSUs activity during the periods:
RSU Time-
RSU
Performance-
Share
Based
Based
Awards
PSU
DSU
Number of
Number of
Number of
Number of
Number of
units
units
units
units
units
Outstanding at December 31, 2022
1,885,337
343,919
-
-
1,165,319
Granted
3,599,500
-
522,883
2,584,161
2,276,731
Vested or settled
(1,105,225 )
(258,760 )
(522,883 )
-
(355,878 )
Withheld to settle employee tax obligations
(64,230 )
-
-
-
-
Forfeited or expired
(784,818 )
(21,130 )
-
(738,553 )
-
Outstanding at December 31, 2023
3,530,564
64,029
-
1,845,608
3,086,172
Granted
8,612,553
-
-
-
1,689,028
Vested or settled
(1,350,754 )
(12,574 )
-
-
(741,306 )
Withheld to settle employee tax obligations
(351,672 )
-
-
-
-
Forfeited or expired
(179,900 )
(6,278 )
-
-
-
Outstanding at December 31, 2024
10,260,791
45,177
-
1,845,608
4,033,894
83
Restricted share units (time-based vesting)
Except as noted below, outstanding restricted share units (“RSUs”) that vest based on time have an aggregate time-based vesting
period of three years and generally one-third of the RSUs vest every year over a three-year period from the date of grant. At the end of
a three-year term, the associated RSUs will be settled by way of the provision of cash or shares to employees (or a combination
thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted in 2024 and 2023 was C$0.68 and
C$0.46, respectively, which was determined using the closing price of the Company’s common shares on their respective grant dates.
During 2023, 150,000 RSUs were granted to each of the chief executive officer, president and chief operating officer and chief
financial officer which vested in the first and third quarters of 2024.
During the third quarter of 2024, certain of the Company’s executives were issued (i) 5 million RSUs which will cliff vest on
August 14, 2026 and (ii) 975,000 RSUs, one-third of which will vest every year over a three-year period from the date of grant, in
each case such vesting is generally subject to continued employment. Once vested, the RSUs will be settled by way of the provision of
cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the
RSUs granted was C$0.75, which was determined using the closing price of the Company’s common shares on the grant date.
Restricted share units (performance-based vesting)
During 2022 and 2021, restricted share units were granted to executives with service and performance-based conditions for
vesting (the “PRSUs”). If the Company’s share price increases to certain values for 20 consecutive trading days, as outlined below, a
percentage of the PRSUs will vest at the end of the three-year service period or on their departure, based on terms agreed.
The grant date fair value of the 2022 and 2021 PRSUs were valued using the Monte Carlo valuation method and determined to
have a weighted average grant date fair value of C$1.87 and C$3.27, respectively.
Based on share price performance since the date of grant, 66.7% of the 2021 PRSUs vested on March 1, 2024, but none of the
2022 PRSUs will vest upon completion of the three-year service period.
% of PRSUs Vesting
33.3%
66.7 %
100.0%
150.0%
2021 and 2022 PRSUs
$
3.00
$
4.00
$
5.00
$
7.00
Share awards
During the first quarter of 2022, certain executives were issued share awards in lieu of cash paid variable incentive
compensation (“Share Awards”). These Share Awards vested upon grant. The fair value of the Share Awards granted was
C$2.40 ($1.88), which was determined using the closing price of the Company’s common shares on the grant date. In the fourth
quarter of 2022, 59,488 Share Awards were issued to employees as a component of their compensation.
In the first quarter of 2023, 36,254 Share Awards were issued to a consultant as compensation for services rendered. During the
second quarter of 2023, certain executives were issued Share Awards in lieu of cash paid variable incentive compensation. These
Share Awards vested upon grant. The fair value of the Share Awards granted was C$0.49 ($0.34), which was determined using the
closing price of the Company’s common shares on the grant date. There were no Share Awards granted or vested during 2024.
Performance share units
During the second quarter of 2023, certain executives were issued a strategic equity grant through performance share units
(“PSUs”). The performance period of the PSUs is from January 1, 2023, to December 31, 2026, with a cliff vesting term for December
31, 2026. 2,584,161 PSUs were granted and depending on the level of performance, the PSUs will vest 100%, 160% or 190% up to a
maximum of 4,909,907 PSUs. Settlement will be made in the form of shares issued from treasury. The performance measures are a
combination of Revenue and Earnings Before Interest, Taxes, Depreciation and Amortization and both targets have to be achieved. As
of December 31, 2024, the fair value of these PSUs have been deemed to be nil based on the likelihood of achieving the targets compared
to current results. During the third quarter of 2023, 738,553 PSUs with a $nil value were forfeited as a result of an executive departure
and 1,845,608 PSUs with a $nil value are outstanding as at December 31, 2024.
84
Deferred share units
Granted under the DSU Plan
The fair value of the DSU liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at
each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair
value recognized in the statement of operations and comprehensive income (loss) for the period. The weighted average fair value of
the DSUs granted in 2023 was C$0.63 ($0.47), which was determined using the closing price of the Company’s common shares on the
grant date. DSUs outstanding at December 31, 2024, had a fair value of $0.7 million which is included in other liabilities on the
balance sheet (2023 – $0.5 million).
Granted under the 2023 and 2024 LTIP
DSUs granted after May 30, 2023, (the “New DSUs”) will be settled by way of the provision of cash or shares (or a combination
thereof) to the Directors, at the discretion of the Company. The Company intends to settle these DSUs through issuances of common
shares. The weighted average fair value of the New DSUs granted in 2024 and 2023 was C$0.69 ($0.50) and C$0.46 ($0.34),
respectively, which was determined using the closing price of the Company’s common shares on the grant date. New DSUs
outstanding at December 31, 2024, had a fair value of $1.3 million which is included in other liabilities on the balance sheet (2023 –
$0.6 million).
Options
The following summarizes options granted, forfeited and expired during the periods:
Number of
Weighted average
options
exercise price C$
Outstanding at December 31, 2022
1,480,069
7.03
Forfeited
(1,006,935 )
7.00
Expired
(263,725 ) $
6.46
Outstanding and exercisable at December 31, 2023
209,409
7.71
Forfeited
(2,000 )
7.84
Expired
(207,409 )
7.70
Outstanding and exercisable at December 31, 2024
-
-
Range of exercise prices outstanding at December 31, 2023:
Options outstanding
Options exercisable
Weighted
Weighted
Weighted
Weighted
average
average
average
average
Number
remaining
exercise
Number
remaining
exercise
Range of exercise prices
outstanding
life
price C$
exercisable
life
price C$
C$6.01 – C$7.00
16,350
0.71
$
6.12
16,350
0.71
$
6.12
C$7.01 – C$8.00
193,059
0.38
$
7.84
193,059
0.38
$
7.84
Total
209,409
209,409
As at December 31, 2024, the Company had no outstanding options.
Dilutive instruments
For the year ended December 31, 2024, 2.3 million RSUs and PRSUs, 2.0 million New DSUs and 45.1 million shares which
would have been issued if the principal amount of the Debentures were settled in common shares at the year-end price were included
in the diluted earnings per share calculation. 1.8 million PSUs and 0.2 million RSUs and PRSUs were excluded from the diluted
weighted average number of common shares, as their effect would have been anti-dilutive to the net income per share.
For the years ended December 31, 2023 and 2022, 1.8 million and nil PSUs, 3.6 million and 2.2 million RSUs and PRSUs,
0.2 million and 1.5 million options, 1.8 million and nil New DSUs and 156.8 million and 109.1 million shares would be issued if the
principal amount of the Debentures were settled in our common shares at the year-end share price were excluded from the diluted
weighted average number of common shares, as their effect would have been anti-dilutive to the net loss per share.
85
18. SHARE REPURCHASES
On December 18, 2024, the Company announced a normal course issuer bid for common shares (the “Shares NCIB”), which
commenced on December 20, 2024, terminates on December 19, 2025 and permits DIRTT to acquire up to 7,515,233 common shares.
All purchases will be made on the open market through the facilities of the TSX at the market price of common shares at the time of
acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled. Under this program, DIRTT
acquired and cancelled 58,478 common shares during the year ended December 31, 2024.
The following table summarizes the common shares repurchased and cancelled during the period:
Period
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased as
part of publicly
announced programs
Maximum number of
share that may yet be
purchased under the
program
December 20, 2024 - December 31, 2024
58,478
$
0.96
58,478
7,456,755
Total
58,478
58,478
7,456,755
19. EARNINGS PER SHARE
On November 21, 2023, the Company announced a Rights Offering which allowed holders of common shares, as of the close of
business on December 12, 2023, transferable subscription rights to purchase up to an aggregate of 85,714,285 common shares at a
subscription price of C$0.35 per common share (refer to Note 16). An adjustment is required on the calculation of net loss per share
for the year ended December 31, 2023, as well as retrospectively for the year ended December 31, 2022, to account for the bonus
factor that resulted from this event.
86
For the Year Ended December 31,
2024
2023
2022
Net income (loss) per share – basic
Net income (loss) (thousands of U.S. dollars)
$
14,770
$
(14,584 ) $
(54,963 )
Weighted average number of shares outstanding (thousands of shares as previously
calculated)
NA
101,984
87,662
Weighted average number of shares outstanding (thousands of shares restated)
190,542
116,135
99,826
Net income (loss) per share (U.S. dollars) − basic (as previously calculated, prior to
Rights Offering)
NA $
(0.14 ) $
(0.63 )
Net income (loss) per share (U.S. dollars) − basic (as on the Consolidated Statement of
Operations)
$
0.08
$
(0.13 ) $
(0.55 )
Net income (loss) per share − diluted
Net income (loss) (thousands of U.S. dollars)
$
14,770
$
(14,584 ) $
(54,963 )
Interest on convertible debentures
$
2,400
NA
NA
$
17,170
$
(14,584 ) $
(54,963 )
Weighted average number of shares outstanding (thousands of shares as previously
calculated)
NA
101,984
87,662
Weighted average number of shares outstanding (thousands of shares restated)
190,542
116,135
99,826
Dilutive debentures on convertible debt (thousands of shares) (1)
45,140
-
-
Dilutive RSUs and PRSUs (thousands of shares) (2)
2,556
-
-
Dilutive New DSUs (thousands of shares) (2)
2,019
-
-
Weighted average number of shares outstanding (thousands of shares as previously
calculated)
NA
116,135
99,826
Weighted average number of shares outstanding (thousands of shares restated)
240,239
116,135
99,826
Net income (loss) per share (U.S. dollars) − diluted (as previously calculated, prior to
Rights Offering)
NA $
(0.14 ) $
(0.63 )
Net income (loss) per share (U.S .dollars) − diluted (as on the Consolidated Statement
of Operations)
$
0.07
$
(0.13 ) $
(0.55 )
(1) For years ended December 31, 2023 and 2022, the Net loss per share - diluted excludes the effect of 156.8 million and 109.1 million shares that would be issued if
the principal amount of the Debentures were settled in our common shares at the year-end price and are excluded as they would be anti-dilutive. For the year ended
December 31, 2024, the Net income per share − diluted includes the effect of 45.1 million shares related to the Debentures as they would have the potential to dilute
basic earnings per share.
(2) For the years ended December 31, 2023 and 2022, the Net loss per share − diluted excludes the effect of 3.6 million and 2.2 million RSUs (including PRSUs) and
1.8 million and nil PSUs and 1.8 million and nil New DSUs, as these would be anti-dilutive. For the year ended December 31, 2024, the Net income per share − diluted
includes the effect of 2.3 million RSUs (including PRSUs) and 2.0 million New DSUs would have the potential to dilute basic earnings per share.
20. REVENUE
In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue
comes from contracts with customers. Refer to Note 21 for the disaggregation of revenue by geographic region.
For the Year Ended December 31,
2024
2023
2022
Product
152,856
158,405
147,448
Transportation
16,066
17,674
18,030
License fees from Construction Partners
738
840
778
Total product revenue
169,660
176,919
166,256
Installation and other services
4,653
5,012
5,905
174,313
181,931
172,161
87
DIRTT sells its products and services pursuant to fixed-price contracts which generally have a term of one year or less. The
transaction price used in determining the amount of revenue to recognize from fixed-price contracts is based upon agreed contractual
terms with each customer and is not subject to variability.
For the Year Ended December 31,
2024
2023
2022
At a point in time
168,922
176,079
165,478
Over time
5,391
5,852
6,683
174,313
181,931
172,161
Revenue recognized at a point in time represents the majority of the Company’s sales. Revenue is recognized when a customer
obtains legal title to the product, which is when ownership of the product is transferred to, or services are delivered to, the customer.
Revenue recognized over time is limited to installation and ongoing maintenance contracts with customers and is recorded as
performance obligations are satisfied over the term of the contract.
Contract Liabilities
As at December 31,
2024
2023
2022
Customer deposits
4,028
5,290
4,458
Deferred revenue
-
-
408
Contract liabilities
4,028
5,290
4,866
Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions.
The balance of contract liabilities was lower as at December 31, 2024, compared to the prior year period mainly due to the timing of
orders and payments. Contract liabilities as at December 31, 2023 and 2022, respectively, totaling $5.3 million and $4.9 million were
recognized as revenue during 2024 and 2023, respectively.
Sales by Industry
The Company periodically reviews product revenue by industry vertical market to evaluate trends and the success of industry
specific sales initiatives. The nature of products sold to the various industries is consistent and therefore the periodic review is focused
on sales performance.
For the Year Ended December 31,
2024
2023
2022
Commercial
121,518
116,693
115,102
Healthcare
21,230
33,970
19,739
Government
17,114
13,446
16,564
Education
9,060
11,970
14,073
License fees from Construction Partners
738
840
778
Total product and transportation revenue
169,660
176,919
166,256
Installation and other services
4,653
5,012
5,905
174,313
181,931
172,161
21. SEGMENT REPORTING
The Company has one reportable and operating segment, and operates in two principal geographic locations, Canada and the
United States. Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United
States. The Company’s revenue from operations from external customers, based on location of operations, and information about its
non-current assets, is detailed below.
88
Revenue from external customers
For the Year Ended December 31,
2024
2023
2022
Canada
23,921
19,934
25,477
U.S.
150,392
161,997
146,684
174,313
181,931
172,161
Non-current assets
As at December 31,
2024
2023
Canada
25,924
30,033
U.S.
25,137
30,759
51,061
60,792
DIRTT has one reportable segment: solutions. The DIRTT solutions segment derives revenues from customers by providing
physical products and digital tools through our ICE software to create interior spaces for our customers across the commercial,
healthcare, education and government industries. The solutions segment provides digital tools (access to ICE software) and physical
products to create modular interior construction spaces for our customers. The accounting policies of the solutions segment are the same
as those described in Note 2 – significant accounting policies.
DIRTT’s chief operating decision maker is the executive leadership team that includes the president and chief operating officer,
chief financial officer, and the chief executive officer. The chief operating decision maker assesses performance for the solution
segment and decides how to allocate resources based on gross profit and net loss that also is reported on the consolidated statement of
operations and comprehensive income (loss) as consolidated gross profit and net income (loss). The measure of segment assets is
reported on the balance sheet as total consolidated assets. The chief operating decision maker uses net income to evaluate income
generated from segment assets (return on assets) in deciding whether to reinvest profits into the solution segment or into other parts of
the entity, such as to repay long term debt.
Gross profit and net income (loss) are used to monitor budget versus actual results. The chief operating decision maker also uses
net income in competitive analysis by benchmarking to DIRTT’s competitors. The competitive analysis along with the monitoring of
budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.
DIRTT derives revenue primarily in North America and manages the business activities on a consolidated basis. The technology
used in the customer arrangements is based on a single software platform that is deployed to, and implemented by, customers in a similar
manner.
Segment profit and loss reconciliation to net income (loss) after tax
For the Year Ended December 31,
2024
2023
2022
($ in thousands)
Revenue
174,313
181,931
172,161
Operating expenses (1)
60,149
76,097
87,203
Operating income (loss)
4,226
(16,555 )
(59,043 )
Other income/(expenses) and gains/(losses) (2)
10,544
1,971
4,080
Net income (loss) after tax
14,770
(14,584 )
(54,963 )
Reconciliation of profit or loss
Adjustments and reconciling items
-
-
-
Net income (loss) after tax
14,770
(14,584 )
(54,963 )
(1) Includes Sales and marketing, General and administrative, Operations support, Technology and development, Stock-based compensation, Reorganization costs,
Related party expenses, and Impairment charges
(2) Includes Tax expenses, non-recurring gains and losses, government subsidies, foreign exchange gains(losses), interest income, and interest expenses
89
22. COMMITMENTS
As at December 31, 2024, the Company had outstanding purchase obligations of approximately $4.2 million related to inventory
and property, plant and equipment purchases (2023 – $2.8 million). Refer to Note 8 for lease commitments.
23. LEGAL PROCEEDINGS
The Company is pursuing multiple lawsuits against its former founders, Mogens Smed and Barrie Loberg, their new company
Falkbuilt Ltd. (“Falkbuilt”), and other related individual and corporate defendants for violations of fiduciary duties and non-
competition and non-solicitation covenants contained in their executive employment agreements, and the misappropriation of
DIRTT’s confidential and proprietary information in violation of numerous Canadian and U.S. state, and federal laws pertaining to the
protection of DIRTT’s trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices.
As of December 31, 2024, the Company’s litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates was
comprised of two main lawsuits: (i) an action in the Alberta Court of King’s Bench instituted on May 9, 2019, against Falkbuilt,
Messrs. Smed and Loberg, and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, and
duties of loyalty, fidelity and confidentiality, and the misappropriation of DIRTT’s confidential information (the “Canadian Non-
Compete Case”); and (ii) an action in the U.S. District Court for the Northern District of Utah instituted on December 11, 2019,
against Falkbuilt, Smed, and other individual and corporate defendants alleging misappropriation of DIRTT’s confidential
information, trade secrets, business intelligence and customer information (the “Utah Misappropriation Case”). Claims previously
pending before in the U.S. District Court for the Northern District of Texas have been included in the Utah Misappropriation Case.
Falkbuilt also filed a lawsuit against the Company on November 5, 2019, in the Court of King’s Bench of Alberta, alleging that
DIRTT has misappropriated and misused their alleged proprietary information in furtherance of DIRTT’s product development.
Falkbuilt seeks monetary relief and an interim, interlocutory and permanent injunction of DIRTT’s alleged use of the alleged
proprietary information. The Company believes that the suit is without merit and filed an application for summary judgment to dismiss
Falkbuilt’s claim.
On the first matter, on October 25, 2024, the Honourable Mr. Justice Poelman of the Court of King’s Bench of Alberta granted a
Court Order directing the Clerk of the Court to schedule an 8-week trial on the first available dates after December 8, 2025, to
determine all the issues (including damages and liability). The trial is scheduled to commence February 2, 2026.
In the Utah Misappropriation Case, on April 11, 2023, the United States Court of Appeals for the Tenth Circuit reversed the
U.S. District Court for the Northern District of Utah’s decision that Utah was an inconvenient forum for DIRTT’s claims against
Falkbuilt and others for the misappropriation of confidential information, trade secrets, business intelligence and customer
information. The Texas Unfair Competition Case was dismissed in March 2022, without prejudice, in reliance upon the now-reversed
decision in the Utah Misappropriation Case, described above. On March 4, 2024, Defendants jointly moved to move the case to
Canada again. Notwithstanding all the prior litigation, on March 28, 2024, Falkbuilt moved to stay the Utah case until the Court ruled
on the renewed motion to dismiss (the “Second Motion to Dismiss”). On February 5, 2025, the Utah District Court granted the Second
Motion to Dismiss for forum non conveniens, without prejudice. The Utah Court, in essence, redirected the determination of those
damages from Utah to Canada, being the appropriate forum for the legal dispute. With the Canadian trial commencing less than a year
away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King's Bench of
Alberta.
No amounts are accrued for the above legal proceedings.
24. RELATED PARTY TRANSACTIONS
On March 15, 2023, the Company entered into a Debt Settlement Agreement (the “Debt Settlement Agreement”) with 22NW and
Aron English, 22NW’s principal and a director of DIRTT, (together, the “22NW Group”) who, collectively, beneficially owned
approximately 19.5% of the Company’s issued and outstanding common shares at such time. Pursuant to the Debt Settlement
Agreement, the Company agreed to reimburse the 22NW Group for the costs incurred by the 22NW Group in connection with the
contested director election at the annual and special meeting of shareholders of the Company held on April 26, 2022, being
approximately $1.6 million (the “Debt”).
Pursuant to the Debt Settlement Agreement, the Company agreed to repay the Debt by either, or a combination of (i) a payment
in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW Group. The
liability as at March 31, 2023 was revalued using the closing common share price at March 31, 2023, and a $2.1 million liability and
expense was recorded in the financial statements.
90
In connection with the Debt Settlement Agreement, on March 15, 2023, the Company entered into a share issuance agreement
with the 22NW Group, pursuant to which the Company agreed to repay the Debt with the issuance to the 22NW Group of 3,899,745
common shares at a deemed price of $0.40 per common share, subject to approval by the Company’s shareholders which was obtained
at the Company’s annual and special meeting of shareholders held on May 30, 2023.
Other related party transactions for the year ended December 31, 2023, relate to the sale of DIRTT products and services to the
22NW Group for $0.3 million. The sale to the 22NW Group was based on price lists in force and terms that are available to all employees.
There were no sales to the 22NW Group for the year ended December 31, 2024.
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Group to purchase
for cancellation of C$18.9 million ($14.0 million) principal amount of the January Debentures and C$13.6 million ($10.1 million)
principal amount of the December Debentures for an aggregate purchase price of C$22.1 million ($16.2 million). Interest earned on
such Debentures to, but not including, the date of repurchase for the year ended December 31, 2024 was $1.0 million, and $0.9 million
for the year ended December 31, 2023. Interest is earned on terms applicable to all Debenture holders. As at December 31, 2024, 22NW
no longer held any Debentures.
Also on August 2, 2024, DIRTT entered into a support and standstill agreement (the “Support Agreement”) with 22NW and
WWT, DIRTT’s second largest shareholder, which replaced the support and standstill agreement entered into with 22NW on March 22,
2024. Under the Support Agreement, both 22NW and WWT agreed to certain voting and standstill obligations, including voting in favor
of the management director nominees at each of DIRTT’s next two annual general meetings and voting in favor of the ratification of the
Amended and Restated SRP. Additionally, each of 22NW and WWT has the right to designate a director nominee at each of DIRTT’s
next two annual general meetings, and is subject to certain restrictions with respect to commencing a take-over bid for the Company.
The Support Agreement also permits WWT to acquire up to 4,067,235 additional shares through market purchases (representing
approximately 2% of the then issued and outstanding shares), which provides WWT with an opportunity to own the same number of
shares as 22NW (being 57,447,988 shares, or approximately 29.8% of the issued and outstanding shares as of the date of the Support
Agreement). The Support Agreement otherwise prohibits each of 22NW and WWT from acquiring any additional shares. Since the
commencement of the Support Agreement, WWT acquired 156,250 shares in the year ended December 31, 2024.
To give effect to the terms of the Support Agreement, the Board adopted the Amended and Restated SRP, effective August 2,
2024, which amended and restated the Company’s shareholder rights plan agreement originally adopted by the Board on March 22,
2024 (the “Original SRP”). The Amended and Restated SRP was ratified by shareholders at the special meeting held on September 20,
2024 (the “SRP Meeting”). The Amended and Restated SRP revised the definition of “Exempt Acquisition” in order to permit WWT to
acquire additional common shares without triggering the provisions of the Amended and Restated SRP. The Amended and Restated
SRP is otherwise consistent with the Original SRP and is substantially similar to the rights plan adopted by the Company in 2021. Like
the Original SRP, the Amended and Restated SRP is intended to help ensure that all shareholders of the Company are treated fairly and
equally in connection with any unsolicited take-over bid or other acquisition of control of the Company (including by way of a “creeping”
take-over bid). The Amended and Restated SRP was not adopted in response to any specific proposal to acquire control of the Company,
and the Board was not aware of any pending or potential take-over bid for the Company at the time of the adoption.
91
25. SUBSEQUENT EVENTS
On February 1, 2025, the President of the United States of America issued executive orders to impose new tariffs on goods being
imported into the United States of America from Canada, Mexico and China. If implemented, these new tariffs could adversely impact
the Canadian economy, consumer spending, inflation, Canadian dollar valuation and the Company’s financial results. Further, on
February 10, 2025 the President of the United States of America issued another executive order imposing additional 25% tariffs on steel
and aluminum imports from various countries including Canada.
The actual impact of the new tariffs or any retaliatory tariffs is subject to several factors including the effective date, duration of
such tariffs, changes in the applied rates, scope and nature of the tariffs in the future, any countermeasures that the target countries may
take and any mitigating actions that may become available. These developments also introduce a degree of uncertainty regarding the
potential impact on supply chains, cost structures and market dynamics. The imposition of trade barriers, including tariffs, quotas,
embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials
and products available to us, increase shipping times, affect our customers’ construction needs or budgets, affect the demand for our
products or our product mix, or require us to modify our supply chain organization, manufacturing facilities, or other current business
practices, any of which could impact our business, financial condition, and results of operations. The Company will continue to monitor
the evolving trade landscape and its implications on operations and financial performance.
On February 13, 2025, the Company entered into a share repurchase agreement (the “Repurchase Agreement”) with NGEN III,
LP (“NGEN”), pursuant to which the Company purchased for cancellation 3,920,844 common shares currently held by NGEN at a
purchase price of $0.80 per share (the “Share Repurchase”). Pursuant to the terms of the Repurchase Agreement, the purchase price of
$0.80 per share was a 1% discount to the closing price of the common shares on the TSX on January 27, 2025 (converted into U.S.
Dollars using the February 13, 2025 closing exchange rate published by the Bank of Canada). Upon completion of the Share Repurchase
on February 14, 2025, there were 189,643,903 common shares outstanding, and NGEN no longer held any common shares of the
Company. The common shares repurchased under the Share Repurchase counts against DIRTT’s annual normal course issuer bid share
limit (the “NCIB Annual Limit”). Following completion of the Share Repurchase, the Company’s outstanding NCIB Annual Limit is
3,422,494.
92
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be
disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the
Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our principal executive officer and principal financial officer carried out an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2024. Based
upon their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO framework) to evaluate the effectiveness
of internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation
of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our
internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the
effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over
financial reporting.
Based on its evaluation under the framework in Internal Control—Integrated Framework, our management concluded that the
Company maintained effective internal control over financial reporting at a reasonable assurance level as of December 31, 2024, based
on those criteria.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under
the Exchange Act) during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
93
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated herein by reference to the information that will be contained in our
information circular and proxy statement (“proxy statement”) related to the 2025 Annual Meeting of Shareholders, which we intend to
file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our
fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our
fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our
fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our
fiscal year pursuant to General Instruction G(3) of Form 10-K.
94
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed as part of the report:
(1)
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, as at December 31, 2024 and 2023
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022
Notes to the Consolidated Financial Statements
(2)
Financial Statement Schedules
All schedules have been omitted as they are either not required or not applicable or the required information is included in
the Consolidated Financial Statements or notes thereto.
(3)
See Item 15(b)
(b)
Exhibits:
Exhibit
No.
Exhibit or Financial Statement Schedule
3.1
Restated Articles of Amalgamation of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1
to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
3.2
Amended and Restated Bylaw No.1 of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1
to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).
4.1*
Description of Registrant’s Securities.
4.2
Base Indenture, dated January 25, 2021, by and among DIRTT Environmental Solutions Ltd., Computershare Trust
Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference
to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).
4.3
Supplemental Indenture, dated January 25, 2021, by and among the Company, Computershare Trust Company of
Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.2
to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).
4.4
Second Supplemental Indenture, dated December 1, 2021, by and among the Company, Computershare Trust Company
of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on December 1, 2021).
4.5
Amended and Restated Shareholder Rights Plan Agreement, dated as of August 2, 2024, by and between DIRTT
Environmental Solutions Ltd. and Computershare Trust Company of Canada, as rights agent (incorporated by reference
to Exhibit 4.1 of the Registrants Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024).
10.1†#
Loan Agreement, dated February 12, 2021, by and among the Royal Bank of Canada, DIRTT Environmental Solutions
Ltd. and DIRTT Environmental Solutions, Inc., as borrowers (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on February 19, 2021).
10.2†#
First Amendment and Consent to Loan Agreement, dated November 15, 2021, by and among the Royal Bank of
Canada, as lender, and DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed
on November 23, 2021).
95
Exhibit
No.
Exhibit or Financial Statement Schedule
10.3+
Amended and Restated Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s
Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.4+
DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).
10.5+
Form of Option Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689,
filed on May 26, 2020).
10.6+
Form of Time-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-
Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8,
File No. 333-238689, filed on May 26, 2020).
10.7+
DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2
to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022).
10.8+
Form of Performance-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd.
Long-Term Incentive Plan (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form
S-8, File No. 333-238689, filed on May 26, 2020).
10.9+
Deferred Share Unit Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the Registrant’s
Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.10+
DIRTT Environmental Solutions Ltd. Amended and Restated Employee Share Purchase Plan (incorporated by
reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-234143, filed on October
9, 2019).
10.11+
Executive Employment Agreement, dated June 22, 2022 by and between DIRTT Environmental Solutions Ltd. and
Benjamin Urban (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061, filed on
July 27, 2022).
10.12+
Executive Employment Agreement, dated August 12, 2022, by and between DIRTT Environmental Solutions Inc. and
Richard Hunter (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on
November 14, 2022).
10.13+
Executive Employment Agreement, dated August 2, 2023, by and between DIRTT Environmental Solutions Inc. and
Fareeha Khan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, File No. 001-39061, filed on
November 9, 2023).
10.14+
Indemnity Agreement, dated April 26, 2022, between the Company and Douglas A. Edwards, together with a schedule
identifying other substantially identical agreements between the Company and each of the other persons identified on
the schedule (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q File No.
001-39061, filed on May 4, 2022).
10.15+
Indemnity Agreement, dated June 22, 2022, between DIRTT Environmental Solutions Ltd and Benjamin Urban,
together with a schedule identifying other substantially identical agreements between the Company and each of the
other persons identified on the schedule (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q, File
No. 001-39061, filed on July 27, 2022).
10.16+
Indemnity Agreement, dated August 11, 2022, between DIRTT Environmental Solutions Ltd and Richard Hunter,
together with a schedule identifying other substantially identical agreements between the Company and each of the
other persons identified on the schedule (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-Q, File
No. 001-39061, filed on November 14, 2022).
96
Exhibit
No.
Exhibit or Financial Statement Schedule
10.17+
Indemnity Agreement, dated August 2,2023, between DIRTT Environmental Solutions Ltd and Fareeha Khan
(incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 9,
2023).
10.18#
Industrial Lease, dated September 15, 2012, by and between Piret (7303-30th Street SE) Holdings Inc. and DIRTT
Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on
Form 10, File No. 001-39061, filed on September 20, 2019).
10.19#
Agreement of Lease, dated November 5, 2013, by and between Dundee Industrial Twofer (GP) Inc. and DIRTT
Environmental Solutions Ltd., as amended by the Lease Amending Agreement, dated October 21, 2016, by and
between Dream Industrial Twofer (GP) Inc. (formerly known as Dundee Industrial Twofer (GP) Inc.) and DIRTT
Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on
Form 10, File No. 001-39061, filed on September 20, 2019).
10.20#
Lease of Industrial Space, dated February 12, 2015, by and between Hoopp Realty Inc./Les Immeubles Hoopp Inc., by
its duly authorized agent, Triovest Realty Advisors Inc., and DIRTT Environmental Solutions Ltd., as amended by the
Amendment of Lease, dated April 16, 2015, the Lease Modification Agreement, dated October 27, 2015, the Third
Amendment of Lease, dated November 12, 2015, the Fourth Amendment of Lease, dated January 8, 2016 and the Fifth
Amendment of Lease, dated August 9, 2019 (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration
Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.21#
Lease Agreement, dated March 29, 2011, by and between EastGroup Properties, L.P. and DIRTT Environmental
Solutions, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form 10, File
No. 001-39061, filed on September 20, 2019).
10.22#
Lease, dated July 1, 2015, by and between Majik Ventures, L.L.C. and DIRTT Environmental Solutions, Inc., as
amended by the First Amendment to Lease, dated May 11, 2017, by and between CAM Investment 352 LLC and
DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration
Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.23#
Industrial Lease Agreement, dated October 2, 2008, by and between 141 Knowlton Way, LLC and DIRTT
Environmental Solutions, Inc., as amended by the First Amendment to Industrial Lease Agreement, dated March 11,
2009, and the Second Amendment to Industrial Lease Agreement, dated August 23, 2018, by and between SH7-
Savannah, LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.28 to the
Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.24#
Lease Agreement, dated October 7, 2019, by and between DIRTT Environmental Solutions, Inc. and SP Rock Hill
Legacy East #1, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061,
filed on November 7, 2019).
10.25#
Second Amendment to Lease dated July 6, 2020, by and between SP ROCK HILL LEGACY EAST #1, LLC, an
Indiana limited liability company, and DIRTT ENVIRONMENTAL SOLUTIONS, INC., a Colorado corporation
(incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 29, 2020).
10.26#
Lease Agreement between Tennyson Campus Owner, LP and DIRTT Environmental Solutions, Inc. dated March 4,
2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, File No. 001-39061, filed on May 6,
2020).
10.27#
Lease Amending Agreement, dated April 6, 2022, by and between Piret (7303 - 30th Street SE) Holdings Inc. and
DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No.
001-39061, filed on July 27, 2022).
10.28
Letter Agreement, dated January 7, 2021, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental
Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report
on Form 8-K, File No. 001-39061, filed on January 13, 2021).
97
Exhibit
No.
Exhibit or Financial Statement Schedule
10.29+
Subscription Agreement, dated November 14, 2022, by and between DIRTT Environmental Solutions Ltd. and 22NW
Fund, LP, together with a schedule identifying substantially identical agreements between DIRTT Environmental
Solutions Ltd. and each shareholder and U.S. director and executive officer listed on the schedule and identifying the
material differences between each of those agreements and the filed Subscription Agreement (incorporated by reference
to Exhibit 10.1 to the Registrant’s Form 8-K, File No. 001-39061, filed on November 18, 2022).
10.30
Release, dated November 30, 2022, by and among DIRTT Environmental Solutions Ltd., 726 BC LLC and 726 BF
LLC ((incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K, File No. 001-39061, filed on November
30, 2022).
10.31#†
Second Amendment to Loan Agreement, dated February 9, 2023, by and among DIRTT Environmental Solutions Ltd.,
DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.45 to the
Registrant’s Form 10-K,File No. 001-39061, filed on February 22, 2023).
10.32+#† Co-ownership Agreement by and between DIRTT Environmental Solutions Ltd. and Armstrong World Industries, Inc.,
effective May 9, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q,File No. 001-39061,
filed on August 2, 2023).
10.33+#
DIRTT Environmental Solutions Ltd. Amended and Restated Long Term Incentive Program effective May 30, 2023
(incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q,File No. 001-39061, filed on August 2, 2023).
10.34
DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2
to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022)
10.35#† Third Amendment to Loan Agreement, dated February 9, 2024, by and among DIRTT Environmental Solutions Ltd.,
DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.39 to the
Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 24, 2024).
10.36
Lease Amending Agreement, dated February 6, 2023, by and between HOOPP Realty Inc./Les Immeubles HOOPP
Inc., (6335 - 57th Street SE) and DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.40 to
the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 21, 2024).
10.37#
Indemnity Agreement, dated March 4, 2024, between DIRTT Environmental Solutions Ltd and Shalima
Pannikode.(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q, File No. 001-
39061, filed on May 8, 2024).
10.38
Support and Standstill Agreement, dated as of March 22, 2024, by and between DIRTT Environmental Solutions Ltd.
and 22NW Fund, LP (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, File No. 001-39061, filed
on March 25, 2024).
10.39
DIRTT Environmental Solutions Second Amended and Restated DIRTT Environmental Solutions Ltd. Long Term
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current report on Form 8-K, File No. 001-
39061, filed May 10, 2024).
10.40#
Convertible Debenture Repurchase Agreement, dated as of August 2, 2024, by and between DIRTT Environmental
Solutions Ltd. and 22NW Fund, LP (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on
Form 8-K,File No. 001-39061, filed August 2, 2024).
10.41#
Support and Standstill Agreement, dated as of August 2, 2024, by and among DIRTT Environmental Solutions Ltd.,
22NW Fund, LP and WWT Opportunity #1 LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current
Report on Form 8-K,File No. 001-39061, filed August 2, 2024).
10.42*#
Indemnity Agreement, dated November 26, 2024, between DIRTT Environmental Solutions Ltd. and Holly Hess
Groos.
98
Exhibit
No.
Exhibit or Financial Statement Schedule
10.43*#
Triparty Agreement dated February 20, 2025, by and among Royal Bank of Canada, Great Midwest Insurance
Company and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. for which surety
business is underwritten by the Skyward Specialty surety division and DIRTT Environmental Solutions Ltd. and
DIRTT Environmental Solutions, Inc.
10.44*#
Fourth Amendment to Loan Agreement, dated February 12, 2025, by and among DIRTT Environmental Solutions Ltd.,
DIRTT Environmental Solutions, Inc. and Royal Bank of Canada.
10.45*#† Fifth Amendment to Loan Agreement, dated February 20, 2025, by and among DIRTT Environmental Solutions Ltd.,
DIRTT Environmental Solutions, Inc. and Royal Bank of Canada.
10.46#†
Lease Amending Agreement dated April 25, 2024, by and between Piret (7303 - 30th Street SE) Holdings Inc. and
DIRTT Environmental Solutions Ltd.
19.1
Insider Trading Policy
19.2
Insider Trading Policy (Pre-clearance group)
21.1*
Subsidiaries of DIRTT Environmental Solutions Ltd.
23.1*
Consent of PricewaterhouseCoopers, L.L.P., independent registered public accounting firm.
31.1*
Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of the Principal Executive Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2**
Certification of the Principal Financial Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance Document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
** Furnished herewith.
+ Compensatory plan or agreement.
# Information in this exhibit identified by brackets is confidential and has been omitted pursuant to Item 601(b)(10)(iv) of Regulation
S-K because it is not material and is the type of information that the Company customarily treats as private or confidential. An
unredacted copy of this exhibit will be furnished to the Securities and Exchange Commission on a supplemental basis upon request.
99
† Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or
exhibit will be furnished to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary
None.
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Date: February 26, 2025
By: /s/ Benjamin Urban
Name: Benjamin Urban
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Benjamin Urban
Benjamin Urban
Chief Executive Officer and Director
(Principal Executive Officer)
February 26, 2025
/s/ Fareeha Khan
Fareeha Khan
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
February 26, 2025
/s/ Scott Robinson
Scott Robinson
Director
February 26, 2025
/s/ Douglas Edwards
Douglas Edwards
Director
February 26, 2025
/s/ Aron English
Aron English
Director
February 26, 2025
/s/ Holly Hess Groos
Holly Hess Groos
Director
February 26, 2025
/s/ Shaun Noll
Shaun Noll
Director
February 26, 2025
/s/ Shalima Pannikode
Shalima Pannikode
Director
February 26, 2025
/s/ Scott Ryan
Scott Ryan
Director
February 26, 2025
Exhibit 4.1
DESCRIPTION OF CAPITAL STOCK
General
DIRTT Environmental Solutions Ltd. (“DIRTT,” the “Company,” “the Corporation,” “we” or “our”) is
amalgamated in Alberta, Canada, under the Business Corporations Act (Alberta) (as amended, the “ABCA”).
The following is a description of DIRTT’s common shares, without par value (“Common Shares”), which are the
only securities of DIRTT registered pursuant to Section 12 of the Securities Exchange Act of 1934. This brief
description is based upon our amended and restated articles of amalgamation (“articles of amalgamation”), our
amended and restated by-laws (“by-laws”), and provisions of applicable law. The following description does not
purport to be complete and is subject to, and qualified in its entirety by, the full text of our articles of amalgamation
and our by-laws, which are incorporated by reference or filed as exhibits to our most recent Annual Report on Form
10-K and are incorporated by reference herein, and amendments or restatements of each will be filed with the
Securities and Exchange Commission (the “SEC”) in future periodic or current reports in accordance with SEC rules.
For more detailed information about the rights of DIRTT’s Common Shares, you should refer to our articles of
amalgamation, our by-laws, and provisions of applicable law.
Authorized Shares and Capital Structure
Under our articles of amalgamation, we have the authority to issue: (i) an unlimited number of Common Shares,
and (ii) an unlimited number of preferred shares issuable in one or more series having the designation, rights, privileges
and conditions attaching to each series of such shares as the directors may fix by resolutions from time to time before
the issuance thereof, and each series to consist of such number of shares as may, before the issuance thereof, be
determined by resolution of the directors, except that the directors may not issue any preferred shares if by doing so
the aggregate number of preferred shares that would then be issued and outstanding would exceed 20% of the
aggregate number of Common Shares then issued and outstanding. Under Alberta law, there is no franchise tax on our
authorized share capital.
Common Shares. The holders of Common Shares are entitled to notice of and to attend all meetings of
shareholders (except meetings at which only holders of a specified class of shares are entitled to vote) and are entitled
to one vote per Common Share. Holders of Common Shares are not entitled to cumulative voting rights in respect of
the election of directors or otherwise. There are no restrictions on foreign holders voting our Common Shares. Holders
of Common Shares are entitled to receive, if, as and when declared by our board of directors (the “Board”), such
dividends as may be declared thereon by the Board from time to time; provided that the Company may declare
dividends on any class of shares to the exclusion of any other class without being obliged to declare any dividends on
the Common Shares. In the event of dissolution, subject to the rights, privileges, restrictions and conditions attaching
to any other class of shares of the Company, our holders of Common Shares are entitled to share equally on a pro rata
basis in the remaining property of the Company.
Our outstanding Common Shares are fully paid and non-assessable.
Preferred Shares. We do not have any preferred shares currently outstanding. Pursuant to our articles of
amalgamation, our Board has the authority, without further action by our shareholders, to issue from time to time
preferred shares in one or more series. Our Board may by resolution fix from time to time before the issue thereof the
designation, rights, privileges, restrictions and conditions attaching to each series of the preferred shares, including
dividend rights, conversion rights, voting rights, redemption rights, liquidation preference, sinking fund terms, and
the number of shares constituting any series or the designation of any series. The issuance of preferred shares could
have the effect of restricting dividends on our Common Shares, diluting the voting power of our Common Shares,
impairing the liquidation rights of our Common Shares, or delaying, deterring or preventing a change in control. Such
issuance could have the effect of decreasing the market price of our Common Shares. Any preferred shares so issued
may rank senior to our Common Shares with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up, or both. Pursuant to our articles of amalgamation, the Board may not issue any preferred
shares if by doing so the aggregate number of preferred shares that would then be issued and outstanding would exceed
by 20% of the aggregate number of Common Shares then issued and outstanding. We currently have no plans to issue
any preferred shares.
Shareholder Approval; Vote on Extraordinary Corporate Transactions. Under the ABCA, certain extraordinary
corporate actions, such as a name change, amalgamations (other than with certain affiliated corporations),
continuances to another jurisdiction and sales, leases or exchanges of all, or substantially all, of the property of a
corporation (other than in the ordinary course of business), and other extraordinary corporate actions such as
liquidations, dissolutions and arrangements (if ordered by a court), are required to be approved by a “special
resolution” of shareholders.
A “special resolution” is a resolution (i) passed by a majority of not less than two-thirds of the votes cast by the
shareholders who voted in respect of the resolution, or (ii) signed by all shareholders entitled to vote on the resolution.
In specified cases, a special resolution to approve an extraordinary corporate action is required to be approved
separately by the holders of a class or series of shares, including in certain cases a class or series of shares not otherwise
carrying voting rights.
Amendments to the Governing Documents. Under the ABCA, amendments to the articles of a corporation
generally require approval by special resolution of shareholders. If the proposed amendment would affect a particular
class of shares in certain specified ways, the holders of shares of that class are entitled to vote separately as a class on
the proposed amendment, whether or not the shares otherwise carry the right to vote.
The ABCA allows the directors, by resolution, to make, amend or repeal any by-laws that regulate the business
or affairs of the corporation. When directors make, amend or repeal a by-law, they are required, under the ABCA, to
submit the change to shareholders at the next meeting of shareholders. Shareholders may confirm, reject or amend the
by-law, the amendment or the repeal with the approval of a majority of the votes cast by shareholders who voted on
the resolution. If a by-law, or an amendment or a repeal of a by-law, is rejected by the shareholders, or if the directors
do not submit a by-law, or an amendment or a repeal of a by-law, to the shareholders, the by-law, amendment or repeal
ceases to be effective and no subsequent resolution of the directors to make, amend or repeal a by-law having
substantially the same purpose or effect is effective until it is confirmed or confirmed as amended, by the shareholders.
Quorum of Shareholders. The ABCA provides that, unless the by-laws provide otherwise, a quorum of
shareholders is present at a meeting of shareholders (irrespective of the number of persons actually present at the
meeting) if holders of a majority of the shares entitled to vote at the meeting are present in person or represented by
proxy. Our by-laws provide that a quorum is present if there are at least two persons present in person, each being a
shareholder entitled to vote thereat or a duly appointed proxy or representative for an absent shareholder so entitled,
and representing in the aggregate at least 33-1/3% of our outstanding shares carrying voting rights at the meeting of
shareholders.
Calling Meetings. The ABCA provides that the directors shall call an annual meeting of shareholders not later
than 15 months after the last preceding annual meeting, and may at any time call a special meeting of shareholders.
Pursuant to our articles of amalgamation and our by-laws, meetings of shareholders may be held inside or outside
Alberta at such place as may be determined by the Board from time to time. The Registered Holders or beneficial
owners (as defined in the ABCA) of not less than 5% of the issued shares of a corporation that carry the right to vote
at a meeting sought to be held may requisition the directors to call a meeting of shareholders for the purposes stated
in the requisition, but the beneficial owners of shares do not thereby acquire the direct right to vote at the meeting that
is the subject of the requisition.
Shareholder Consent in Lieu of Meeting. Under the ABCA, a resolution in writing signed by all of the
shareholders entitled to vote on that resolution is as valid as if it had been passed at a meeting of shareholders.
Director Election, Qualification and Number. The ABCA provides for the election of directors by a plurality vote
(i.e., shareholders may either vote “for” or “withhold” from voting for a director) at an annual meeting of shareholders.
The ABCA states that a corporation shall have one or more directors but a reporting issuer whose shares are held by
more than one person shall have not fewer than three directors, at least two of whom are not officers or employees of
the corporation or its affiliates.
Pursuant to the majority voting policy of the Company (the “Majority Voting Policy”), if any director nominee
receives a number of votes “withheld” from his or her election equal to or greater than votes “for” such election, such
nominee shall submit his or her offer of resignation to the lead director or Chair of the Board. The Corporate
Governance and Compensation Committee (“CGCC”) will review such resignation offer and make a recommendation
to the Board of whether or not to accept it. The CGCC is expected to recommend acceptance of the resignation offer
to the Board, and the Board is expected to accept such recommendation and resignation offer, except where
exceptional circumstances would warrant the director nominee continuing to serve on the Board. The director nominee
will not participate in any deliberations of the CGCC or the Board with respect to his or her resignation offer. Within
90 days of receiving the resignation offer, the Board will make a decision and issue a press release announcing whether
it has accepted or rejected the director nominee’s resignation. The resignation will be effective only when accepted
by the Board. The Majority Voting Policy of the Company does not apply to contested elections in which the number
of director nominees for election is greater than the number of director positions on the Board.
Vacancies on Board of Directors. Under the ABCA, a vacancy among the directors created by the removal of a
director may be filled at the meeting of shareholders at which the director is removed. The ABCA also allows a
vacancy on the Board to be filled by a quorum of directors, except when the vacancy is a result of an increase in the
number or minimum number of directors or a failure to elect the number or minimum number of directors required by
the articles of amalgamation. In addition, the ABCA and our articles of amalgamation provide that the directors may,
between annual general meetings, appoint one or more additional directors of the corporation to serve until the next
annual general meeting, so long as the number of additional directors shall not at any time exceed one-third of the
number of directors who held office at the expiration of the last annual general meeting of the Corporation.
Removal of Directors; Terms of Directors. Under the ABCA, provided that the articles of amalgamation do not
provide for cumulative voting, shareholders of the corporation may, by ordinary resolution passed at a special meeting,
remove any director or directors from office. If holders of a class or series of shares have the exclusive right to elect
one or more directors, a director elected by them may only be removed by an “ordinary resolution” at a meeting of
the shareholders of that class or series.
An “ordinary resolution” means a resolution (i) passed by a majority of the votes cast by the shareholders who
voted in respect of that resolution, or (ii) signed by all the shareholders entitled to vote on that resolution.
Fiduciary Duty of Directors. Directors of a corporation existing under the ABCA have fiduciary obligations to
the corporation. The ABCA requires directors and officers of an Alberta corporation, in exercising their powers and
discharging their duties, to act honestly and in good faith with a view to the best interests of the corporation and
exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Indemnification of Officers and Directors. Under the ABCA and pursuant to our by-laws, we will indemnify
present and former directors and officers against all costs, charges and expenses, including any amount paid to settle
an action or satisfy a judgment that is reasonably incurred by the person in respect of any civil, criminal or
administrative action or proceeding to which the person is made a party because he or she acted as a director or officer
of the corporation. In order to qualify for indemnification such directors or officers must:
•
have acted honestly and in good faith with a view to the best interests of the corporation; and
•
in the case of a criminal or administrative action or proceeding enforced by a monetary penalty, have
had reasonable grounds for believing that his or her conduct was lawful.
We carry liability insurance for our and our subsidiary’s officers and directors, as permitted by our by-laws and
the ABCA.
The ABCA also provides that such persons are entitled to indemnity from the corporation in respect of all costs,
charges and expenses reasonably incurred in connection with the defense of any such proceeding if the person: (i) was
substantially successful on the merits in the person’s defense of the action or proceeding; (ii) otherwise meets the
qualifications for indemnity described above; and (iii) is fairly and reasonably entitled to indemnity.
Dissent or Dissenters’ Appraisal Rights. The ABCA provides that shareholders of a corporation are entitled to
exercise dissent rights and be paid by the corporation the fair value of their shares in connection with specified matters,
including, among others:
•
an amendment to the corporation’s articles to add, change or remove any provisions restricting or
constraining the issue or transfer of shares;
•
an amendment to the corporation’s articles to add, change or remove any restrictions on the business or
businesses that the corporation may carry on;
•
an amalgamation with another corporation (other than with certain affiliated corporations);
•
a continuance under the laws of another jurisdiction; and
•
a sale, lease or exchange of all or substantially all the property of the corporation other than in the
ordinary course of business.
However, a shareholder is not entitled to dissent if an amendment to the articles of the corporation is effected by
a court order approving a reorganization or by a court order made in connection with an action for an oppression
remedy.
Oppression Remedy. The ABCA provides an oppression remedy that enables a court to make any order, whether
interim or final, to rectify matters that are oppressive or unfairly prejudicial to or that unfairly disregard the interests
of any security holder, creditor, director or officer of the corporation if an application is made to a court by a
“complainant.”
A “complainant” with respect to a corporation means any of the following:
•
a present or former Registered Holder or beneficial owner of a security of the corporation or any of its
affiliates;
•
a present or former director or officer of the corporation or of any of its affiliates;
•
a creditor in respect of an application under a derivative action; or
•
any other person who, in the discretion of the court, is a proper person to make the application.
The oppression remedy provides the court with very broad and flexible powers to intervene in corporate affairs
to protect shareholders and other complainants. While conduct that is in breach of fiduciary duties of directors or that
is contrary to the legal right of a complainant will normally trigger the court’s discretion under the oppression remedy,
the exercise of that discretion does not depend on a finding of a breach of legal rights.
Derivative Actions. Under the ABCA, a complainant may also apply to the court for permission to bring an action
in the name of, and on behalf of, the corporation or any of its subsidiaries, or to intervene in an existing action to
which the corporation or its subsidiary is a party, for the purpose of prosecuting, defending or discontinuing the action
on the corporation’s behalf or on behalf of its subsidiary. Under the ABCA, no action may be brought and no
intervention in an action may be made unless a court is satisfied that:
•
the complainant has given reasonable notice to the directors of the corporation or its subsidiary of the
complainant’s intention to apply to the court if the directors of the corporation or its subsidiary do not
bring, diligently prosecute, defend or discontinue the action;
•
the complainant is acting in good faith; and
•
it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted,
defended or discontinued.
Under the ABCA, the court in a derivative action may make any order it sees fit, including an order: (i) authorizing
the complainant to control the conduct of the lawsuit, (ii) directing payments to former and present shareholders, and
(iii) requiring the corporation to pay reasonable legal fees incurred by the complainant.
Examination of Corporate Records. Under the ABCA, upon payment of a prescribed fee, a person is entitled,
during usual business hours, to examine certain corporate records, such as the securities register and a list of
shareholders, and to make copies of or extracts from such documents.
Advance Notice for Shareholder Proposals and Director Nominations. The ABCA permits certain eligible
shareholders and beneficial owners of shares to submit shareholder proposals to the Company, which proposals may
be included in the Company’s management information circular and proxy statement. To be considered for inclusion
in the management information circular and proxy statement for the annual meeting of shareholders of the Company,
any such shareholder proposal under the ABCA must be submitted to the Company at least 90 days before the
anniversary date of the last annual meeting of shareholders.
Additionally, our current by-laws include advance notice provisions. These provisions set deadlines for a certain
number of days before a shareholders’ meeting for a shareholder to notify the Company of his, her or its intention to
nominate one or more directors, and explains the information that must be included with the notice for it to be valid.
Such shareholder nominations generally must be provided to the Company (i) in the case of an annual meeting of
shareholders, not less than 30 days before the date of such annual meeting and (ii) in the case of a special meeting of
shareholders, no later than the close of business on the 15th day after the date on which the first public filing or
announcement of the date of such special meeting was made; except that, in either instance, if notice-and-access is
used for delivery of proxy related materials and the date on which the first public filing or announcement of the date
of such meeting was made in respect of such meeting is not less than 50 days prior to the date of the applicable
meeting, the notice must be received not less than 40 days before the date of the applicable meeting. The notice must
set forth specific information, as further described in our by-laws. This requirement is in addition to those set forth in
the regulations adopted by the SEC under the Securities Exchange Act of 1934 or any applicable laws or regulations
of Canada, including the ABCA.
Potential Anti-Takeover Effect. Certain of the foregoing provisions of DIRTT’s articles of amalgamation and by-
laws, together with the provisions of the ABCA and the Rights Agreement (as defined herein) as summarized below,
could have the effect of delaying, deferring or preventing a change in control or the removal of existing management,
of deterring potential acquirors from making an offer to DIRTT’s shareholders and of limiting any opportunity to
realize premiums over prevailing market prices for DIRTT’s Common Shares in connection therewith. This could be
the case notwithstanding that a majority of DIRTT’s shareholders might benefit from such a change in control or offer.
Shareholder Rights Plan. On March 22, 2024, the Board approved and adopted a shareholder rights plan
agreement by and between DIRTT and Computershare Trust Company of Canada, as rights agent (the “Original
Rights Agreement”), and subsequently adopted an amended and restated shareholder rights plan agreement by and
between DIRTT and Computershare Trust Company of Canada, as rights agent, effective August 2, 2024 (as amended
and restated, the “Rights Agreement”). The Rights Agreement was ratified, confirmed and approved by our
shareholders on September 20, 2024.
The Rights Agreement was adopted to help ensure that all shareholders of the Company are treated fairly and
equally in connection with any unsolicited take-over bid or other acquisition of control of the Company (including by
way of a “creeping” take-over bid). The Rights Agreement was not adopted in response to any specific proposal to
acquire control of the Company, and the Board is not aware of any pending or potential take-over bid for the Company.
The Rights. Pursuant to the Rights Agreement, one right (a “Right”) was issued and attached to each Common
Share as of the close of business on April 1, 2024, and one Right has been and will be issued and attach to each
additional Common Share issued by the Company after such time. The issuance of the Rights will not change the
manner in which shareholders trade their Common Shares.
Separation of Rights; Exercisability. Subject to certain exceptions, the Rights become exercisable and trade
separately from the Common Shares only upon the “Separation Time,” which occurs upon the earlier of:
•
the close of business on the tenth trading day after the first date of public announcement that a person
has become an “Acquiring Person” (as defined in the Rights Agreement);
•
the close of business on the tenth trading day following the date of the commencement of or first public
announcement of the current intention of any person (other than the Company or any subsidiary of the
Company) to commence a Take-over Bid (as defined in the Rights Agreement) (other than a Permitted
Bid or a Competing Permitted Bid (as defined in the Rights Agreement)); or
•
the close of business on the tenth trading day following the date on which a Permitted Bid or Competing
Permitted Bid ceases to qualify as such.
Subject to the terms of the Rights Agreement, the Rights issued under the Rights Agreement become exercisable
upon the Separation Time. The Rights Agreement will not be triggered solely by the holding of 20% or more of the
Common Shares by a shareholder and its affiliates, associates and joint actors prior to the date of the Rights
Agreement, as any such person would be “grandfathered” subject to the terms of the Rights Agreement; however,
subject to certain exceptions in the Rights Agreement, subsequent purchases of Common Shares by a “grandfathered”
person after the effective date of the Rights Agreement may cause such person to become an Acquiring Person
pursuant to the terms of the Rights Agreement. Following a transaction that results in a person becoming an Acquiring
Person, the Rights entitle the holder thereof (other than the Acquiring Person and certain related persons) to purchase
Common Shares at a significant discount to the market price at that time.
Under the Rights Agreement, a “Permitted Bid” is a take-over bid made in compliance with the Canadian take-
over bid regime. Among other requirements, a Permitted Bid is a take-over bid that is made to all shareholders, that
is open for 105 days (or such shorter period as is permitted under the Canadian take-over bid regime) and that contains
certain conditions, including that no Common Shares will be taken up and paid for unless more than 50% of the
Common Shares that are held by independent shareholders are tendered to the take-over bid.
Effective Date; Expiration Time. The Original Rights Agreement was effective as of March 22, 2024, and the
Rights Agreement was effective Auugst 2, 2024 and was ratified, approved and confirmed by DIRTT’s shareholders
on September 20, 2024. The Rights Agreement has an initial term of three years.
Flip-in Event. In the event that a person or group becomes an Acquiring Person (a “Flip-in Event”), each holder
of a Right (other than any Acquiring Person and certain related parties, whose Rights automatically become null and
void) will have the right to receive, upon exercise, Common Shares having a value equal to two times the purchase
price of the Right.
Anti-dilution Adjustments. The purchase price payable, and the number of Rights outstanding are subject to
adjustment from time to time to prevent dilution, including in the event of a stock dividend on, or a subdivision,
consolidation, reclassification or issuance of, the Common Shares.
With certain exceptions, no adjustment in the purchase price will be required until cumulative adjustments amount
to at least 1% of the purchase price.
Redemption; Exchange. In general, the Board may, with the prior approval of the holders of the Voting Shares
(as defined in the Rights Agreement) or of the holders of Rights, elect to redeem the Rights in whole, but not in part,
at a price of $0.00001 per Right (subject to adjustment) at any time prior to the occurrence of a Flip-in Event.
No Rights as Shareholder. Until a Right is exercised, its holder will have no rights as a shareholder of the
Company, including, without limitation, the right to vote or to receive dividends.
Amendment of the Rights Agreement. The Company may, with the prior approval of holders of Voting Shares
(or the holders of Rights if the Separation Time has occurred), supplement, amend, vary or delete any of the provisions
of the Rights Agreement. Any such amendment shall be effective from the date it is adopted by the Board, until it is
confirmed or rejected by the holders of Voting Shares or Rights, as applicable. If such amendment is rejected by the
shareholders, then such amendment shall cease to be effective from and after the termination of the meeting. The
Company may make amendments to the Rights Agreement at any time without the prior approval of the holders of
Voting Shares (or the holders of Rights if the Separation Time has occurred) to correct any clerical or typographical
error or, subject to confirmation at the next meeting of shareholders, make amendments which are required to maintain
the validity of the Rights Agreement due to changes in any applicable legislation, regulations or rules.
Other Important Ownership and Exchange Controls
There is no limitation imposed by applicable Alberta law or by our articles of amalgamation on the right of a non-
resident to hold or vote our Common Shares, other than as discussed herein.
Competition Act. Limitations on the ability to acquire and hold our Common Shares may be imposed by the
Competition Act (Canada) (the “Competition Act”). This legislation permits the Commissioner of Competition (the
“Commissioner”) to review any acquisition or establishment, directly or indirectly, including through the acquisition
of shares, of control over or of a significant interest in the Company. This legislation grants the Commissioner
jurisdiction to seek a remedial order, including an order to prohibit the acquisition or require divestitures, from the
Canadian Competition Tribunal on the basis that the acquisition would, or would be likely to, substantially prevent or
lessen competition. The Commissioner may do so for up to three years after the acquisition has been substantially
completed, unless the acquisition is subject to notification, in which case the period is one year after the acquisition
has been substantially completed.
This legislation also requires any person who intends to acquire more than 20% of our voting shares to file a
notification with the Canadian Competition Bureau if certain financial thresholds are exceeded. Where a person (and
such person’s affiliates) already holds, in the aggregate, more than 20% of all of our voting shares, a notification must
be filed if the acquisition of additional shares would bring such person’s (and its affiliates) holdings to over 50% if
certain financial thresholds are exceeded. Where a notification is required, unless an exemption is available, the
Competition Act prohibits completion of the acquisition until the expiration of the applicable statutory waiting period,
unless compliance with the waiting period has been waived or the Commissioner has issued an advance ruling
certificate under section 102 of the Competition Act. The Commissioner’s review of a notifiable transaction for
substantive competition law considerations may take longer than the statutory waiting period.
Investment Canada Act. (“ICA”). The ICA requires any person that is non-Canadian (as defined in the ICA) who
acquires “control” (as defined in the ICA) of an existing Canadian business to file a pre-closing application for review
with Innovation, Science and Economic Development Canada, where prescribed financial thresholds are exceeded.
The ICA generally prohibits the implementation of a reviewable transaction unless, after review, the relevant minister
is satisfied that the acquisition is likely to be of a net benefit to Canada. Where the acquisition of control of a Canadian
business by a non-Canadian does not meet the prescribed review thresholds, the investor is required, subject to certain
exceptions, to file a notification no later than 30 days after the completion of the transaction.
Under the ICA, an investment in our Common Shares by a non-Canadian that is a private sector “trade agreement
investor,” including a United States investor, would be reviewable only if it were an investment to acquire control of
our business pursuant to the ICA and the enterprise value of our business (as determined pursuant to the ICA and the
regulations thereto) were to be equal to or greater than C$2.079 billion. An investment in our Common Shares by a
non-Canadian that is a private sector World Trade Organization member country investor would be reviewable only
if the enterprise value of our business (as determined pursuant to the ICA and the regulations thereto) were to be equal
to or greater than C$1.386 billion. Different rules apply if the non-Canadian investor is a “state owned enterprise” (as
determined pursuant to the ICA and the regulations thereto). The ICA contains various rules to determine whether an
investment is an acquisition of control of a Canadian business. For example, for purposes of determining whether an
investor acquires control of a corporation by acquiring its shares, the following general rules apply, subject to certain
exceptions: (i) the acquisition of a majority of the voting shares of a corporation is deemed to be acquisition of control
of that corporation, (ii) the acquisition of less than a majority, but more than one-third, of the voting shares of a
corporation is presumed to be acquisition of control of that corporation unless it can be established that, on the
acquisition, the corporation is not controlled in fact by the acquirer through the ownership of voting shares, and (iii)
the acquisition of less than one-third of the voting shares of a corporation is deemed not to be an acquisition of control
of that corporation.
Under the national security regime in the ICA, the Canadian federal government may undertake a discretionary
review of a broader range of investments by a non-Canadian to determine whether such investments by a non-Canadian
could be “injurious to national security”. No financial threshold applies to a national security review. Review on
national security grounds is at the discretion of the Canadian federal government and may occur on a pre- or post-
closing basis.
There are limited exemptions to a review of an acquisition of our Common Shares under the ICA, subject to the
Canadian Government’s discretion to conduct a national security review, including, generally: the acquisition of our
Common Shares by a person in the ordinary course of that person’s business as a trader or dealer in securities; and the
acquisition of control of our business in connection with the realization of security granted for a loan or other financial
assistance and not for any purpose related to the provisions of the ICA.
Other. There is no law, governmental decree or regulation in Alberta that restricts the export or import of capital
or that would affect the remittance of dividends (if any) or other payments by us to non-resident holders of our
Common Shares, other than withholding and other tax requirements.
Transfer Agent
The transfer agent and registrar for our Common Shares is Computershare Trust Company of Canada, located at
8th Floor, 100 University Ave., Toronto, Ontario, M5J 2Y1.
Stock Exchange Listing
Our Common Shares are listed on the TSX under the ticker symbol “DRT.”
Our Common Shares are quoted on the OTC under the ticker symbol “DRTTF.”
Exhibit 10.42
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of this 26th day of November, 2024
BETWEEN:
DIRTT ENVIRONMENTAL SOLUTIONS LTD., a corporation
governed by the laws of the Province of Alberta (the “Corporation”)
-and-
Holly Hess Groos, an individual residing in Florida (the “Indemnified Party”)
RECITALS:
A.
The Indemnified Party serves as a director and/or officer of the Corporation or the Indemnified
Party is a former director or officer of the Corporation or acts or has acted at the Corporation’s
request as a director, officer or similar capacity of any subsidiary or affiliate of the Corporation or
any entity of which the Corporation is or was a shareholder, partner, member or creditor (each an
“Entity”);
B.
The Corporation considers it desirable and in the best interests of the Corporation to enter into this
Agreement to set out the circumstances and manner in which the Indemnified Party may be
indemnified in respect of certain liabilities and expenses which the Indemnified Party may incur as
a result of acting or having acted as a director or officer of the Corporation or, at the Corporation’s
request, as a director, officer or similar capacity of an Entity; and
C.
The by-laws of the Corporation contemplate that the Indemnified Party may be indemnified in
certain circumstances.
NOW THEREFORE, IN CONSIDERATION OF the promises and mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
and the Indemnified Party acting as a director or officer of the Corporation or, at the Corporation’s request,
as a director, officer or similar capacity of an Entity, the Corporation and the Indemnified Party do hereby
covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1
Definitions
Whenever used in this Agreement, the following words and terms shall have the meanings set out below:
(a)
“Act” means the Business Corporations Act (Alberta) as of the date hereof, provided that
if the Act is amended after the date hereof in a manner which permits the Corporation to
provide broader rights of indemnification than are permitted on the date hereof, this
Agreement shall be construed so as to give effect to such broader rights;
(b)
“Agreement” means this indemnity agreement and all amendments or restatements as
permitted under this Agreement, and references to “Article” or “Section” mean the specified
Article or Section of this Agreement, and “paragraph” means the specified paragraph of
Exhibit 10.42
this Agreement;
Exhibit 10.42
(c)
“Claims” means any claim, demand, suit, action, cause of action, proceeding, inquiry,
arbitration, mediation, alternative dispute resolution mechanism, hearing, discovery or
investigation of whatever nature, whether anticipated, threatened, pending, commenced,
continuing or completed of whatever kind including any civil, criminal, administrative,
arbitrative, regulatory, investigative (formal or informal) or other claim of any nature
whatsoever; any appeal in or related to any such claim, demand, suit, action, cause of
action, proceeding, inquiry, arbitration, mediation, alternative dispute resolution
mechanism, hearing, discovery or investigation; and any inquiry or investigation (including
discovery) whether conducted by or in the right of the Corporation or any other person that
the Indemnified Party in good faith believes could lead to any such claim, demand, suit,
action, cause of action, proceeding, inquiry, arbitration, mediation, alternative dispute
resolution mechanism, hearing, discovery or investigation or appeal thereof;
(d)
“Court” means the Court of Queen’s Bench of Alberta (Judicial District of Calgary),
including any appeal courts arising therefrom;
(e)
“ERISA” means the United States Employee Retirement Income Security Act of 1974, as
amended;
(f)
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended;
(g)
“Expenses” means all legal fees and disbursements, retainers, accountant’s fees and
disbursements, private investigator fees and disbursements, other professionals’ fees and
disbursements, court costs, transcript costs, fees and expenses of experts, witness fees and
expenses, travel expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, penalties, and all other disbursements, costs or expenses of
the types customarily incurred in connection with prosecuting, defending (including
affirmative defences and counterclaims), preparing to prosecute or defend, investigating,
being or preparing to be a witness in, or participating in or preparing to participate in a
Claim and all interest or finance charges attributable to any thereof. Without limiting the
foregoing, “Expenses” also shall include Expenses incurred in connection with any appeal
resulting from any Claim, including the principal, premium, security for, and other costs
relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Should
any payments by the Corporation under this Agreement be determined to be subject to any
national, provincial, federal, state or local income or excise tax, “Expenses” shall also
include such amounts as are necessary to place the Indemnified Party in the same after-tax
position (after giving effect to all applicable taxes) as the Indemnified Party would have
been in had no such tax been determined to apply to such payments. Also, in this Agreement
“witness” includes responding (or objecting) to a discovery or similar request, whether in
writing or in an oral deposition, in any Claim.
(h)
“Losses” means any and all amounts related to all costs, charges and Expenses reasonably
incurred by the Indemnified Party, which shall include all losses, damages (including
Exhibit 10.42
incidental and consequential damages), fees (including any legal, professional or advisory
fees, retainers, charges or disbursements and including costs of services of any experts),
claims, awards, statutory obligations, amounts paid to settle or dispose of any Claim or
satisfy any judgment, fines, penalties or liabilities (including all interest, assessments and
other charges paid or payable in connection with or in respect of such losses, damages, fees,
claims, awards, statutory obligations, amounts paid to settle or dispose of any Claim or
satisfy any judgment, fines, penalties or liabilities), without limitation, and whether
incurred alone or jointly with others, including any amounts which the Indemnified Party
may reasonably suffer, sustain, incur or be required to pay in respect of the investigation,
defence, settlement or appeal of or preparation for any Claim or with any action to establish
a right to indemnification under this Agreement, and for greater certainty, includes all
Taxes, interest, penalties and related outlays of the Indemnified Party arising from any
indemnification of the Indemnified Party by the Corporation pursuant to this Agreement;
(i)
“Parties” means the Corporation and the Indemnified Party collectively and “Party”
means any one of them;
(j)
“Policy” means the directors’ and officers’ errors and omissions insurance policy of the
Corporation; and
(k)
“Taxes” includes any assessment, reassessment, claim or other amount for taxes, charges,
duties, levies, imposts, ERISA excise taxes or penalties, or similar amounts, including any
interest and penalties in respect thereof.
1.2
Certain Rules of Interpretation
In this Agreement:
(a)
Governing Law – This Agreement is a contract made under and shall be governed by and
construed in accordance with the laws of the Province of Alberta and the federal laws of
Canada applicable in the Province of Alberta. The Parties hereby irrevocably submit and
attorn to the exclusive jurisdiction of the Court with respect to all matters arising out of or
relating to this Agreement and all matters, agreements or documents contemplated by this
Agreement. The Parties hereby waive any objections they may have to the venue being in
such Court, including any claim that any such venue is in an inconvenient forum. For
greater certainty, all references to “applicable law” in this Agreement shall refer to the laws
of the Province of Alberta and the federal laws of Canada applicable in the Province of
Alberta.
(b)
Headings – Headings of Articles and Sections are inserted for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.
(c)
Number and Inclusion – Unless the context otherwise requires, words importing the
singular include the plural and vice versa. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they are deemed to be followed by the words
“without limitation.”
(d)
Severability – If, in any jurisdiction, any provision of this Agreement or its application to
any Party or circumstance is restricted, prohibited or unenforceable, such provision shall,
Exhibit 10.42
as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of this Agreement and
without affecting the validity or enforceability of such provision in any other jurisdiction
or without affecting its application to other Parties or circumstances.
(e)
Entire Agreement – This Agreement constitutes the entire agreement between the Parties
and sets out all the covenants, promises, warranties, representations, conditions,
understandings and agreements between the Parties pertaining to the subject matter ofthis
Agreement and supersedes all prior agreements, understandings, negotiations and
discussions, oral or written. There are no covenants, promises, warranties, representations,
conditions, understandings or other agreements, oral or written, between the Parties in
connection with the subject matter of this Agreement except as specifically set forth in this
Agreement, including Section 2.8.
ARTICLE 2
OBLIGATIONS
2.1
Obligations of the Corporation
(a)
General Indemnity – The Corporation will, to the fullest extent permitted by law on the
date hereof and to such greater extent as applicable law may hereafter from time to time
permit, including to the extent permitted under the Act, exonerate, indemnify and hold the
Indemnified Party and the Indemnified Party’s respective heirs, executors, administrators
and other legal representatives of the Indemnified Party (each of which is included in any
reference hereinafter made to the Indemnified Party) harmless from and against, and will
pay to the Indemnified Party, any and all Losses which the Indemnified Party may suffer,
sustain, incur or be required to pay in respect of any Claim to which a director or officer is
made a party by reason of being a director or officer of the Corporation or director, officer
or in similar capacity of an Entity at the Corporation’s request.
(b)
Conditions – The indemnity provided for in Section 2.1(a) will only be available if the
Indemnified Party:
(i)
acted honestly and in good faith with a view to the best interest of the Corporation
or as the case may be, to the best interest of an Entity for which the Indemnified
Party acted as a director, officer or in a similar capacity at the Corporation’s
request; and
(ii)
in the case of a criminal or administrative action or proceeding that is enforced by
a monetary penalty, had reasonable grounds for believing the Indemnified Party’s
conduct was lawful.
The Indemnified Party shall be presumed to have fulfilled the foregoing conditions unless
it is determined by the Court that the Indemnified Party has not (and the burden of proof
shall be on the Corporation to rebut such presumption).
(c)
Derivative Claims – The Corporation shall to the fullest extent permitted by law on the
date hereof and to such greater extent as applicable law may hereafter from time to time
permit, provided the Indemnified Party fulfills the conditions in Section 2.1(b), with the
approval of the Court if such approval is required exonerate, indemnify and hold the
Exhibit 10.42
Indemnified Party harmless, and advance moneys under Section 2.1(k) to the Indemnified
Party, in respect of a Claim by or on behalf of the Corporation or other entity to procure a
judgment in the Corporation’s favour to which the Indemnified Party is made a party by
reason of being or having been a director or officer of the Corporation or director, officer
or in similar capacity of an Entity at the Corporation’s request. The Corporation will
advance or reimburse, as applicable, all Losses incurred by the Indemnified Party in
connection with the Indemnified Party’s participation in such Claim as provided in this
Section 2.1(c). The Corporation shall pay to the Indemnified Party, if applicable, a
reasonable per diem amount for time spent in connection with a Claim under this Section
2.1(c) as provided in Section 2.1(l).
(d)
Indemnity as of Right – Notwithstanding anything in this Agreement, provided the
Indemnified Party fulfills the conditions in Section 2.1(b), the Corporation shall be required
to indemnify the Indemnified Party in respect of all Losses incurred by the Indemnified
Party in respect of any Claim to which the Indemnified Party is made a party by reason of
being or having been a director or officer of the Corporation or director, officer or in similar
capacity of an Entity at the Corporation’s request, if after the final disposition of such
Claim, the Indemnified Party has not been reimbursed for those Losses.
(e)
Incidental and Additional Expenses – The Corporation shall to the fullest extent
permitted by law on the date hereof and to such greater extent as applicable law may
hereafter from time to time permit pay or reimburse the Indemnified Party for (i) the
Indemnified Party’s reasonable and necessary travel, lodging or accommodation costs,
charges or expenses paid or incurred by or on behalf of the Indemnified Party in connection
with a Claim where such Claim is subject to indemnification hereunder; (ii) the Indemnified
Party’s reasonable fees and Expenses incurred in connection with efforts to recover under
any directors and officers liability insurance policies maintained by the Corporation; and
(iii) the Indemnified Party’s reasonable fees and Expenses incurred in connection with
enforcement of, or claims for breaches of, any provision of this Agreement.
(f)
Witness Expenses – The Corporation shall to the fullest extent permitted by law on the
date hereof and to such greater extent as applicable law may hereafter from time to time
permit pay or reimburse the Indemnified Party for the reasonable and necessary Expenses
incurred by Indemnified Party, including a reasonable per diem amount as provided in
Section 2.1(l), in connection with time spent in the investigation or as a witness for the
Corporation or an Entity with respect to any Claim, by reason of the Indemnified Party
being a director or officer of the Corporation or director, officer or in similar capacity of
an Entity at the Corporation’s request.
(g)
Specific Indemnity for Statutory Obligations – Without limiting the generality of the
preceding Sections 2.1(a) through 2.1(f) of this Agreement, the Corporation agrees, to the
fullest extent permitted by law on the date hereof and to such greater extent as applicable
law may hereafter from time to time permit, to exonerate, indemnify and hold the
Indemnified Party harmless from and against any and all Losses arising by operation of
statute and incurred by or imposed upon the Indemnified Party in relation to the affairs of
the Corporation in the Indemnified Party’s capacity as a director or officer thereof,
including all statutory obligations to creditors, employees, suppliers, contractors,
subcontractors, and any government or any agency or division of any government,
Exhibit 10.42
whether federal, provincial, state, regional or municipal, or which in any way involve the
business or affairs of the Corporation or an Entity for which the Indemnified Party acted as
a director, officer or similar capacity at the Corporation’s request, provided that the
indemnity provided for in this Section 2.1(g) will be available unless it is determined by
the Court that the Indemnified Party has not fulfilled the conditions in Section 2.1(b) above.
(h)
Change of Law – In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of an Alberta corporation to
indemnify a director or officer, it is the intent of the parties hereto that the Indemnified
Party shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change after that date of this Agreement in any applicable law, statute or rule
which narrows the rights of an Alberta corporation to indemnify a director or officer, such
change, to the extent not otherwise required by such law, statute or rule to be applied to
this Agreement, shall have no effect on this Agreement or the parties’ right and obligations
hereunder except as set forth in Section 2.9.
(i)
Partial Indemnification – If the Indemnified Party is determined by the Court to be
entitled under any provision of this Agreement to indemnification by the Corporation for
some or a portion of the Losses incurred in respect of any Claim but not for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnified Party for the portion
thereof to which the Indemnified Party is determined by the Court to be so entitled.
(j)
Indemnification for Losses of an Indemnified Party Who Is Wholly or Partly
Successful – To the extent the Indemnified Party is a party to (or a participant in) a Claim
and is successful, on the merits or otherwise, in the defence of any Claim or any issue or
matter therein, the Corporation shall, to the fullest extent permitted by applicable law,
exonerate, indemnify, and hold the Indemnified Party harmless against all Losses incurred
by the Indemnified Party therewith. If the Indemnified Party is not wholly successful in
such Claim but is successful, on the merits or otherwise, as to one or more but less than all
the issues or matters in such Claim, the Corporation shall, to the fullest extent permitted by
applicable law, exonerate, indemnify, and hold the Indemnified Party harmless against all
Losses incurred by the Indemnified Party in connection with each successfully resolved
issue or matter. For purposes of this Section 2.1(j), without limitation, the termination of
any issue or matter in a Claim by dismissal, with or without prejudice, shall be deemed to
be a successful result as to such issue or matter.
(k)
Advance of Expenses – The Corporation shall, at the request of the Indemnified Party, to
the maximum extent permitted under the Act or otherwise by law on the date hereof and to
such greater extent as applicable law may hereafter from time to time permit, promptly: (i)
reimburse the Indemnified Party for all Losses incurred by the Indemnified Party in relation
to a Claim claimed by the Indemnified Party to be subject to indemnification hereunder;
and (ii) pay reasonable and customary advance payments and costs and expenses to service
providers of the Indemnified Party; in each case, prior to any settlement or resolution of
such Claim to enable the Indemnified Party to properly investigate, defend or appeal such
Claim. The Corporation shall pay such advances within ten (10) days after the receipt by
the Corporation of a written request from the Indemnified Party requesting such payment
or payments from time to time, whether prior to or after final disposition of a Claim. If it is
ultimately determined in a final judgment
Exhibit 10.42
of a court of competent jurisdiction or final arbitration award of an applicable arbitration
proceeding that has become non-appealable that the Indemnified Party did not fulfill the
conditions in Section 2.1(b) or that the Indemnified Party was not entitled to be fully so
indemnified, such advance, or the appropriate portion thereof, upon written notice of such
determination being given by the Corporation to the Indemnified Party detailing the basis
for such determination, shall be repayable on demand without interest. The Indemnified
Party shall not be required to provide collateral or otherwise secure the Indemnified Party’s
agreement to repay described in the prior sentence. If and to the extent the Indemnified
Party makes any such repayment to the Corporation, the obligation of the Corporation to
indemnify the Indemnified Party will continue in accordance with the terms of this
Agreement.
(l)
Per Diem Charge – In addition to any other amount payable to the Indemnified Party under
this Agreement, the Indemnified Party shall be entitled to receive from the Corporation a
per diem payment (the “Per Diem Charge”) for time spent with respect to any Claim for
which the Indemnified Party is otherwise entitled to indemnification pursuant to any one
of the foregoing provisions of Section 2.1 of this Agreement. For directors, the Per Diem
Charge shall be an amount equal to US$350 per hour. For officers, the Per Diem Charge
shall be zero if the Indemnified Party is still employed on a full time basis by the
Corporation at the time the Per Diem Charge is payable or has been terminated for cause
by the Corporation, and the Per Diem Charge shall be in an amount equal to US$350 per
hour if the Indemnified Party is not employed on a full time basis by the Corporation at the
time the Per Diem Charge is payable other than as a result of termination for cause.
(m)
Taxes – For greater certainty, a Claim subject to indemnification pursuant to Article 2 of
this Agreement shall include any Taxes which the Indemnified Party may be subject to or
suffer or incur as a result of, in respect of, arising out of or referable to any indemnification
of the Indemnified Party by the Corporation pursuant to this Agreement; provided,
however, that any amount required to be paid with respect to such Taxes shall be payable
by the Corporation only upon the Indemnified Party remitting or being required to remit
any amount payable on account of such Taxes.
(n)
Right to Access – The Indemnified Party (and its legal representatives) is entitled to have
access to and inspect the Corporation’s records and documents which are under its control
and which may be reasonably necessary in order to defend the Indemnified Party against a
Claim which has been or which the Indemnified Party reasonably anticipates may be made
against the Indemnified Party, provided that the Indemnified Party (and its legal
representatives) maintains all such information in the strictest confidence except to the
extent necessary for the defence of the Indemnified Party. The Corporation shall provide
the Indemnified Party (and its legal representatives) with access to the relevant documents
and records during the regular business hours of the Corporation as soon as practicable
following a request for such access by or on behalf of the Indemnified Party. The
Indemnified Party (and its legal representatives) shall be entitled to make and receive copies
(including electronic copies) of any of such records and documents of the Corporation at
the cost of the Corporation and such copies shall be provided as soon as practicable
following a request therefor by or on behalf of the Indemnified Party. If the Indemnified
Party is the subject of or is implicated in any way during the proceeding of any Claim, the
Corporation will share with the Indemnified Party (and its legal
Exhibit 10.42
representatives) any information that it has turned over to any third parties in connection
therewith.
(o)
Enforcement – The Indemnified Party’s right to indemnification and other rights under
this Agreement shall be specifically enforceable by the Indemnified Party in a “court” (as
defined in the Act) and shall be enforceable notwithstanding any adverse determination by
or on behalf of the Corporation’s board of directors and no such determination shall create
a presumption that the Indemnified Party is not entitled to be indemnified hereunder. In any
such action, the Corporation shall have the burden of proving that indemnification is not
required or permitted under this Agreement.
(p)
Court Approvals – If the payment of an indemnity under any provision of this Agreement
requires any court or other approvals, the Corporation shall make the application or seek
such other required approvals and use reasonable best efforts to obtain such order or other
required approvals, including paying the costs of such application or seeking such other
required approvals and paying the expenses of the Indemnified Party, to the extent
permitted by applicable law, in connection with any such order or approval process. If the
Corporation fails to do so, the Indemnified Party may apply to the Court or other applicable
court, agency or body for an order or seek such other required approvals approving the
indemnity of the Indemnified Party pursuant to this Agreement, and the Corporation shall
pay the expenses of the Indemnified Party, to the extent permitted by applicable law, in
connection with any such order or approval process.
2.2
Notice of Proceedings
(a)
The Indemnified Party shall give notice in writing to the Corporation as soon as practicable
upon being served with any statement of claim, writ, notice of motion, indictment,
subpoena, investigation order or other document commencing, threatening or continuing
any Claim which may result in a claim for indemnification under this Agreement, and the
Corporation agrees to give the Indemnified Party notice in writing as soon as practicable
upon it being served with any statement of claim, writ, notice of motion, indictment,
subpoena, investigation order or other document commencing, threatening or continuing
any Claim which may result in a claim for indemnification under this Agreement. Such
notice shall include a description of the Claim or threatened Claim, a summary of the facts
giving rise to the Claim or threatened Claim and, if possible, an estimate of any potential
liability arising under the Claim or threatened Claim. Failure by either party to so notify
the other of any Claim shall not relieve the Corporation from liability under this Agreement
except to the extent that the failure materially prejudices the Corporation.
(b)
If, at the time the Corporation gives the Indemnified Party notice in connection with Section
2.2(a), a Policy is in effect with respect to the Indemnified Party, the Corporation shall give
prompt notice of the applicable Claim to its insurers in accordance with the procedures set
forth in such Policy. The Corporation shall thereafter take all necessary or desirable action
to cause such insurers to pay all amounts payable as a result of such Claim in accordance
with the terms of such Policy.
Exhibit 10.42
2.3
Subrogation
Promptly after receiving written notice from the Indemnified Party of any Claim or threatened Claim (other
than a Claim by or on behalf of the Corporation to procure a judgment in its favour against the Indemnified
Party), the Corporation may by notice in writing to the Indemnified Party, and upon the written request of
the Indemnified Party the Corporation shall, in a timely manner assume conduct of the defence thereof and
retain counsel on behalf of the Indemnified Party who is reasonably satisfactory to the Indemnified Party,
to represent the Indemnified Party in respect of the Claim. On delivery of such notice by the Corporation,
other than pursuant to Section 2.4, the Corporation shall not be liable to the Indemnified Party under this
Agreement for any fees and disbursements of counsel the Indemnified Party may subsequently incur with
respect to the same matter. If the Corporation assumes conduct of the defence on behalf of the Indemnified
Party, the Indemnified Party hereby consents to the conduct thereof and of any action taken by the
Corporation, in good faith, in connection therewith, and the Indemnified Party shall fully cooperate in such
defence including the provision of documents, attending examinations for discovery, making affidavits,
meeting with counsel, testifying and divulging to the Corporation all information reasonably required to
defend or prosecute the Claim.
2.4
Separate Counsel
In connection with any Claim or other matter for which the Indemnified Party may be entitled to indemnity
under this Agreement, the Indemnified Party shall have the right to employ separate counsel and consultants
of the Indemnified Party’s choosing and to participate in and approve any settlement by the Corporation of
any Claim involving or affecting in any manner whatsoever the Indemnified Party, and provided that:
(a) the employment of such counsel and consultants of the Indemnified Party’s choosing have been
previously approved by the Corporation, acting reasonably; or (b) the Indemnified Party has reasonably
concluded that there may be a conflict of interest between the Corporation and the Indemnified Party in
defending such Claim; then all fees, expenses and disbursements of such counsel and consultants shall be
at the Corporation’s expense and shall be paid within ten (10) days of invoices being submitted to the
Corporation.
2.5
Presumption of Indemnification
(a)
In making a determination with respect to entitlement to indemnification hereunder, the
Corporation shall, to the fullest extent not prohibited by law, presume that the Indemnified
Party is entitled to indemnification under this Agreement, and the Corporation shall, to the
fullest extent not prohibited by law, have the burden of proof to overcome that presumption
in connection with the making by the Court of any determination contrary to that
presumption. Neither the failure of the Corporation to have made a determination prior to
the commencement of any action pursuant to this Agreement that indemnification is proper
in the circumstances because the Indemnified Party has met the applicable standard of
conduct, nor an actual determination by the Corporation that the Indemnified Party has not
met such applicable standard of conduct, shall be a defence to the action or create a
presumption that the Indemnified Party has not met the applicable standard of conduct.
(b)
If the Corporation shall not have made a determination with respect to entitlement to
indemnification within sixty (60) days after receipt by the Corporation of the request
therefor, the requisite determination of entitlement to indemnification shall, to the fullest
extent not prohibited by law, be deemed to have been made and the Indemnified Party
Exhibit 10.42
shall be entitled to such indemnification, absent a prohibition of such indemnification
under applicable law.
(c)
The knowledge or actions, or failure to act, of any director, officer, agent or employee of
the Entity shall not be imputed to the Indemnified Party for purposes of determining the
right to indemnification under this Agreement.
2.6
Presumption of Good Faith
(a)
For the purposes of any determination of good faith under this Agreement, the Indemnified
Party shall be deemed to have acted in good faith if the Indemnified Party’s action is based
on the records or books of account of the Corporation or an Entity, including applicable
financial statements, or on information supplied to the Indemnified Party by officers of the
Corporation or an Entity (other than the Indemnified Party) in the course of their duties, or
on the advice of legal counsel of the Corporation, an Entity, their respective board of
directors, counsel selected by any committee of their respective board of directors or on
information or records given or reports made to the Corporation or an Entity by an
independent certified public accountant or by an appraiser, investment banker,
compensation consultant or other expert selected with reasonable care by the Corporation,
an Entity, their respective board of directors or any committee of their respective board of
directors or by any other person as to matters the Indemnified Party reasonably believes are
within such other person’s professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation. The provisions of this Section 2.6
shall not be deemed to be exclusive or to limit in any way the other circumstances in which
the Indemnified Party may be deemed to have fulfilled the conditions in Section 2.1(b) or
met any other applicable standard of conduct.
(b)
Unless the Court or a court of competent jurisdiction otherwise has held or decided that the
Indemnified Party is not entitled to be fully or partially indemnified under this Agreement,
the termination of any civil, criminal or administrative action or proceedings by judgement,
order, settlement, conviction or similar or other result or upon a plea of “no contest” or the
equivalent will not, of itself: (i) create a presumption for the purposes of this Agreement
that the Indemnified Party did not act honestly and in good faith with a view to the best
interests of the Corporation or Entity; (ii) in the case of a criminal or administrative action
or proceeding that is enforced by monetary penalty, that the Indemnified Party did not have
reasonable grounds for believing that the Indemnified Party’s conduct was lawful; or (iii)
that the Indemnified Party is not entitled to indemnity under this Agreement.
2.7
Settlement of a Claim
For greater certainty, no admission of liability and no settlement of any Claim in a manner adverse to the
Indemnified Party shall be made without the consent of the Indemnified Party, acting reasonably. No
admission of liability shall be made by the Indemnified Party without the consent of the Corporation and
the Corporation shall not be liable for any settlement of any Claim made without its consent, acting
reasonably.
Exhibit 10.42
2.8
Other Rights and Remedies Unaffected
The indemnification and advance payment provided in this Agreement shall not derogate from or exclude
any other rights to which the Indemnified Party may be entitled under any provision of the Act or otherwise
at law, the articles or by-laws of the Corporation, any applicable policy of insurance, guarantee or third-
party indemnity, any vote of shareholders of the Corporation, or otherwise, both as to matters arising out of
the Indemnified Party’s capacity as a director or officer of the Corporation or as to matters arising out of
any other capacity in which the Indemnified Party may act for or on behalf of the Corporation.
2.9
Exceptions
Any other provision herein to the contrary notwithstanding, the Corporation shall not be obligated pursuant
to the terms of this Agreement:
(a)
Claims Initiated by the Indemnified Party – To indemnify or advance expenses to the
Indemnified Party with respect to any proceeding or Claim initiated or brought voluntarily
by the Indemnified Party and not by way of defence, except with respect to proceedings
brought to establish or enforce a right to indemnification under this Agreement or any
statute, the articles or by-laws of the Corporation or otherwise but such indemnification or
advancement of expenses may be provided by the Corporation in specific cases if the
Corporation’s board of directors has approved the initiation or bringing of such suit.
(b)
Frivolous Proceedings – To indemnify the Indemnified Party for any expenses incurred
by the Indemnified Party with respect to any proceeding instituted by the Indemnified Party
to enforce or interpret this Agreement, if the Court or a court of competent jurisdiction
determines that each of the material assertions made by the Indemnified Party in such
proceedings were frivolous.
(c)
Insured Claims – To make any payment in connection with any Claim made against the
Indemnified Party to the extent the Indemnified Party has otherwise received payment
(under any insurance policy, the articles or by-laws of the Corporation, contract or
otherwise) of the amounts otherwise indemnifiable hereunder. If the Corporation makes
any indemnification payment to the Indemnified Party in connection with any particular
expense indemnified hereunder and the Indemnified Party has already received or
thereafter receives, and is entitled to retain, duplicate payments in reimbursement of the
same particular expense, then the Indemnified Party shall reimburse the Corporation in an
amount equal to the lesser of: (i) the amount of such duplicate payment; and (ii) the full
amount of such indemnification payment made by the Corporation.
(d)
Claims for Unlawful Profits – To indemnify the Indemnified Party for the disgorgement
of profits arising from the purchase and sale by the Indemnified Party of securities in
violation of Section 16(b) of the Exchange Act (or any successor statute) or any other
applicable securities law or Losses incurred by the Indemnified Party for Claims in
connection with such payment.
(e)
Other Indemnification – To indemnify the Indemnified Party for expenses for which the
Indemnified Party is indemnified by the Corporation otherwise than pursuant to this
Agreement.
(f)
Not Lawful – To indemnify the Indemnified Party if (and to the extent that) a final decision
by the Court, a court of competent jurisdiction, or an arbitration body having jurisdiction
in the matter shall determine that such indemnification is not lawful.
Exhibit 10.42
2.10
Articles and By-Laws
The Corporation agrees that the articles and by-laws of the Corporation in effect on the date hereof shall
not be amended to reduce, limit, hinder or delay: (a) the rights of the Indemnified Party granted hereunder;
or (b) the ability of the Corporation to indemnify the Indemnified Party as required hereunder. The
Corporation further agrees that it shall exercise the powers granted to it under the articles and by- laws of
the Corporation and applicable law to indemnify the Indemnified Party to the fullest extent possible as
required by this Agreement.
ARTICLE 3
INSURANC
E
3.1
The Policy
The Corporation shall purchase and maintain, or cause to be purchased and maintained, while the
Indemnified Party remains a director or officer of the Corporation or director, officer or a similar capacity
of an Entity at the Corporation’s request, and in accordance with Section 3.6, for a period of six (6) years
after the Indemnified Party ceases to be a director or officer of the Corporation, a Policy including Side “A”
difference in conditions coverage, for the benefit of the Indemnified Party containing such customary terms
and conditions and in such amounts as are available to the Corporation on reasonable commercial terms,
having regard to the nature and size of the business and operations of the Corporation and its subsidiaries
from time to time. In all such Policies, the Indemnified Party, by reference to the Indemnified Party’s
position or otherwise, shall be named as an insured. The Corporation shall thereafter take all necessary or
desirable action to cause its insurer to pay, on behalf of the Indemnified Party, all amounts payable as a
result of such Claims in accordance with the terms of such policies.
3.2
Variation of Policy
So long as the Indemnified Party is a director or officer of the Corporation or director, officer or similar
capacity of an Entity at the Corporation’s request, and, in accordance with Section 3.6, for a period of six
(6) years thereafter, the Corporation shall not seek to amend or discontinue the Policy or allow the Policy
to lapse.
3.3
Run-Off Coverage
If the Policy is discontinued for any reason, the Corporation shall purchase, maintain and administer, or
cause to be purchased, maintained and administered for a period of six (6) years after such discontinuance,
insurance for the benefit of the Indemnified Party (the “Run-Off Coverage”), on such terms as the
Corporation then maintains in existence for its directors and officers, to the extent permitted by law and
provided such Run-Off Coverage is available on commercially acceptable terms and premiums (as
determined by the Corporation’s board of directors acting reasonably). The Run-Off Coverage shall provide
coverage only in respect of events occurring prior to the discontinuance of the Policy.
Exhibit 10.42
3.4
Insurable Events
If an insurable event occurs, the Corporation shall indemnify the Indemnified Party as agreed hereto
regardless of whether the Corporation receives the insurance proceeds. The Indemnified Party is entitled to
full indemnification as agreed hereto notwithstanding any deductible amounts or policy limits contained in
any such insurance policy.
3.5
Exclusion of Indemnity
Notwithstanding any other provision in this Agreement to the contrary, the Corporation shall not be
obligated to indemnify the Indemnified Party under this Agreement for any Losses which have been paid
to, by or on behalf of, the Indemnified Party under the Policy or any other applicable policy of insurance
maintained by the Corporation.
3.6
Post Office Directors and Officers Insurance
Following the Indemnified Party ceasing to be a director or officer of the Corporation or director, officer or
similar capacity of an Entity at the Corporation’s request, for any reason whatsoever, the Corporation shall
continue to purchase and maintain directors’ and officers’ liability insurance, for the benefit of the
Indemnified Party for a minimum of six (6) years, such that the Indemnified Party’s insurance coverage is,
during that time, the same as any insurance coverage the Corporation purchases and maintains for the benefit
of its then current directors and officers, from time to time. Notwithstanding the foregoing, if: (a) liability
insurance coverage for former directors and officers is no longer available; or (b) it is no longer industry
practice among responsible companies to procure liability insurance for former directors and officers and
the cost to the Corporation to do so would be commercially unreasonable (as determined by the board of
directors acting reasonably), the Corporation shall be relieved of its obligation to procure liability insurance
coverage for former directors and officers; provided that the Corporation procures such level of insurance
coverage, if any, as is available for former directors and officers at a commercially reasonable rate and
adopts comparable measures to protect its former directors and officers in the circumstances as are adopted
by other responsible companies. The onus is on the Corporation to establish that the circumstances described
in the previous sentence exist.
3.7
Deductible under Directors and Officers Insurance
If for any reason whatsoever, any directors’ and officers’ liability insurer asserts that the Indemnified Party
is subject to a deductible under any existing or future Policy purchased and maintained by the Corporation
for the benefit of the Indemnified Party, the Corporation shall pay the deductible for and on behalf of the
Indemnified Party.
3.8
Notice
The Corporation agrees to provide notice of any material changes in the insurance coverage referred to in
Article 3 during the period in which the Indemnified Party serves as director or officer of the Corporation
or a director, officer or similar capacity of an Entity at the Corporation’s request and for a period of six (6)
years thereafter.
3.9
Most Favoured Nation
The Corporation agrees that if the Corporation enters into any indemnity agreement or similar arrangement
with any person who is, or becomes, a director or officer of the Corporation or a director, officer or
Exhibit 10.42
similar capacity of an Entity at the Corporation’s request, and such agreement or arrangement contains any
provision which is more favourable to the other party to such agreement than the provisions of this
Agreement are to the Indemnified Party then, and in each such case, the Corporation shall provide written
notice of such provision to the Indemnified Party (which shall include a copy of such provision). Upon such
notice, unless the Indemnified Party elects otherwise within five (5) days of receipt of such notice, this
Agreement shall be deemed to be amended to conform the provisions of this Agreement to such more
favourable provision.
ARTICLE 4
MISCELLANEOUS
4.1
Corporation and Indemnified Party to Cooperate
The Corporation and the Indemnified Party shall, from time to time, provide such information and
cooperate with the other, as the other may reasonably request, in respect of all matters under this
Agreement.
4.2
Effective Time
This Agreement shall be deemed to have effect as and from the first date that the Indemnified Party became
a director or officer of the Corporation or a director, officer or similar capacity of an Entity at the
Corporation’s request.
4.3
Insolvency
The liability of the Corporation under this Agreement shall not be affected, discharged, impaired, mitigated
or released by reason of the discharge or release of the Indemnified Party in any bankruptcy, insolvency,
receivership or other similar proceeding of creditors.
4.4
Multiple Proceedings
No action or proceeding brought or instituted under this Agreement and no recovery pursuant thereto shall
be a bar or defence to any further action or proceeding which may be brought under this Agreement.
4.5
Termination
(a)
Nothing in this Agreement will prevent the Indemnified Party from resigning as adirector
or officer of the Corporation or a director, officer or similar capacity of an Entity at the
Corporation’s request at any time.
(b)
The obligations of the Corporation will not terminate or be released upon the Indemnified
Party resigning or ceasing to act as a director or officer of the Corporation or a director,
officer or similar capacity of an Entity at the Corporation’s request.
4.6
Limitation of Actions and Release of Claims
To the extent permitted by applicable law, no legal action shall be brought and no course of action shall be
asserted by or on behalf of the Corporation against the Indemnified Party after the expiration of two years
from the date of the Indemnified Party’s ceasing to act as a director or officer of the Corporation or a
director, officer or similar capacity of an Entity at the Corporation’s request and the Corporation agrees that
any claim or cause of action of the Corporation shall be extinguished and the Indemnified Party be
Exhibit 10.42
deemed released therefrom absolutely unless asserted by the commencement of legal action in a court of
competent jurisdiction within such two yearperiod.
ARTICLE 5
CONTRIBUTION
5.1.
Contribution Payment
(a)
To the fullest extent permitted by law, whether or not the indemnification provided in
Article 2 is available, in respect of any threatened, pending or completed Claim in which
the Corporation is jointly liable with the Indemnified Party (or would be if joined in such
Claim), the Corporation shall pay, in the first instance, the entire amount of any judgment
or settlement of such Claim without requiring the Indemnified Party to contribute to such
payment, and the Corporation hereby waives and relinquishes any right of contribution it
may have against the Indemnified Party. The Corporation shall not enter into any settlement
of any Claim in which the Corporation is jointly liable with the Indemnified Party (or would
be if joined in such Claim) unless such settlement provides for a full and final release of all
claims asserted against the Indemnified Party.
(b)
Without diminishing or impairing the obligations of the Corporation set forth in the
preceding paragraph, if, for any reason, the Indemnified Party shall elect or be required to
pay all or any portion of any judgment or settlement in any threatened, pending or
completed Claim in which the Corporation is jointly liable with the Indemnified Party (or
would be if joined in such Claim), the Corporation shall contribute to the amount of
Expenses, judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnified Party in proportion to the relative benefits
received by the Corporation and all officers, directors or employees of the Corporation,
other than the Indemnified Party, who are jointly liable with the Indemnified Party (or
would be if joined in such Claim), on the one hand, and the Indemnified Party, on the other
hand, from the transaction or events from which such Claim arose; provided, however, that
the proportion determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of the Corporation and
all officers, directors or employees of the Corporation other than the Indemnified Party
who are jointly liable with the Indemnified Party (or would be if joined in such Claim), on
the one hand, and the Indemnified Party, on the other hand, in connection with the
transaction or events that resulted in such Expenses, judgments, fines or settlement
amounts, as well as any other equitable considerations which applicable law may require
to be considered.
(c)
The Corporation hereby agrees, to the fullest extent permitted by applicable law, to fully
indemnify and hold the Indemnified Party harmless from any claims of contribution which
may be brought by officers, directors or employees of the Corporation, other than the
Indemnified Party, who may be jointly liable with the Indemnified Party.
(d)
To the fullest extent permissible under applicable law and without diminishing or impairing
the obligations of the Corporation set forth in the preceding paragraphs of this Section 5.1,
if the indemnification provided for in this Agreement is unavailable to the Indemnified
Party for any reason whatsoever, the Corporation, in lieu of indemnifying the Indemnified
Party, shall contribute to the amount incurred by the Indemnified Party, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
Exhibit 10.42
settlement and/or for Expenses, in connection with any claim relating to an indemnifiable
event under this Agreement, in such proportion as is deemed fair and reasonable in light of
all of the circumstances of such Claim in order to reflect (i) the relative benefits received
by the Corporation and the Indemnified Party as a result of the event(s) and/or
transaction(s) giving cause to such Claim; and/or (ii) the relative fault of the Corporation
(and its directors, officers, employees and agents) and the Indemnified Party in connection
with such event(s) and/or transaction(s).
5.2 Relative Fault
The relative fault of the Indemnified Party, on the one hand, and of the Corporation and any and all other
parties (including officers and directors of the Corporation other than the Indemnified Party) who may be
at fault with respect to such matter shall be determined (i) by reference to the relative fault of the
Indemnified Party as determined by the court or other governmental agency assessing the contribution
amounts or (ii) to the extent such court or other governmental agency does not apportion relative fault, by
independent counsel agreed to by both the Corporation and the Indemnified Party after giving effect to,
among other things, the degree of which their actions were motivated by intent to gain personal profit or
advantage, the degree to which their liability is primary or secondary, the degree to which their conduct is
active or passive, the degree of the knowledge, access to information, and opportunity to prevent or correct
the subject matter of the Claim and other relevant equitable considerations of each party. The Corporation
and the Indemnified Party agree that it would not be just and equitable if contribution pursuant to this
Section 5.2 were determined by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 5.2.
ARTICLE 6
GENERAL
6.1.
Term
This Agreement shall continue after the Indemnified Party ceases to serve as a director or officer of the
Corporation or a director, officer or similar capacity of an Entity at the Corporation’s request and shall survive
indefinitely.
6.2.
Deeming Provision
The Indemnified Party shall be deemed to have acted or be acting at the specific request of the Corporation
upon the Indemnified Party’s being appointed or elected as a director or officer of the Corporation or a
director, officer or similar capacity of an Entity at the Corporation’s request.
6.3.
Assignment
Neither Party may assign this Agreement or any rights or obligations under this Agreement without the prior
written consent of the other Party. This Agreement shall enure to the benefit of and be binding upon the
Parties and the heirs, executors and administrators and other legal representatives of the Indemnified Party
and the successors and permitted assigns of the Corporation (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the
Corporation).
Exhibit 10.42
6.4.
Amendments and Waivers
No supplement, modification, amendment or waiver or termination of this Agreement and, unless otherwise
specified, no consent or approval by any Party, shall be binding unless executed in writing by the Party to
be bound thereby. For greater certainty, the rights of the Indemnified Party under this Agreement shall not
be prejudiced or impaired by permitting or consenting to any assignment in bankruptcy, receivership,
insolvency or any other creditor’s proceedings of or against the Corporation or by the winding-up or
dissolution of the Corporation.
6.5.
Notices
Any notice, consent or approval required or permitted to be given in connection with this Agreement (in
this Section referred to as a “Notice”) shall be in writing and shall be sufficiently given if delivered (whether
in person, by courier service or other personal method of delivery), or if transmitted by facsimile or e-mail:
(a)
in the case of a Notice to the Indemnified Party at:
[***]
Facsimile:
e-mail: [***]
(b)
in the case of a Notice to the Corporation
at: DIRTT Environmental Solutions Ltd.
Attn: CFO / CEO
7303 30th Street S.E.
Calgary, Alberta T2C 1N6
Facsimile:
e-mail: fkhan@dirtt.com
Any Notice delivered or transmitted to a Party as provided above shall be deemed to have been given and
received on the day it is delivered or transmitted, provided that it is delivered or transmitted on a business
day prior to 5:00 p.m. local time in the place of delivery or receipt. However, if the Notice is delivered or
transmitted after 5:00 p.m. local time or if such day is not a business day then the Notice shall be deemed
to have been given and received on the next business day.
Any Party may, from time to time, change its address for Notice set out in this Section 6.5 by giving Notice
to the other Party in accordance with the provisions of this Section.
6.6.
Further Assurances
The Corporation and the Indemnified Party shall, with reasonable diligence, do all such further acts, deeds
or things and execute and deliver all such further documents as may be necessary or advisable for the
purpose of assuring and conferring on the Indemnified Party the rights hereby created or intended, and of
giving effect to and carrying out the intention or facilitating the performance of the terms of this Agreement
or to evidence any advance made pursuant to Section 2.1(k).
Exhibit 10.42
6.7.
Independent Legal Advice
The Indemnified Party acknowledges that the Indemnified Party has been advised to obtain independent
legal advice with respect to entering into this Agreement, that it has obtained such independent legal advice
or has expressly determined not to seek such advice, and that the Indemnified Party is entering into this
Agreement with full knowledge of the contents hereof, of the Indemnified Party’s own free will and with
full capacity and authority to do so.
6.8.
Execution and Delivery
This Agreement may be executed by the Parties in counterparts and may be executed and delivered by
facsimile or other form of electronic transmission, and all such counterparts and facsimiles or forms of
electronic transmission together shall be deemed to be an original and shall constitute one and the same
agreement.
[Signature Page Follows]
Exhibit 10.42
IN WITNESS OF WHICH the Parties have duly executed this Agreement.
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Per: /s/ Fareeha Khan
Name: Fareeha Khan
Title: Chief Financial Officer
SIGNED, SEALED AND DELIVERED
In the presence of:
/s/ Douglas Edwards /s/ Holly Hess Groos
Witness – Douglas Edwards
Holly Hess Groos
Exhibit 10.43
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH
NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR
CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH THREE
ASTERISKS [***].
CAN_DMS: \1009511152\2
TRIPARTY AGREEMENT
This Triparty Agreement made as of February 20, 2025 is made by and between Royal
Bank of Canada (the “Lender”), Great Midwest Insurance Company, and any other company that is part
of or added to Skyward Specialty Insurance Group, Inc. for which surety business is underwritten by the
Skyward Specialty surety division (the “Surety”) and DIRTT Environmental Solutions Ltd. and DIRTT
Environmental Solutions, Inc. (collectively, the “Companies”).
RECITALS:
A.
The Lender has entered, and may from time to time hereafter enter, into various
agreements, instruments and documents (collectively the "Loan Agreements") providing for Lender to
make or cause to be made certain financial accommodations for the benefit of the Companies; and
B.
To secure payment and performance of all of Companies’ obligations and liabilities to
Lender under the Loan Agreements, the Companies have granted to Lender a security interest in all of
Companies’ personal property and all products and proceeds of the foregoing (the "Collateral"); and
C.
The Surety has agreed to consider on an uncommitted bases the issuance of surety bonds
or other express or implied obligations of suretyship to the Companies pursuant to the terms and conditions
of a general indemnity agreement and indemnity and security agreement (the “Surety Agreements”); and
D.
To secure payment and performance of all of Companies’ obligations and liabilities to the
Surety under the Surety Agreements, (i) the Companies will provide a letter(s) of credit in an aggregate
amount not to exceed U.S. $15,000,000 to the Surety (the “Surety Letter of Credit”), and (ii) granted to
the Surety an assignment and security interest in the Collateral (the “Surety Security Interest”); and
E.
Accordingly, the Lender, the Surety and the Companies have agreed to enter into this
Triparty Agreement to confirm the relative priority of their respective security interests in the Collateral and
address certain other matters.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
covenants and agreements herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby conclusively acknowledged by each of the parties, the parties covenant and
agree as follows:
1. The Surety shall not, without giving the Lender 30 days prior written notice:
(a)
perfect the Surety Security Interest, including without limitation by registering a financing
statement (form UCC-1, PPSA or equivalent);
(b)
commence against any of the Companies litigation or other court proceedings seeking or
effecting any seizure (whether in execution or otherwise), attachment, execution, distraint
or similar process against all or any part of its assets or the taking of possession of all or
any part of the assets of the Companies; or enforce or give notice of its intention to enforce
or take any action to exercise any of its rights or remedies under the Surety Security
Interest or any other liens granted to the Surety in respect of the Collateral (an
“Enforcement Action”);
(c)
commence or support a petition, proposal, notice of intention to file a proposal, case or
proceeding against any Company in a court having competent jurisdiction seeking a
- 130 -
CAN_DMS: \1009511152\2
declaration, judgment, decree, order or other relief under the Bankruptcy and Insolvency
Act (Canada), the Companies' Creditors Arrangement Act (Canada), Title 11 of the United
States Code entitled "Bankruptcy, or any other applicable federal, provincial, state or
foreign bankruptcy, insolvency, receivership, or other law providing for suspension of
operations or reorganization of debts or relief of debtors, or seeking either (x) the
appointment of a custodian, receiver, interim receiver, liquidator, assignee, trustee, monitor
or sequestrator (or similar official) for such Person or of any substantial part of its
properties, or (y) the reorganization or winding up or liquidation of the affairs of any such
Person (each of the above, a “Creditor Proceeding”);
2. The Surety agrees that, before initiating any Enforcement Actions or Creditor Proceedings against the
Collateral, it shall first seek full recourse against the Surety Letter of Credit for the satisfaction of all
obligations owed to it. The Surety may only pursue enforcement against the Collateral if (i) the Surety
Letter of Credit is either inaccessible or has been fully exhausted, and (ii) the outstanding obligations
remain unsatisfied. For clarity, any further enforcement actions shall remain subject to the notice
requirements set forth in Section 1.
3. The Lender agrees to use reasonable efforts to provide the Surety with prompt notice of the Lender
taking any Enforcement Action or commencing any Creditor Proceeding, provided that the failure of the
Lender to provide such notice shall not impair the validity, enforceability, or effectiveness of any
Enforcement Action or Creditor Proceeding taken by the Lender or give rise to any liability, claim, or
cause of action against the Lender.
4. The Companies agree to provide the Surety with prompt notice, but in event later than five (5) business
days following knowledge, of the Lender taking any Enforcement Action or commencing any Creditor
Proceeding. In the event the Companies fail to provide the notice required by this section, the
Companies shall be in default of the Surety Agreements, which default shall be cumulative of any other
default created by the existence of the Enforcement Action or Creditor Proceeding.
5. Any notice or communication to be made or given hereunder shall be in writing and may be made or
given by personal delivery or electronic mail or other electronic means of communication addressed to
the respective parties as follows:
(a)
To the Lenders:
200 Bay Street
Royal Bank Plaza
13th Floor, South Tower
Toronto, Ontario
M5J 2J5
Attention: Portfolio Manager
E-MAIL: ***
(b)
To the Surety:
Great Midwest Insurance Company
800 Gessner Road, Suite 600
Houston, TX 77024
Attention: Surety Claims Department
- 131 -
CAN_DMS: \1009511152\2
E-MAIL: ***
6. This Agreement is conclusively deemed to be made under, and for all purposes to be governed by and
construed in accordance with, the laws of the Province of Ontario and of the federal laws of Canada
applicable therein. The parties hereby irrevocably submit and attorn to the jurisdiction of the courts of
the Province of Ontario for all matters arising out of or relating to this Agreement or any of the
transactions contemplated hereby.
7. This Agreement shall be binding upon the parties and their respective successors and permitted
assigns.
8. Except as expressly stated herein, nothing in this Agreement shall modify or alter the rights and
obligations contained in the Surety Agreements or any bond issued by Surety.
9. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be
an original and all of which taken together shall be deemed to constitute one and the same instrument,
and it shall not be necessary in making proof of this Agreement to produce or account for more than
one such counterpart. Delivery of an executed counterpart of a signature page of this Agreement by
telecopy or by sending a scanned copy by electronic mail shall be as effective as delivery of a manually
executed counterpart of this Agreement.
[The remainder of this page has been intentionally left blank.]
S-1
CAN_DMS: \1009511152\2
IN WITNESS WHEREOF each party has duly executed this Agreement as of the date and
year first above written.
ROYAL
BANK
OF
CANADA,
as
Lender
Per:
/s/ Vanja Tubin
Name:
Vanja
Tubin
Title: Vice-President, CCG, ABL
Per:
/s/ Jordan Falkenberg
Name:
Jordan
Falkenberg
Title: Vice-President, Corporate Client Group - Finance
GREAT
MIDWEST
INSURANCE
COMPANY
as Surety
Per:
/s/ Quinson Holderness
Name:
Title: Assistant Vice President – Commercial Surety
Exhibit 10.44
1
FOURTH AMENDMENT TO LOAN AGREEMENT
DATED as of February 12, 2025
AMONG:
DIRTT ENVIRONMENTAL SOLUTIONS LTD., and DIRTT ENVIRONMENTAL
SOLUTIONS, INC., as Borrowers
AND:
ROYAL BANK OF CANADA, as Lender
PREAMBLE
WHEREAS the Borrowers and the Lender entered into that certain Loan Agreement dated as of
February 12, 2021 (as amended pursuant to a First Amendment and Consent dated November 15, 2021,
the Second Amendment to Loan Agreement dated February 9, 2023, the Third Amendment and Consent
to Loan Agreement dated February 9, 2024, and as may be further amended, restated, supplemented,
revised, replaced or otherwise modified from time to time, the “Existing Loan Agreement”);
AND WHEREAS the Borrowers and the Lender have agreed to amend certain provisions of the
Loan Agreement to extend the Stated Expiry Date of the Loan Agreement by 13 days to February 25, 2025,
but, only to the extent and subject to the limitations set forth in this Amendment (this “Amendment” and,
together with the Existing Loan Agreement, the “Loan Agreement”) and without prejudice to the Lender’s
other rights;
NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereby agree as follows:
ARTICLE I –
INTERPRETATION
1.1
All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed
to such terms in the Loan Agreement.
ARTICLE II –
AMENDMENTS TO THE LOAN AGREEMENT
2.1
The Transaction Summary following the index page of the Loan Agreement is hereby amended by
deleting reference to “February 12, 2025” and replacing it with “February 25, 2025”.
2.2
Schedule A of the Loan Agreement (Definitions) is hereby amended by deleting the defined term
“Stated Expiry Date” in its entirety and replacing it with the following:
““Stated Expiry Date” shall mean, unless extended to a later date in the sole, unfettered
discretion of Lender following a written request by Borrower (and subject to an extension
fee), February 25, 2025.”
ARTICLE III –
CONDITIONS TO EFFECTIVENESS
3.1
This Amendment shall become effective upon the Borrowers delivering to the Lender an executed
copy of this Amendment by PDF copy transmitted via e-mail or telecopier (such date being referred
to herein as the “Fourth Amendment Effective Date”).
ARTICLE IV –
REPRESENTATIONS AND WARRANTIES
2
4.1
Each Borrower represents and warrants to the Lender that the following statements are true, correct
and complete:
(a)
Authorization, Validity, and Enforceability of this Amendment. Each Borrower has the
corporate power and authority to execute and deliver this Amendment. Each Borrower has
taken all necessary corporate action (including, without limitation, obtaining approval of its
shareholders if necessary) to authorize the execution and delivery of this Amendment. This
Amendment has been duly executed and delivered by the Borrowers and this Amendment
constitutes the legal, valid and binding obligations of the Borrowers, enforceable against
them in accordance with their respective terms without defence, compensation, setoff or
counterclaim. Each Credit Party’s execution and delivery of this Amendment does not and
will not conflict with, or constitute a violation or breach of, or constitute a default under, or
result in the creation or imposition of any lien upon the property of the Borrowers by reason
of the terms of (a) any contract, mortgage, hypothec, lien, lease, agreement, indenture, or
instrument to which any of the Borrowers is a party or which is binding on any of them, (b)
any requirement of law applicable to the Borrowers, or (c) the certificate or articles of
incorporation or amalgamation or bylaws of the Borrowers.
(b)
Governmental Authorization. No approval, consent, exemption, authorization, or other
action by, or notice to, or filing with, any governmental authority or other person is necessary
or required in connection with the execution, delivery or performance by, or enforcement
against the Borrowers or any Subsidiaries of this Amendment except for such as have been
obtained or made and filings required in order to perfect and render enforceable the
Lender's security interests.
(c)
Incorporation of Representations and Warranties From Loan Agreement. The
representations and warranties contained in the Loan Agreement are and will be true,
correct and complete in all material respects on and as of the Fourth Amendment Effective
Date to the same extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier date.
(d)
Absence of Default. No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment that would constitute
an Event of Default.
(e)
Security. All security delivered to or for the benefit of the Lender pursuant to the Loan
Agreement and the other Loan Documents remains in full force and effect and secures all
Obligations of the Borrowers under the Loan Agreement and the other Loan Documents to
which they are a party.
ARTICLE V –
MISCELLANEOUS
5.1
Each Borrower (i) reaffirms its Obligations under the Loan Agreement and the other Loan
Documents to which it is a party, and (ii) agrees that the Loan Agreement and the other Loan
Documents to which it is a party remain in full force and effect, except as amended hereby, and are
hereby ratified and confirmed.
5.2
The execution, delivery and performance of this Amendment shall not, except as expressly provided
for herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or
remedy of the Lender under the Loan Agreement or any other document.
3
5.3
Each Borrower acknowledges and agrees that it has read and is fully informed and satisfied with all
the terms and conditions of this Amendment and has had the opportunity to obtain independent
legal advice in connection therewith.
5.4
This Amendment shall be governed by, and construed in accordance with, the internal laws of the
Province of Alberta and the federal laws of Canada applicable therein without regard to the
principles of conflict of laws.
5.5
This Amendment and each other Loan Document may be executed in one or more counterparts
(and by different parties hereto in different counterparts), each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery by fax or other
electronic transmission of an executed counterpart of a signature page to this Amendment and each
other Loan Document shall be effective as delivery of an original executed counterpart of this
Amendment and such other Loan Document. The words “execution,” “execute”, “signed,”
“signature,” and words of like import in or related to any document to be signed in connection with
this Amendment or any other Loan Document shall be deemed to include electronic signatures, or
the keeping of records in electronic form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper based recordkeeping system,
as the case may be, to the extent and as provided for in any applicable law, including, without
limitation, as in provided Parts 2 and 3 of the Personal Information Protection and Electronic
Documents Act (Canada), the Electronic Commerce Act, 2000 (Ontario), the Electronic Transaction
Acts (British Columbia), the Electronic Transactions Act (Alberta), or any other similar laws based
on the Uniform Electronic Commerce Act of the Uniform Law Conference of Canada. The Lender
may, in its discretion, require that any such documents and signatures executed electronically or
delivered by fax or other electronic transmission be confirmed by a manually-signed original thereof;
provided that the failure to request or deliver the same shall not limit the effectiveness of any
document or signature executed electronically or delivered by fax or other electronic transmission.
[The next pages are the signature pages]
Exhibit 10.44
Signature Page to Fourth Amendment
DATED as of the date first stated above.
Lender:
ROYAL BANK OF CANADA,
by its attorneys,
Per:
/s/ Vanja Tubin
Name: Vanja Tubin
Title: Vice President, Corporate Client Group -
Asset Based Lending
Signature Page to Fourth Amendment
Borrower:
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Per:
/s/ Fareeha Khan
Name: Fareeha Khan
Title: Chief Financial Officer
Exhibit 10.45
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH
NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR
CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH THREE
ASTERISKS ***.
1
FIFTH AMENDMENT TO LOAN AGREEMENT
DATED as of February 20, 2025
AMONG:
DIRTT ENVIRONMENTAL SOLUTIONS LTD., and DIRTT ENVIRONMENTAL
SOLUTIONS, INC., as Borrowers
AND:
ROYAL BANK OF CANADA, as Lender
PREAMBLE
WHEREAS the Borrowers and the Lender entered into that certain Loan Agreement dated as of
February 12, 2021 (as amended pursuant to a First Amendment and Consent dated November 15, 2021,
the Second Amendment to Loan Agreement dated February 9, 2023, the Third Amendment and Consent
to Loan Agreement dated February 9, 2024 (the “Third Amendment”), the Fourth Amendment to Loan
Agreement dated February 12, 2025, and as may be further amended, restated, supplemented, revised,
replaced or otherwise modified from time to time, the “Existing Loan Agreement”);
AND WHEREAS the Borrowers and the Lender have agreed to increase the Maximum Amount of
the Revolving Credit Facility to $25,000,000, extend the Stated Expiry Date of the Loan Agreement by nine
months to November 30, 2025 and to amend certain other provisions of the Loan Agreement, but, in each
case, only to the extent and subject to the limitations set forth in this Amendment (this “Amendment” and,
together with the Existing Loan Agreement, the “Loan Agreement”) and without prejudice to the Lender’s
other rights;
AND WHEREAS the Borrowers executed (i) the general indemnity agreement dated August 22,
2024; (ii) the indemnity and security agreement dated August 27, 2024, which, among other things, granted
Liens to Great Midwest Insurance Company and certain affiliates of Skyward Specialty Insurance Group,
Inc. (the “Surety Agreements”) which were not permitted under Section 5.2(e) of the Credit Agreement;
AND WHEREAS the Borrowers have requested, and the Lender has agreed to, amendments to
the Credit Agreement to permit the Surety Agreements and the Liens granted thereunder, but only to the
extent and subject to the limitations set forth in this Amendment and without prejudice to the Lender’s other
rights;
NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereby agree as follows:
ARTICLE I –
INTERPRETATION
1.1
All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed
to such terms in the Loan Agreement.
ARTICLE II –
AMENDMENTS TO THE LOAN AGREEMENT
2.1
With effect on the Effective Date (hereinafter defined), the Loan Agreement is amended to delete
the stricken text (indicated textually in the same manner as the following example: stricken text) and
to add the double-underlined text (indicated textually in the same manner as the following example:
2
double-underlined text) as set forth in the pages of the Loan Agreement attached hereto as Exhibit
A. For the avoidance of doubt, Exhibit A incorporates changes made pursuant to the Third
Amendment, which changes are not indicated as stricken or added pursuant to this Amendment.
2.2
As of the Effective Date, Schedules 3.2, 3.6, 3.7, 3.12, 3.13, 3.16 and 6.1 are hereby amended and
restated in their entirety in the form attached hereto.
ARTICLE III –
CONDITIONS TO EFFECTIVENESS
3.1
This Amendment shall become effective upon the Borrowers delivering to the Lender each of the
following (such date being referred to herein as the “Effective Date”):
(a)
an executed copy of this Amendment by PDF copy transmitted via e-mail or telecopier;
(b)
an executed copy of the triparty agreement made by and between the Lender, the
Borrowers, Great Midwest Insurance Company, and any other company that is part of or
added to Skyward Specialty Insurance Group, Inc. for which surety business is underwritten
by the Skyward Specialty surety division by PDF copy transmitted via e-mail or telecopier;
(c)
copies of PPSA, UCC, and as applicable, Register of Personal and Movable Real Rights of
Quebec, Bank Act, insolvency, executions, litigation, or other jurisdictional searches, as
applicable, or other evidence satisfactory to Lender, listing all effective registrations,
financing statements and recordations which name the Credit Parties (under present name,
any previous name or any trade or doing business name) as debtor and together with
copies of such other recordings, registrations and financing statements;
(d)
acknowledgment copies of proper financing change statements and notices of recording
under the PPSA, the applicable UCC and Civil Code of Quebec, as applicable, duly filed in
all jurisdictions as may be necessary or, in the opinion of Lender, desirable to perfect
Lender’s Lien on the Collateral in which a security interest may be perfected by filing a
financing statement or a notice of recording, as applicable, pursuant to the PPSA, the UCC
or the Civil Code of Quebec, as applicable;
(e)
certified copies of all the constating documents, by-laws and resolutions of the directors (or
partners, members or shareholders as required by Lender) authorizing the Loan
Documents, and certificates of incumbency, for Borrowers and each other Credit Party;
(f)
certificate of good standing (or other similar instruments) in respect of each of the Credit
Parties;
(g)
opinions of counsel to each of the Credit Parties (including opinions relating to
enforceability, the Lender’s security in each relevant jurisdiction and such other matters as
the Lender reasonably considers necessary in its discretion) with respect to this
Amendment and each Loan Document in form and substance satisfactory to Lender; and
(h)
the Borrowers paying to the Lender an amendment fee equal to $17,500; which fee shall
be non-refundable and fully earned and paid upon the execution of this Agreement and
which fee may be charged as a Revolving Credit Advance and be added to and form part
of a Loan.
ARTICLE IV –
REPRESENTATIONS AND WARRANTIES
3
4.1
Each Borrower represents and warrants to the Lender that the following statements are true, correct
and complete:
(a)
Authorization, Validity, and Enforceability of this Amendment. Each Borrower has the
corporate power and authority to execute and deliver this Amendment. Each Borrower has
taken all necessary corporate action (including, without limitation, obtaining approval of its
shareholders if necessary) to authorize the execution and delivery of this Amendment. This
Amendment has been duly executed and delivered by the Borrowers and this Amendment
constitutes the legal, valid and binding obligations of the Borrowers, enforceable against
them in accordance with their respective terms without defence, compensation, setoff or
counterclaim. Each Credit Party’s execution and delivery of this Amendment does not and
will not conflict with, or constitute a violation or breach of, or constitute a default under, or
result in the creation or imposition of any lien upon the property of the Borrowers by reason
of the terms of (a) any contract, mortgage, hypothec, lien, lease, agreement, indenture, or
instrument to which any of the Borrowers is a party or which is binding on any of them, (b)
any requirement of law applicable to the Borrowers, or (c) the certificate or articles of
incorporation or amalgamation or bylaws of the Borrowers.
(b)
Governmental Authorization. No approval, consent, exemption, authorization, or other
action by, or notice to, or filing with, any governmental authority or other person is necessary
or required in connection with the execution, delivery or performance by, or enforcement
against the Borrowers or any Subsidiaries of this Amendment except for such as have been
obtained or made and filings required in order to perfect and render enforceable the
Lender's security interests.
(c)
Incorporation of Representations and Warranties From Loan Agreement. The
representations and warranties contained in the Loan Agreement are and will be true,
correct and complete in all material respects on and as of the Effective Date to the same
extent as though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
(d)
Absence of Default. No event has occurred and is continuing or will result from the
consummation of the transactions contemplated by this Amendment that would constitute
an Event of Default.
(e)
Security. All security delivered to or for the benefit of the Lender pursuant to the Loan
Agreement and the other Loan Documents remains in full force and effect and secures all
Obligations of the Borrowers under the Loan Agreement and the other Loan Documents to
which they are a party.
ARTICLE V –
MISCELLANEOUS
5.1
Each Borrower (i) reaffirms its Obligations under the Loan Agreement and the other Loan
Documents to which it is a party, and (ii) agrees that the Loan Agreement and the other Loan
Documents to which it is a party remain in full force and effect, except as amended hereby, and are
hereby ratified and confirmed.
5.2
The execution, delivery and performance of this Amendment shall not, except as expressly provided
for herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or
remedy of the Lender under the Loan Agreement or any other document.
4
5.3
Each Borrower acknowledges and agrees that it has read and is fully informed and satisfied with all
the terms and conditions of this Amendment and has had the opportunity to obtain independent
legal advice in connection therewith.
5.4
This Amendment shall be governed by, and construed in accordance with, the internal laws of the
Province of Alberta and the federal laws of Canada applicable therein without regard to the
principles of conflict of laws.
5.5
This Amendment and each other Loan Document may be executed in one or more counterparts
(and by different parties hereto in different counterparts), each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery by fax or other
electronic transmission of an executed counterpart of a signature page to this Amendment and each
other Loan Document shall be effective as delivery of an original executed counterpart of this
Amendment and such other Loan Document. The words “execution,” “execute”, “signed,”
“signature,” and words of like import in or related to any document to be signed in connection with
this Amendment or any other Loan Document shall be deemed to include electronic signatures, or
the keeping of records in electronic form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper based recordkeeping system,
as the case may be, to the extent and as provided for in any applicable law, including, without
limitation, as in provided Parts 2 and 3 of the Personal Information Protection and Electronic
Documents Act (Canada), the Electronic Commerce Act, 2000 (Ontario), the Electronic Transaction
Acts (British Columbia), the Electronic Transactions Act (Alberta), or any other similar laws based
on the Uniform Electronic Commerce Act of the Uniform Law Conference of Canada. The Lender
may, in its discretion, require that any such documents and signatures executed electronically or
delivered by fax or other electronic transmission be confirmed by a manually-signed original thereof;
provided that the failure to request or deliver the same shall not limit the effectiveness of any
document or signature executed electronically or delivered by fax or other electronic transmission.
[The next pages are the signature pages]
Execution Version
EXHIBIT A to FIFTH AMENDMENT
LOAN AGREEMENT
Dated as of February 12, 2021
between
ROYAL BANK OF CANADA
as Lender
and
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
and
DIRTT ENVIRONMENTAL SOLUTIONS, INC.
as Borrowers
and
THE GUARANTORS PARTY HERETO
- 2 -
INDEX OF EXHIBITS AND SCHEDULES
Schedule A:
Definitions
Schedule B:
Lender’s and Credit Parties’ Addresses for Notices***
Schedule C:
Letters of Credit***
Schedule D:
Cash Management System***
Schedule E:
Fees***
Schedule F:
Schedule of Documents***
Schedule G:
Material Contracts***
Schedule H:
Bank Products***
Schedule I:
RBC Lease Facility***
Schedule J:
Post-Closing Undertakings***
Disclosure Schedule (3.2):
Corporate Names***
Disclosure Schedule (3.6):
Real Estate; Property***
Disclosure Schedule (3.7):
Shares; Affiliates***
Disclosure Schedule (3.9):
Taxes***
Disclosure Schedule (3.11):
Pension Plans***
Disclosure Schedule (3.12):
Litigation***
Disclosure Schedule (3.13):
Intellectual Property***
Disclosure Schedule (3.15):
Environmental Matters***
Disclosure Schedule (3.16):
Insurance***
Disclosure Schedule (3.17):
Bank Accounts***
Disclosure Schedule (3.18):
Contracts (Offset Risk)***
Disclosure Schedule (5.2(b)):
Indebtedness***
Disclosure Schedule (5.2(e)):
Liens***
Disclosure Schedule (6.1):
Actions to Perfect Liens***
Exhibit A:
Form of Notice of Borrowing or Continuation/Conversion
Exhibit B:
Form of Borrowing Base Certificate
Exhibit C:
Form of Compliance Certificate
Exhibit D:
Form of Notice of Repayment
TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT
REVOLVING CREDIT LOAN
Maximum Amount: $25,000,000 or the Equivalent
Amount in U.S.$ if available
Letter of Credit Sublimit: $7,500,000
Interest Rate:
RBP plus 0.50% per annum
RBUSBR plus 0.50% per annum
Adjusted Term CORRA plus 1.75% per annum
Term SOFR Rate plus 1.75% per annum plus the Term
SOFR Adjustment
Unused Line Fee: 0.40% per annum
Letter of Credit Fee:
2.00% per annum
Borrowing Base:
(i) 85% of the value (as determined
by Lender) of Eligible Accounts (other than Investment
Grade or Insured Accounts), 90% of the value (as
determined by Lender) of Eligible Investment Grade or
Insured Accounts; less
(ii) reserves.
EDC GUARANTEED LETTER OF CREDIT FACILITY
Maximum Amount: $5,000,000 or the Equivalent Amount
in U.S.$ if available
Unused Line Fee: 0.05% per annum
Letter of Credit Fee:
1.00% per annum
OTHER FEES
Closing Fee:
$75,000
Collateral Monitoring Fee: $1,000 per month in advance
STATED EXPIRY DATE
November 30, 2025
The loans described generally here are established and governed by the terms and conditions set forth
below in this Agreement and the other Loan Documents, and if there is any conflict between this
general description and the express terms and conditions below or elsewhere in the Loan Documents,
such other express terms and conditions shall control.
TABLE OF CONTENTS
SECTION 1 – AMOUNT AND TERMS OF CREDIT ........................................................................................ 1
1.1
Loans ............................................................................................................................................... 1
1.2
Term and Prepayment .................................................................................................................. 2
1.3
Use of Proceeds ............................................................................................................................ 3
1.4
Joint and Several ........................................................................................................................... 3
1.5
Interest ............................................................................................................................................ 3
1.6
Continuation and Conversion Elections ..................................................................................... 5
1.7
Cash Management System .......................................................................................................... 7
1.8
Fees ................................................................................................................................................. 7
1.9
Receipt of Payments; Taxes ........................................................................................................ 7
1.10 Application and Allocation of Payments ..................................................................................... 7
1.11 Accounting ...................................................................................................................................... 7
1.12 Indemnity ........................................................................................................................................ 8
1.13 Borrowing Base; Reserves ........................................................................................................... 8
1.14 Funding Losses .............................................................................................................................. 8
1.15 Inability to Determine Rates ......................................................................................................... 9
1.16 Benchmark Replacement Setting ................................................................................................ 9
1.17 Canadian Benchmark Replacement Setting ............................................................................. 13
SECTION 2 – CONDITIONS PRECEDENT ...................................................................................................... 15
2.1
Conditions to the Initial Loans...................................................................................................... 15
2.2
Further Conditions to the Loans .................................................................................................. 17
SECTION 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS ...................... 17
3.1
Corporate Existence; Compliance with Law; Investment Company ...................................... 17
3.2
Executive Offices; Corporate or Other Names .......................................................................... 18
3.3
Corporate Power; Authorization; Enforceable Obligations ...................................................... 18
3.4
Financial Statements and Projections; Books and Records ................................................... 18
3.5
Material Adverse Change ............................................................................................................. 18
3.6
Real Estate; Property .................................................................................................................... 19
3.7
Ventures, Subsidiaries and Affiliates; Outstanding Shares and Indebtedness .................... 19
3.8
Government Regulations .............................................................................................................. 19
3.9
Taxes; Charges .............................................................................................................................. 19
3.10 Payment of Obligations................................................................................................................. 20
3.11 Pension Plans ................................................................................................................................ 20
3.12 Litigation .......................................................................................................................................... 20
3.13 Intellectual Property ...................................................................................................................... 21
3.14 Full Disclosure/Know Your Customer ......................................................................................... 21
3.15 Environmental Matters .................................................................................................................. 21
3.16 Insurance ........................................................................................................................................ 22
3.17 Bank Accounts ............................................................................................................................... 22
3.18 Accounts ......................................................................................................................................... 22
3.19 Conduct of Business ..................................................................................................................... 22
3.20 Material Contracts ......................................................................................................................... 23
3.21 Further Assurances ....................................................................................................................... 23
3.22 Default ............................................................................................................................................. 23
3.23 Sanctions ........................................................................................................................................ 23
3.24 Margin Regulations ....................................................................................................................... 23
- 2 -
3.25 Post-Closing Undertakings ........................................................................................................... 23
SECTION 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES ..................................................... 23
4.1
Reports and Information ............................................................................................................... 23
4.2
Notices ............................................................................................................................................ 25
SECTION 5 – FINANCIAL AND NEGATIVE COVENANTS ........................................................................... 25
5.1
Financial Covenants ...................................................................................................................... 25
5.2
Negative Covenants ...................................................................................................................... 26
SECTION 6 – SECURITY INTEREST ................................................................................................................ 27
6.1
Grant of Security Interest ............................................................................................................. 27
6.2
Lender’s Rights .............................................................................................................................. 29
6.3
Grant of License to Use Intellectual Property Collateral .......................................................... 30
SECTION 7 – EVENTS OF DEFAULT, RIGHTS AND REMEDIES .............................................................. 30
7.1
Events of Default ........................................................................................................................... 30
7.2
Remedies ........................................................................................................................................ 32
7.3
Waivers by Credit Parties ............................................................................................................. 34
7.4
Proceeds ......................................................................................................................................... 34
SECTION 8 – MISCELLANEOUS ....................................................................................................................... 34
8.1
Complete Agreement; Modification of Agreement .................................................................... 34
8.2
Expenses ........................................................................................................................................ 34
8.3
No Waiver ....................................................................................................................................... 35
8.4
Severability; Section Titles ........................................................................................................... 35
8.5
Authorized Signature..................................................................................................................... 35
8.6
Notices ............................................................................................................................................ 36
8.7
Counterparts ................................................................................................................................... 36
8.8
Assignments ................................................................................................................................... 36
8.9
Time of the Essence ..................................................................................................................... 37
8.10 Governing Law ............................................................................................................................... 37
8.11 Submission to Jurisdiction; Waiver of Jury Trial ....................................................................... 37
8.12 Press Releases .............................................................................................................................. 37
8.13 Reinstatement ................................................................................................................................ 37
8.14 Illegality ........................................................................................................................................... 38
8.15 Set Off and Survival ...................................................................................................................... 38
8.16 Increased Costs ............................................................................................................................. 38
8.17 Conflict ............................................................................................................................................ 40
SECTION 9 – SPECIAL PROVISIONS .............................................................................................................. 40
9.1
Interest Act (Canada) .................................................................................................................... 40
9.2
Excess Resulting from Exchange Rate Change ....................................................................... 40
9.3
Judgment Currency ....................................................................................................................... 40
9.4
USA Patriot Act .............................................................................................................................. 41
9.5
Calculations .................................................................................................................................... 41
9.6
Language ........................................................................................................................................ 41
This LOAN AGREEMENT is dated as of February 12, 2021 and agreed to by and between DIRTT
Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a “Borrower”, and collectively
the “Borrowers”), each other Credit Party executing this Agreement, and Royal Bank of Canada
(“Lender”).
RECITALS:
A.
Borrowers desire to obtain the Loans and other financial accommodations from Lender and Lender
is willing to provide the Loans and accommodations all in accordance with the terms of this Agreement.
B.
Capitalized terms used herein shall have the meanings assigned to them in Schedule A and, for
purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Schedule
A shall govern. All schedules, attachments, addenda and exhibits hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together with this Agreement, constitute but a
single agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the
parties hereto agree as follows:
SECTION 1 – AMOUNT AND TERMS OF CREDIT
1.1
Loans
(a)
Advances. Subject to the terms and conditions of this Agreement, from the Closing Date
and until the Commitment Termination Date: (i) Lender agrees to make available to the
Borrowers advances (each, a “Revolving Credit Advance”) in $ based upon RBP or Term
CORRA (subject to a minimum of $500,000 in the case of Revolving Credit Advances made
based upon RBP, $1,000,000 in the case of Revolving Credit Advances made based upon
Term CORRA and in both cases in integral multiples of $100,000 in excess thereof) and
subject to such limits as Lender may specify in U.S.$ based upon RBUSBR or the Term
SOFR Rate (subject to a minimum of U.S.$500,000 in the case of Revolving Credit
Advances made based upon RBUSBR, U.S.$1,000,000 in the case of Revolving Credit
Advances made based upon the Term SOFR Rate and in both cases in integral multiples
of U.S.$100,000 in excess thereof) and to incur Letter of Credit Obligations, subject to the
Letter of Credit Sublimit, in an aggregate outstanding amount not to exceed the Borrowing
Availability; and (ii) a Borrower may at its request from time to time borrow, repay and
reborrow, and may cause Lender to incur Letter of Credit Obligations, under this Section
1.1.
(b)
Borrowing. A Borrower shall request each Revolving Credit Advance by written notice to
Lender substantially in the form of Exhibit A (each a “Notice of Borrowing”) given no later
than: (i) 3:00 p.m. (Toronto time) one (1) Business Day prior to the Business Day of the
proposed advance, in the case of Revolving Credit Advances to be made in $ based upon
RBP and in U.S.$ based upon RBUSBR; and (ii) 12:00 p.m. (Toronto time) one (1)
Business Day prior to the Business Day of the proposed advance, in the case of Revolving
Credit Advances to be made in $ based upon Term CORRA; and (iii) 12:00 p.m. (Toronto
time) two (2) Business Days prior to the Business Day of the proposed advance and within
two (2) Business Days of the delivery of the documents and information provided for in
Section 4.1(a), in the case of Revolving Credit Advances to be made in U.S.$ based upon
the Term SOFR Rate. Lender shall be fully protected under this Agreement in relying upon,
and shall be entitled to rely upon: (i) any Notice of Borrowing believed by Lender to be
genuine; and (ii) the assumption that the Persons making electronic requests or executing
and delivering a Notice of Borrowing were duly authorized, unless the responsible
individual acting thereon for Lender shall have actual knowledge to the contrary. As an
accommodation to Borrowers, Lender may permit telephonic (which shall, promptly upon
request be confirmed in writing by a Borrower), electronic, or facsimile requests for a
Revolving Credit Advance and electronic or facsimile transmittal of instructions,
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authorizations, agreements or reports to Lender by Borrowers. Unless Borrowers
specifically direct Lender in writing not to accept or act upon telephonic, facsimile or
electronic communications from a Borrower, Lender shall have no liability to Borrowers for
any loss or damage suffered by Borrowers as a result of Lender’s honouring of any
requests, execution of any instructions, authorizations or agreements or reliance on any
reports communicated to it telephonically, by facsimile or electronically and purporting to
have been sent to Lender by Borrowers, and Lender shall have no duty to verify the origin
of any such communication or the identity or authority of the Person sending it.
(c)
Borrowing Base Certificate. In making any Loan hereunder Lender shall be entitled to rely
upon the most recent Borrowing Base Certificate delivered to Lender by Borrowers and
other information available to Lender. Lender shall be under no obligation to make any
further Revolving Credit Advance or incur any other Obligation if Borrowers shall have
failed to deliver a Borrowing Base Certificate to Lender by the time specified in Section
4.1(a) or if an Event of Default shall be continuing.
(d)
Letters of Credit. Subject to the terms and conditions of this Agreement, Borrowers shall
have the right to request, and Lender agrees to incur, the Letter of Credit Obligations for
the account of Borrowers in accordance with Schedule C and for greater certainty, any
amount advanced by Lender on account of the Letter of Credit Obligations shall be deemed
a Loan and Revolving Credit Advance.
(e)
Bank Products. Subject to the terms and conditions of this Agreement, Lender may provide
Bank Products to Borrowers in accordance with Schedule H.
(f)
Overdrafts. The existence of any overdraft in any of the bank accounts maintained with
Lender in consequence of Lender charging or debiting any amount as provided in Section
1.10 or any cheque or other item presented for payment in an amount greater than the
available balance in such account, whether or not pursuant to any limit established by
Lender in its sole, unfettered discretion (an “Overdraft”) shall be deemed to be a request
for an advance hereunder and shall constitute a Loan and Revolving Credit Advance (being
either an RBP based loan or an RBUSBR based loan, as the case may be) in the amount
of such Overdraft. In addition to all other terms and conditions set out in this Agreement,
Lender shall not, however, have any obligation to honour any Overdraft if such proposed
Overdraft together with all other Overdrafts then outstanding should, in the aggregate,
exceed $1,500,000, or the Equivalent Amount thereof in U.S.$.
(g)
EDC Guaranteed Letters of Credit. Subject to the terms and conditions of this Agreement,
Borrowers shall have the right to request, and Lender agrees to incur, the EDC Guaranteed
Letter of Credit Obligations in an aggregate amount of up to the EDC Guaranteed
Maximum Amount, which shall be fully guaranteed by EDC pursuant to the EDC
Guarantee, for the account of Borrowers in accordance with Schedule C (the “EDC
Guaranteed Letter of Credit Facility”) and for greater certainty, any amount advanced by
Lender on account of the EDC Guaranteed Letter of Credit Obligations shall be deemed a
Loan. Within the foregoing limits and subject to the terms and conditions set forth herein,
the EDC Guaranteed Letter of Credit Facility is available on a revolving basis and
accordingly, the Borrowers may re-borrow the whole or any part of any EDC Guaranteed
Letter of Credit Facility that is previously repaid. For greater certainty, any repayment made
under the EDC Guaranteed Letter of Credit Facility shall not reduce the EDC Guaranteed
Letter of Credit Facility.
1.2
Term and Prepayment
(a)
Upon the Commitment Termination Date, the obligation of Lender to make Revolving Credit
Advances, incur EDC Guaranteed Letter of Credit Obligations and extend other credit
hereunder shall immediately terminate and Borrowers shall pay to Lender in full, in cash:
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(i) all outstanding Revolving Credit Advances and all accrued but unpaid interest thereon;
(ii) an amount sufficient to enable Lender to hold cash collateral as specified in Schedule
C; and (iii) all other non-contingent Obligations due to Lender.
(b)
If the aggregate Revolving Credit Loans shall at any time exceed the Borrowing Availability,
then Borrowers shall immediately repay the Revolving Credit Loan in the amount of such
excess.
(c)
Borrowers shall have the right, at any time upon thirty (30) days prior written notice to
Lender to: (i) terminate voluntarily Borrowers’ right to receive or benefit from, and Lender’s
obligation to make Revolving Credit Advances and to incur Letter of Credit Obligations;
and (ii) prepay all of the Obligations; provided, however, that with respect to Revolving
Credit Advances made based upon Term CORRA or the Term SOFR Rate prepaid by
Borrowers prior to the expiration date of the Interest Period applicable thereto, Borrowers
shall pay to Lender the amounts described in Section 1.14(c). Following receipt of such
notice by Lender, the effective date of termination of the Revolving Credit Loan specified
in such notice shall be deemed to be the Commitment Termination Date. If Borrowers
exercise their right of termination and prepayment, or if Lender’s obligation to make Loans
is terminated for any reason prior to the Stated Expiry Date then in effect (including as a
result of the occurrence of a Default), Borrowers shall pay to Lender the amounts (if any)
described in Section 1.14(c).
1.3
Use of Proceeds
Borrowers shall use the proceeds of the Loans: (i) to refinance on the Closing Date certain
outstanding Indebtedness, if any, as provided in Section 2.1(b); (ii) for working capital and (iii) for
general corporate purposes. The Borrowers agree not to request Loans solely for the purpose of
accumulating and/or maintaining cash or cash equivalents in depository or investment accounts
outside of their ordinary course of business.
1.4
Joint and Several
Except as expressly provided otherwise herein, the term “Borrower” as used herein shall include
DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. and each of them or
either of them, as the context may require. Each Borrower acknowledges that (i) it is a co-borrower
hereunder and shall be jointly and severally, with the other Borrower, directly and primarily liable to
the Lender for the Obligations regardless of which Borrower actually receives Loans or other
extensions of credit hereunder or the amount of such Loans received or the manner in which the
Lender accounts for such Loans or other extensions of credit on its books and records, (ii) each of
the Obligations shall be secured by all of the Collateral, (iii) each Borrower shall have the obligations
of co-maker and shall be primary obligors with respect to the Loans and the other Obligations, it
being agreed that the Loans to each Borrower inure to the benefit of all Borrowers, and (iv) the
Lender is relying on such joint and several liability of the Borrowers as co-makers in extending the
Loans hereunder. Notwithstanding anything to the contrary contained in this Agreement, the
Lender shall be entitled to rely upon any request, notice or other communication received by it from
either Borrower on behalf of both Borrowers, and shall be entitled to treat its giving of any notice
hereunder pursuant to Section 8.6 hereof as notice to each Borrower.
1.5
Interest
Borrowers shall pay interest to Lender on the aggregate outstanding Revolving Credit Advances
as follows: (i) at a floating per annum rate equal to the RBP plus the Applicable Margin in the case
of RBP based loans; (ii) at a floating per annum rate equal to the RBUSBR plus the Applicable
Margin in the case of RBUSBR based loans; (iii) at a per annum rate equal to the Adjusted Term
CORRA plus the Applicable Margin in the case of Term CORRA Loans; and (iv) at a per annum
rate equal to the Term SOFR Rate plus the Applicable Margin in the case of Term SOFR Loans (in
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each case, the “Advance Rate”). All computations of interest in respect of Loans made in $ based
upon RBP or Adjusted Term CORRA or in U.S. $ based upon RBUSBR or the Term SOFR Rate
and all calculations of the Letter of Credit Fee, shall be made by Lender on the basis of a three
hundred and sixty-five (365) or three hundred and sixty-six (366), as applicable, day year, in each
case for the actual number of days occurring in the period for which such interest or fee is payable
and shall be calculated daily and compounded (if unpaid) in arrears on the last day of each calendar
month with respect to Loans made in $ based upon RBP or in U.S. $ based upon RBUSBR and on
each Interest Payment Date with respect to Loans made in $ based upon Adjusted Term CORRA.
In the case of Loans made in U.S.$ based upon the Term SOFR Rate, interest on each advance
will accrue daily on the basis of a year of 360 days, for the actual number of days occurring in the
period for which such interest is payable and shall be calculated daily and compounded (if unpaid)
in arrears on each Interest Payment Date. Any change in RBP or RBUSBR shall be effective as of
the opening of business on the Business Day such change takes place.
(a)
Each determination by Lender of an interest rate hereunder shall be conclusive and binding
for all purposes, absent manifest error. If any provision of this Agreement would oblige the
Borrowers 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 any applicable law or would
result in a receipt by the Lender of “interest” at a “criminal rate” (as such terms are
construed under the Criminal Code (Canada)), then, notwithstanding such provision, such
amount or rate shall be deemed to have been adjusted with retroactive effect to the
maximum amount or rate of interest, as the case may be, as would not be so prohibited by
applicable law or so result in a receipt by the Lender of “interest” at a “criminal rate”, such
adjustment to be effected, to the extent necessary (but only to the extent necessary), as
follows: first, by reducing the amount or rate of interest required to be paid to the Lender
under this section and thereafter, by reducing any fees, commissions, costs, expenses,
premiums and other amounts required to be paid to the Lender which would constitute
interest for purposes of section 347 of the Criminal Code (Canada).
(b)
Interest shall be payable on the outstanding Revolving Credit Advances: (i) in arrears for
the preceding calendar month on the first Business Day of each calendar month; (ii) on the
Interest Payment Date, in the case of Revolving Credit Advances based upon Adjusted
Term CORRA or the Term SOFR Rate; (iii) on the Commitment Termination Date; and (iv)
if any interest accrues or remains payable after the Commitment Termination Date, upon
demand by Lender.
(c)
Effective upon the occurrence of any Event of Default and for so long as any Event of
Default shall be continuing, the Advance Rate and the Letter of Credit Fee shall in the
discretion of Lender be increased by three percentage points (3%) per annum (such
increased rate, the “Default Rate”), and all outstanding Obligations, including unpaid
interest and Letter of Credit Fees, shall continue to accrue interest from the date of such
Event of Default at the Default Rate applicable to such Obligations.
(d)
If any interest or any other payment (including Unused Line Fees and Collateral Monitoring
Fees) to Lender under this Agreement becomes due and payable on a day other than a
Business Day, such payment date shall be extended to the next succeeding Business Day
and interest thereon shall be payable at the then applicable rate during such extension.
(e)
Canadian Conforming Changes. In connection with the use or administration of CORRA
or Term CORRA, the Lender will have the right to make Canadian Conforming Changes
from time to time and, notwithstanding anything to the contrary herein or in any other Loan
Document, any amendments implementing such Canadian Conforming Changes will
become effective without any further action or consent of any other party to this Agreement
or any other Loan Document. The Lender will promptly notify the Borrowers of the
effectiveness of any Canadian Conforming Changes in connection with the use or
administration of CORRA or Term CORRA, as applicable.
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(f)
Interest Rates. The Lender does not warrant or accept responsibility for, and shall not have
any liability with respect to (a) the continuation of, administration of, submission of,
calculation of or any other matter related to RBP, RBUSBR, Term CORRA, Adjusted Term
CORRA, Term SOFR, Adjusted Term SOFR or any component definition thereof or rates
referred to in the definition thereof, or any alternative, successor or replacement rate
thereto (including any Benchmark Replacement or Canadian Benchmark Replacement),
including whether the composition or characteristics of any such alternative, successor or
replacement rate (including any Canadian Benchmark Replacement) will be similar to, or
produce the same value or economic equivalence of, or have the same volume or liquidity
as, RBP, RBUSBR, Term CORRA, Adjusted Term CORRA, Term SOFR, Adjusted Term
SOFR or any other Benchmark or Canadian Benchmark prior to its discontinuance or
unavailability, or (b) the effect, implementation or composition of any Canadian Conforming
Changes or Benchmark Replacement Conforming Changes. The Lender and its affiliates
or other related entities may engage in transactions that affect the calculation of RBP,
RBUSBR, Term CORRA, Adjusted Term CORRA, Term SOFR, Adjusted Term SOFR, any
alternative, successor or replacement rate (including any Benchmark Replacement or
Canadian Benchmark Replacement) or any relevant adjustments thereto, in each case, in
a manner adverse to the Borrowers. The Lender may select information sources or
services in its reasonable discretion to ascertain RBP, RBUSBR, Term CORRA, Adjusted
Term CORRA, Term SOFR, Adjusted Term SOFR or any other Benchmark or Canadian
Benchmark, in each case pursuant to the terms of this Agreement, and shall have no
liability to the Borrowers or any other person or entity for damages of any kind, including
direct or indirect, special, punitive, incidental or consequential damages, costs, losses or
expenses (whether in tort, contract or otherwise and whether at law or in equity), for any
error or calculation of any such rate (or component thereof) provided by any such
information source or service.
1.6
Continuation and Conversion Elections
(a)
Borrowers may, upon irrevocable written notice to Lender in accordance with Section
1.6(b):
(i)
elect, as of any Business Day, in the case of Revolving Credit Advances based
upon RBUSBR, to convert any such Revolving Credit Advance (or any part thereof
in an amount not less than U.S.$1,000,000 or that is in an integral multiple of
U.S.$100,000 in excess thereof) into a Revolving Credit Advance based upon the
Term SOFR Rate or, as of any Business Day at the end of any Interest Period
applicable thereto, in the case of Revolving Credit Advances based upon the Term
SOFR Rate, to convert any such Revolving Credit Advance (or any part thereof)
into a Revolving Credit Advance based upon RBUSBR;
(ii)
elect, as of any Business Day, in the case of Revolving Credit Advances based
upon RBP, to convert any such Revolving Credit Advance (any part thereof in any
amount not less than $1,000,000 or that is in an integral multiple of $100,000 in
excess thereof) into a Revolving Credit Advance based upon Adjusted Term
CORRA or, as of any Business Day at the end of any Interest Period applicable
thereto, in the case of Revolving Credit Advances based upon Adjusted Term
CORRA, to convert any such Revolving Credit Advance (or any part thereof) into
a Revolving Credit Advance based upon RBP;
(iii)
elect, as of the last day of the applicable Interest Period, to continue any Revolving
Credit Advances based upon the Term SOFR Rate having Interest Periods
expiring on such day (or any part thereof in an amount not less than U.S.$500,000
or that is in an integral multiple of U.S.$100,000 in excess thereof); and
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(iv)
elect, as of the last day of the applicable Interest Period, to continue any Revolving
Credit Advances based upon Adjusted Term CORRA having Interest Periods
expiring on such day (or any part thereof in an amount not less than $500,000 or
that is in an integral multiple of $100,000 in excess thereof);
provided, that if at any time the aggregate amount of Revolving Credit Advances based upon the
Term SOFR Rate or Adjusted Term CORRA, as applicable, is reduced, by payment, prepayment,
or conversion of part thereof to be less than $1,000,000 in the case of Revolving Credit Advances
based upon Adjusted Term CORRA or U.S.$1,000,000 in the case of Revolving Credit Advances
based upon the Term SOFR Rate, such Revolving Credit Advances based upon the Term SOFR
Rate or Adjusted Term CORRA, as applicable, shall automatically convert (i) in the case of
Revolving Credit Advances based upon the Term SOFR Rate into Revolving Credit Advances
based upon RBUSBR and (ii) in the case of Revolving Credit Advances based upon Adjusted Term
CORRA, into Revolving Credit Advances based upon RBP.
(b)
Borrowers
shall
deliver
a
notice
of
continuation/conversion
(“Notice
of
Continuation/Conversion”) in the form of Exhibit A to be received by Lender not later than
12:00 p.m. (Toronto time) at least one (1) Business Day in advance of the
Continuation/Conversion Date if the Revolving Credit Advances are to be converted into
or continued as Revolving Credit Advances based upon Adjusted Term CORRA and at
least two (2) Business Days in advance of the Continuation/Conversion Date if the
Revolving Credit Advances are to be converted into or continued as Revolving Credit
Advances based upon the Term SOFR Rate and otherwise by 12:00 p.m. on the
Continuation/Conversion Date if the Revolving Credit Advances are to be converted into
Revolving Credit Advances based upon RBP or RBUSBR.
(c)
If by no later than two (2) Business Days prior to the expiration of any Interest Period
applicable to Revolving Credit Advances based upon the Term SOFR Rate or by not later
than one (1) Business Day prior to the expiration of any Interest Period applicable to
Revolving Credit Advances based upon Adjusted Term CORRA, Borrowers have failed to
deliver a Notice of Continuation/Conversion to Lender in respect of such Interest Period to
be applicable to Revolving Credit Advances based upon the Term SOFR Rate or Adjusted
Term CORRA or if any Default or Event of Default then exists, and/or if such Notice of
Continuation/Conversion would apply to a Term SOFR Rate Advance after the date that is
one month prior to the Commitment Termination Date, Borrowers shall be deemed to have
elected to convert such Revolving Credit Advances based upon the Term SOFR Rate into
Revolving Credit Advances based upon RBUSBR or Revolving Credit Advances based
upon Adjusted Term CORRA into Revolving Credit Advances based upon RBP, effective
as of the expiration date of such Interest Period.
(d)
During the existence of a Default or Event of Default, Borrowers may not elect to have a
Revolving Credit Advance converted or continued and Revolving Credit Advances during
such period shall be based upon RBP or RBUSBR, as applicable.
(e)
After giving effect to any conversion or continuation of Revolving Credit Advances, there
may not be more than five (5) different Interest Periods in effect hereunder unless
consented to by Lender.
1.7
Cash Management System
On or prior to the Closing Date and until the Termination Date, Borrowers will establish and maintain the
cash management system described in Schedule D. All payments in respect of the Collateral shall be made
to or deposited in the Blocked Accounts described in Schedule D in accordance with the terms thereof.
1.8
Fees
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Each Borrower agrees to pay to Lender the Fees set forth in Schedule E.
1.9
Receipt of Payments; Taxes
Each Borrower shall make each payment under this Agreement (not otherwise made pursuant to Section
1.10) without set-off, counterclaim or deduction and free and clear of all Taxes on the day when due in
lawful money of Canada in immediately available funds to the Blocked Accounts, except as required by
applicable law. If any Borrower shall be required by applicable law to deduct or withhold any Taxes from
any payment to Lender under any Loan Document, then the amount payable to Lender shall be increased
so that, after making all required deductions and withholdings, Lender receives an amount equal to that
which it would have received had no such deductions and withholdings been made. In addition but without
duplication, each Credit Party shall jointly and severally indemnify Lender, within 10 days after demand
therefor, for any Taxes (including Taxes imposed or asserted on amounts payable pursuant to this
sentence) paid or payable by Lender in respect of any amount paid by Borrower under this Agreement,
together with reasonable out-of-pocket expenses with respect thereto. For purposes of computing interest,
Fees and determining Net Borrowing Availability, all payments shall be deemed received by Lender one (1)
Business Day following receipt of immediately available funds in the Blocked Accounts.
1.10
Application and Allocation of Payments
Each Borrower irrevocably agrees that Lender shall have the continuing and exclusive right to apply any
and all payments against the then due and payable Obligations in such order as Lender may deem
advisable. Lender is authorized to, and at its option may (without prior notice or precondition and at any
time or times), but shall not be obligated to, make or cause to be made Revolving Credit Advances on
behalf of either Borrower, for: (a) payment of all Fees, expenses, indemnities, charges, costs, principal,
interest, or other Obligations owing by such Borrower under this Agreement or any of the other Loan
Documents; (b) the payment, performance or satisfaction of any of such Borrower’s obligations with respect
to preservation of the Collateral; or (c) any premium in whole or in part required in respect of any of the
policies of insurance required by this Agreement, even if the making of any such Revolving Credit Advance
causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, and
Borrower agrees to repay immediately, in cash, any amount by which the Revolving Credit Loan exceeds
the Borrowing Availability.
1.11
Accounting
Lender is authorized to record on its books and records the date and amount of each Loan and each
payment of principal thereof and such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded, absent manifest error. Lender shall provide Borrower on a monthly basis a
statement and accounting of such recordations but any failure on the part of Lender to keep any such
recordation (or any errors therein) or to send a statement thereof to Borrowers shall not in any manner
affect the obligation of Borrowers to repay any of the Obligations. Except to the extent that a Borrower
shall, within thirty (30) days after such statement and accounting is sent, notify Lender in writing of any
objection Borrowers may have thereto (stating with particularity the basis for such objection), such
statement and accounting shall be deemed final, binding and conclusive upon Borrowers, absent manifest
error.
1.12
Indemnity
Borrower and each other Credit Party executing this Agreement jointly and severally agree to indemnify
and hold Lender and its Affiliates, and their respective employees, officers, directors, professional advisors
and agents (each, an “Indemnified Person”), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or nature whatsoever (including
legal fees and disbursements and other costs of investigation or defence, including those incurred upon
any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under this Agreement and the other Loan
Documents or with respect to the execution, delivery, enforcement, performance or administration of, or in
- 8 -
any other way arising out of or relating to, this Agreement and the other Loan Documents or any other
documents or transactions contemplated by or referred to herein or therein and any actions or failures to
act with respect to any of the foregoing, including any and all product liabilities, Environmental Liabilities,
Taxes and legal costs and expenses arising out of or incurred in connection with any dispute between or
among any parties to any of the Loan Documents (collectively, “Indemnified Liabilities”), except to the
extent that any such Indemnified Liability is finally determined by a court of competent jurisdiction to have
resulted solely from such Indemnified Person’s gross negligence or wilful misconduct. NO INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY CREDIT PARTY, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER
OF ATTORNEY OR FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF
ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
1.13
Borrowing Base; Reserves
The Borrowing Base shall be determined by Lender (including the eligibility of Accounts) based on the most
recent Borrowing Base Certificate delivered to Lender in accordance with Section 4.1(a) and such other
information available to Lender. The Revolving Credit Loan shall be subject to Lender’s continuing right to
withhold from Borrowing Availability reserves, and to increase and decrease such reserves from time to
time, if and to the extent that in Lender’s good faith credit judgment such reserves are necessary, including
to protect Lender’s interest in the Collateral or to protect Lender against possible non-payment of Accounts
for any reason by Account Debtors or possible diminution of the value of any Collateral or possible non-
payment of any of the Obligations or for any Taxes or in respect of any state of facts which could constitute
a Default. Lender may, at its option, implement reserves by designating as ineligible a sufficient amount of
Accounts which would otherwise be Eligible Accounts, as the case may be, so as to reduce the Borrowing
Base by the amount of the intended reserves.
1.14
Funding Losses
Each Borrower shall jointly and severally reimburse and indemnify Lender and hold Lender harmless from
any loss or expense which Lender may sustain or incur as a consequence of:
(a)
the failure of any Borrower to make on a timely basis any payment of principal on any
Revolving Credit Advance made based upon the Term SOFR Rate or Adjusted Term
CORRA;
(b)
the failure of any Borrower to borrow, continue or convert a Revolving Credit Advance after
Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of
Continuation/Conversion, as the case may be; or
(c)
the prepayment or other payment (including after acceleration thereof but excluding
prepayment mandated by the provisions of Section 8.14(b)) of any Revolving Credit
Advance made based upon the Term SOFR Rate or Adjusted Term CORRA on a day that
is not the last day of the relevant Interest Period;
including any such loss of anticipated profit and any loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its Revolving Credit Advances made based upon the Term
SOFR Rate or Adjusted Term CORRA or from fees payable to terminate the deposits from which such
funds were obtained. Borrowers shall also pay any customary and reasonable administrative fees charged
by Lender in connection with the foregoing.
1.15
Inability to Determine Rates
If Lender determines, which determination is final, conclusive and binding upon the Borrowers, that,
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(a)
for any reason, adequate and reasonable means do not exist for determining Term CORRA
or the Term SOFR Rate for any requested Interest Period with respect to a proposed
Revolving Credit Advance made based upon Adjusted Term CORRA or the Term SOFR
Rate (including, without limitation, because such rate is not available from or published on
a current basis by the services used by the Lender to obtain such rate), or
(b)
that Adjusted Term CORRA or the Term SOFR Rate for any requested Interest Period with
respect to a proposed Revolving Credit Advance made based upon Adjusted Term CORRA
or the Term SOFR Rate does not adequately and fairly reflect the effective cost to Lender
of funding such Revolving Credit Advance or the costs to the Lender are increased or the
income receivable by the Lender is reduced in respect of Revolving Credit Advance,
then Lender will promptly so notify Borrower. Thereafter, the obligation of Lender to make or maintain
Revolving Credit Advances made based upon Adjusted Term CORRA or the Term SOFR Rate, as
applicable, hereunder shall be suspended until Lender revokes such notice in writing, and the Lender may
request that an existing Term SOFR Loan be converted to a RBUSBR based loan or an existing Term
CORRA Loan be covered to a RBP based loan and any such loans will in any event automatically be
converted on the expiry of the then current Interest Period. Borrowers may revoke any Notice of Borrowing
or Notice of Continuation/Conversion then submitted by it. If Borrowers do not revoke such notice, Lender
shall make the Revolving Credit Advance, as proposed by Borrowers, in the amount specified in the
applicable notice submitted by Borrowers, but such Revolving Credit Advance shall be made as a RBUSBR
based loan instead of a Term SOFR Loan or a RBP based loan instead of a Term CORRA Loan, as the
case may be.
1.16
Benchmark Replacement Setting
(a)
Benchmark Replacement.
(i)
Notwithstanding anything to the contrary herein or in any other Loan Document,
upon the occurrence of a Benchmark Transition Event, the Lender may amend this
Agreement to replace the then-current Benchmark with a Benchmark
Replacement. Any such amendment will become effective at 5:00 p.m. (Toronto)
time) on the fifth (5th) Business Day after the date such proposed amendment is
provided to the Borrower without any action or consent of the Borrower. No
replacement of a Benchmark with a Benchmark Replacement pursuant to this
Section will occur prior to the applicable Benchmark Transition Start Date.
(ii)
No Fx Facility documentation shall be deemed to be a “Loan Document” for
purposes of this Section.
(b)
Benchmark Replacement Conforming Changes. In connection with the use,
administration, adoption or implementation of a Benchmark Replacement, the Lender will
have the right to make Benchmark Replacement Conforming Changes from time to time
and, notwithstanding anything to the contrary herein or in any other Loan Document, any
amendments implementing such Benchmark Replacement Conforming Changes will
become effective without any further action or consent of any other party to this Agreement
or any other Loan Document.
(c)
Notices; Standards for Decisions and Determinations. The Lender will promptly notify
the Borrower of (i) the implementation of any Benchmark Replacement, and (ii) the
effectiveness of any Benchmark Replacement Conforming Changes. The Lender will
promptly notify the Borrower of the removal or reinstatement of any tenor of a Benchmark
pursuant to Subsection (d). Any determination, decision or election that may be made by
the Lender pursuant to this Section 1.16, including any determination with respect to a
tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance
or date and any decision to take or refrain from taking any action or any selection, will be
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conclusive and binding absent manifest error and may be made in its sole discretion and
without consent from any other party hereto, except, in each case, as expressly required
pursuant to this Section.
(d)
Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein
or in any other Loan Document, at any time (including in connection with the
implementation of a Benchmark Replacement):
(i)
if the then-current Benchmark is a term rate (including the Term SOFR Reference
Rate), and either (A) any tenor for such Benchmark is not displayed on a screen
or other information service that publishes such rate from time to time as selected
by the Lender in its reasonable discretion, or (B) the administrator of such
Benchmark or the regulatory supervisor for the administrator of this Benchmark
has provided a public statement or publication of information announcing that any
tenor for such Benchmark is not or will not be representative or in compliance with
or aligned with the International Organization of Securities Commissions (IOSCO)
Principles for Financial Benchmarks, then the Lender may modify the definition of
"Interest Period" (or any similar or analogous definition) for any Benchmark
settings at or after such time, to remove such unavailable, non-representative, non-
compliant or non-aligned tenor, and
(ii)
if a tenor that was removed pursuant to clause (i) above either (A) is subsequently
displayed on a screen or information service for a Benchmark (including a
Benchmark Replacement), or (B) is not, or is no longer, subject to an
announcement that it is not or will not be representative or in compliance with or
aligned with the International Organization of Securities Commissions (IOSCO)
Principles for Financial Benchmarks (including a Benchmark Replacement), then
the Lender may modify the definition of "Interest Period" (or any similar or
analogous definition) for all Benchmark settings at or after such time, to reinstate
such previously removed tenor.
(e)
Benchmark Unavailability Period. Upon the Borrower's receipt of notice of the
commencement of a Benchmark Unavailability Period, the Borrower may revoke any
pending request for a Revolving Credit Advance made based upon the Term SOFR Rate,
conversion to or rollover of a Revolving Credit Advance made based upon the Term SOFR
Rate to be made, converted or rolled over during any Benchmark Unavailability Period and,
failing that, the Borrower will be deemed to have converted any such request into a request
for, or a conversion to, a Loan based on RBUSBR, as applicable.
(f)
Definitions.
(i)
“Available Tenor” means, as of any date of determination and with respect to the
then current Benchmark, as applicable, (x) if such Benchmark is a term rate, any
tenor for such Benchmark (or component thereof) that is or may be used for
determining the length of an Interest Period, or (y) otherwise, any payment period
for interest calculated with reference to such Benchmark (or component thereof)
that is or may be used for determining any frequency of making payments of
interest calculated with reference to such Benchmark, in each case as of such date
and not including any tenor for such Benchmark that is then-removed from the
definition of Interest Period pursuant to Section 1.16(d).
(ii)
“Benchmark” means, initially, Adjusted Term SOFR; provided that if a Benchmark
Transition Event has occurred with respect to Adjusted Term SOFR or the then-
current Benchmark, then “Benchmark” means the applicable Benchmark
Replacement to the extent that such Benchmark Replacement has replaced such
prior benchmark rate pursuant to Section 1.16(a).
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(iii)
“Benchmark Replacement” means, with respect to any Benchmark Transition
Event, the sum of:
(A)
the alternative benchmark rate that has been selected by the Lender and
the Borrower giving due consideration to (a) any selection or
recommendation of a benchmark rate or mechanism for determining such
a rate by the Relevant Governmental Body, and (b) any evolving or then-
prevailing market convention for determining a benchmark rate as a
replacement to the then-current Benchmark for Canadian dollar
denominated bilateral credit facilities in Canada at such time; and
(B)
the related Benchmark Replacement Adjustment;
provided that if such Benchmark Replacement as so determined would be
less than the Floor, such Benchmark Replacement shall be deemed to be
the Floor for the purposes of this Agreement and the other Loan
Documents.
(iv)
“Benchmark Replacement Adjustment" means, with respect to any replacement
of the then-current Benchmark with an Unadjusted Benchmark Replacement, the
spread adjustment, or method for calculating or determining such spread
adjustment (which may be a positive or negative value or zero), that has been
selected by the Lender and the Borrower giving due consideration to (i) any
selection or recommendation of a spread adjustment, or method for calculating or
determining such spread adjustment, for the replacement of such Benchmark with
the
applicable
Unadjusted
Benchmark
Replacement
by
the
Relevant
Governmental Body, or (ii) any evolving or then-prevailing market convention for
determining a spread adjustment, or method for calculating or determining such
spread adjustment, for the replacement of such Benchmark with the applicable
Unadjusted Benchmark Replacement for Canadian dollar-denominated bilateral
credit facilities in Canada at such time.
(v)
“Benchmark Replacement Conforming Changes” means, with respect to either
the use or adoption of Term SOFR Rate or the use, adoption, administration or
implementation of any Benchmark Replacement, any technical, administrative or
operational changes (including changes to the definition of “RBUSBR”, “Business
Day,” the definition of “Interest Period” or any similar or analogous definition, timing
and frequency of determining rates and making payments of interest, timing of
borrowing requests or prepayment, conversion or rollover notices, the applicability
and length of lookback periods, the applicability of breakage provisions, and other
technical, administrative or operational matters) that the Lender decides may be
appropriate to reflect the adoption and implementation of such rate or to permit the
administration thereof by the Lender in a manner substantially consistent with
market practice (or, if the Lender decides that adoption of any portion of such
market practice is not administratively feasible or if the Lender determines that no
market practice for the administration of such rate exists, in such other manner of
administration as the Lender decides is reasonably necessary in connection with
the administration of this Agreement and the other Loan Documents).
(vi)
"Benchmark Replacement Date" means the earliest to occur of the following
events with respect to the then-current Benchmark:
(A)
In the case of Clause (A) or Clause (B) of the definition of "Benchmark
Transition Event", the later of (i) the date of the public statement or
publication of information referenced therein, and (ii) the date on which the
administrator of such Benchmark (or the published component used in the
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calculation thereof) permanently or indefinitely ceases to provide all
Available Tenors of such Benchmark (or such component thereof); or
(B)
In the case of Clause (C) of the definition of "Benchmark Transition Event",
the first date on which such Benchmark (or the published component used
in the calculation thereof) has been determined and announced by or on
behalf of the administrator of such Benchmark (or such component
thereof) or the regulatory supervisor for the administrator of such
Benchmark (or such component thereof) to be non-representative or non-
compliant with or non-aligned with the International Organization of
Securities Commissions (IOSCO) Principles for Financial Benchmarks;
provided that such non-representativeness, noncompliance or non-
alignment will be determined by reference to the most recent statement or
publication referenced in such Clause (C) and even if any Available Tenor
of such Benchmark (or such component thereof) continues to be provided
on such date. For the avoidance of doubt, the "Benchmark Replacement
Date" will be deemed to have occurred in the case of Clause (A) or Clause
(B) of this definition with respect to any Benchmark upon the occurrence
of the applicable event or events set forth therein with respect to all then-
current Available Tenors of such Benchmark (or the published component
used in the calculation thereof).
(vii)
“Benchmark Transition Event” means, with respect to any Benchmark, the
occurrence of one or more of the following events with respect to such then-current
Benchmark:
(A)
a public statement or publication of information by or on behalf of the
administrator of such Benchmark (or the published component used in the
calculation thereof) announcing that such administrator has ceased or will
cease to provide all Available Tenors of such Benchmark (or such
component thereof) permanently or indefinitely; provided that, at the time
of such statement or publication, there is no successor administrator that
will continue to provide any Available Tenor of such Benchmark (or such
component thereof);
(B)
a public statement or publication of information by the regulatory
supervisor for the administrator of such Benchmark (or the published
component used in the calculation thereof), the Board of Governors of the
Federal Reserve System, the Federal Reserve Bank of New York, the
Term SOFR Administrator, an insolvency official with jurisdiction over the
administrator for such Benchmark (or such component thereof), a
resolution authority with jurisdiction over the administrator for such
Benchmark (or such component thereof) or a court or an entity with similar
insolvency or resolution authority over the administrator for such
Benchmark (or such component thereof), which states that the
administrator of such Benchmark (or such component thereof) has ceased
or will cease to provide all Available Tenors of such Benchmark (or such
component thereof) permanently or indefinitely; provided that, at the time
of such statement or publication, there is no successor administrator that
will continue to provide any Available Tenor of such Benchmark (or such
component thereof); or
(C)
a public statement or publication of information by or on behalf of the
administrator of such Benchmark (or the published component used in the
calculation thereof) or the regulatory supervisor for the administrator of
such Benchmark (or such component thereof) announcing that all
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Available Tenors of such Benchmark (or such component thereof) are not,
or as of a specified future date will not be, representative or in compliance
with or aligned with the International Association of Securities
Commissions (IOSCO) Principles for Financial Benchmarks.
For the avoidance of doubt, a “Benchmark Transition Event” will be
deemed to have occurred with respect to any Benchmark if a public
statement or publication of information set forth above has occurred with
respect to each then-current Available Tenor of such Benchmark (or the
published component used in the calculation thereof).
(viii)
"Benchmark Transition Start Date" means, in the case of a Benchmark
Transition Event, the earlier of (a) the applicable Benchmark Replacement Date,
and (b) if such Benchmark Transition Event is a public statement or publication of
information of a prospective event, the 90th day prior to the expected date of such
event as of the date of such public statement or publication of information (or, if
the expected date of such prospective event is fewer than 90 days after such
statement or publication, the date of such statement or publication).
(ix)
"Benchmark Unavailability Period" means, the period (if any) (a) beginning at
the time that a Benchmark Replacement Date has occurred if, at such time, no
Benchmark Replacement has replaced the then-current Benchmark for all
purposes hereunder and under any Loan Document in accordance with Section
1.16, and (b) ending at the time that a Benchmark Replacement has replaced the
then-current Benchmark for all purposes hereunder and under any Loan Document
in accordance with Section 1.16.
(x)
“Relevant Governmental Body” means the Board of Governors of the Federal
Reserve System of the United States or the Federal Reserve Bank of New York,
or a committee officially endorsed or convened by the Board of Governors of the
Federal Reserve System of the United States or the Federal Reserve Bank of New
York, or any successor thereto.
(xi)
“Unadjusted Benchmark Replacement" means the applicable Benchmark
Replacement excluding the related Benchmark Replacement Adjustment
1.17
Canadian Benchmark Replacement Setting
(a)
Canadian Benchmark Replacement. Notwithstanding anything to the contrary herein or in
any other Loan Document, if a Canadian Benchmark Transition Event and its related
Canadian Benchmark Replacement Date have occurred prior any setting of the then-
current Canadian Benchmark, then (x) if a Canadian Benchmark Replacement is
determined in accordance with clause (a) of the definition of “Canadian Benchmark
Replacement” for such Canadian Benchmark Replacement Date, such Canadian
Benchmark Replacement will replace such Canadian Benchmark for all purposes
hereunder and under any Loan Document in respect of such Canadian Benchmark setting
and subsequent Canadian Benchmark settings without any amendment to, or further action
or consent of any other party to, this Agreement or any other Loan Document and (y) if a
Canadian Benchmark Replacement is determined in accordance with clause (b) of the
definition of “Canadian Benchmark Replacement” for such Canadian Benchmark
Replacement Date, such Canadian Benchmark Replacement will replace such Canadian
Benchmark for all purposes hereunder and under any Loan Document in respect of any
Canadian Benchmark setting at or after 5:00 p.m. (Toronto time) on the fifth (5th) Business
Day after the date notice of such Canadian Benchmark Replacement is provided to the
Borrowers without any amendment to, or further action or consent of any other party to,
this Agreement or any other Loan Document.
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(b)
Canadian Conforming Changes. In connection with the use, administration, adoption or
implementation of a Canadian Benchmark Replacement, the Lender will have the right to
make such Canadian Conforming Changes from time to time and, notwithstanding anything
to the contrary herein or in any other Loan Document, any amendments implementing such
Canadian Conforming Changes will become effective without any further action or consent
of any other party to this Agreement or any other Loan Document.
(c)
Notices; Standards for Decisions and Determinations. The Lender will promptly notify the
Borrowers of (i) the implementation of any Canadian Benchmark Replacement and (ii) the
effectiveness of any such Canadian Conforming Changes in connection with the use,
administration, adoption or implementation of a Canadian Benchmark Replacement. The
Lender will notify the Borrowers of (x) the removal or reinstatement of any tenor of a
Canadian Benchmark pursuant to Section 1.17(d) and (y) the commencement of any
Canadian Benchmark Unavailability Period. Any determination, decision or election that
may be made by the Lender pursuant to this Section 1.17 including any determination with
respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event,
circumstance or date and any decision to take or refrain from taking any action or any
selection, will be conclusive and binding absent manifest error and may be made in its or
their sole discretion and without consent from any other party to this Agreement or any
other Loan Document, except, in each case, as expressly required pursuant to this Section
1.17.
(d)
Unavailability of Tenor of Canadian Benchmark. Notwithstanding anything to the contrary
herein or in any other Loan Document, at any time (including in connection with the
implementation of a Canadian Benchmark Replacement), (i) if the then-current Canadian
Benchmark is a term rate (including Term CORRA) and either (A) any tenor for such
Canadian Benchmark is not displayed on a screen or other information service that
publishes such rate from time to time as selected by the Lender in its reasonable discretion
or (B) the regulatory supervisor for the administrator of such Canadian Benchmark has
provided a public statement or publication of information announcing that any tenor for
such Canadian Benchmark is not or will not be representative, then the Lender may modify
the definition of “Interest Period” (or any similar or analogous definition) for any Canadian
Benchmark settings at or after such time to remove such unavailable or non-representative
tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is
subsequently displayed on a screen or information service for a Canadian Benchmark
(including a Canadian Benchmark Replacement) or (B) is not, or is no longer, subject to an
announcement that it is not or will not be representative for a Canadian Benchmark
(including a Canadian Benchmark Replacement), then the Lender may modify the
definition of “Interest Period” (or any similar or analogous definition) for all Canadian
Benchmark settings at or after such time to reinstate such previously removed tenor.
(e)
Canadian Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the
commencement of a Canadian Benchmark Unavailability Period, the Borrowers may
revoke any pending request for a Revolving Credit Advances of, conversion to or
continuation of Loans, which are of the type that have a rate of interest determined by
reference to the then-current Canadian Benchmark, to be made, converted or continued
during any Canadian Benchmark Unavailability Period and, failing that, the Borrowers will
be deemed to have converted any such request into a request for a Revolving Credit
Advance of or conversion to (i) for a Canadian Benchmark Unavailability Period in respect
of Term CORRA, Daily Compounded CORRA Loans, and (ii) for a Canadian Benchmark
Unavailability Period in respect of a Canadian Benchmark other than RBP based Loans.
SECTION 2 – CONDITIONS PRECEDENT
2.1
Conditions to the Initial Loans
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Lender shall not be obligated to make any of the Loans or to perform any other action hereunder, until the
following conditions have been satisfied in a manner satisfactory to Lender in its sole discretion, or waived
in writing by Lender:
(a)
the Loan Documents to be delivered on or before the Closing Date shall have been duly
executed and delivered by the appropriate parties, all as set forth in the Schedule of
Documents (Schedule F);
(b)
Lender shall have received evidence that all of the obligations of the Credit Parties to Royal
Bank of Canada under the Existing Credit Facility as in effect immediately prior to the
Closing Date will be performed and paid in full from the proceeds of the initial Loans;
(c)
Lender shall have received and shall be satisfied with such estoppel letters, landlord
waivers, mortgagee, processor and bailee waivers and such other consents (including
consents from Governmental Authorities) as Lender may require in its discretion;
(d)
Lender shall have received and shall be satisfied with such subordination and intercreditor
agreements as Lender may require in its discretion;
(e)
the insurance policies provided for in Section 3.16 shall be in full force and effect, together
with appropriate evidence showing loss payable or additional insured clauses or
endorsements in favour of Lender as required under such Section;
(f)
as of the Closing Date, Net Borrowing Availability shall be not less than $8,000,000 after
giving effect to the initial Revolving Credit Advances and Letter of Credit Obligations
(calculated on a pro forma basis, with trade payables being paid currently, and expenses
and liabilities being paid in the ordinary course of business and without acceleration of
sales);
(g)
[reserved];
(h)
Lender shall have received opinions of counsel to each of the Credit Parties (including
opinions relating to enforceability, the Lender’s security in each relevant jurisdiction and
such other matters as the Lender reasonably considers necessary in its discretion) with
respect to each Loan Document in form and substance satisfactory to Lender;
(i)
Lender (and where applicable, Lender’s counsel) shall have completed and be satisfied
with the results of all business, environmental and legal due diligence (including review
with results satisfactory to Lender of Borrower’s union contracts, if applicable);
(j)
Lender shall have received and be satisfied with the results of, Borrower’s field exam, and
with regard to the Collateral, the inventory control systems, the books and records and the
reporting capability of the Credit Parties;
(k)
Lender shall have been provided with and be satisfied with its review of, each Credit
Parties’ documents regarding its corporate and capital structure, Material Contracts, debt
instruments and governing documents;
(l)
Lender shall have reviewed and be satisfied with Credit Parties’ customers’ contracts
(including distribution agreements, licence agreements and supply agreements) and, if
requested by Lender, the purchase orders relating thereto;
(m)
Lender shall have completed and be satisfied with the results of the background and
reference checks on Borrower, senior management of Borrowers and the other Credit
Parties and shall have received all documentation and other information required by
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regulatory and governmental authorities under applicable “know-your-customer”, sanctions
and anti-money laundering rules and regulations;
(n)
Lender shall have received, and same shall continue to be valid and current, certified
copies of all the constating documents, by-laws and resolutions of the directors (or
partners, members or shareholders as required by Lender) authorizing the Loan
Documents, and certificates of incumbency, for Borrowers and each other Credit Party;
(o)
Lender shall have received and be satisfied with the Borrowers’ (i) most recent individual
and consolidated Projections for the 24 months following the Closing Date (including
projections of balance sheet, operating results, cash flows, Capital Expenditures and Net
Borrowing Availability), and (ii) updated aged accounts receivable listing (supported by
detailed rebates payable), aged accounts payable listing and detailed inventory listing;
(p)
a Compliance Certificate shall have been submitted prior to the Closing Date confirming all
required covenants have been met; and
(q)
the Lender shall have received all fees and other amounts due and payable on or prior to
the Closing Date, including, reimbursement or payment of all for all costs and expenses
(including the fees and expenses of all counsel, advisors, consultants (including
environmental and management consultants), field examiners, appraisers required to be
reimbursed or paid by the Borrowers hereunder or under any other Loan Document.
2.2
Further Conditions to the Loans
Lender shall not be obligated to fund any Loan (including the initial Loan(s)), if, as of the date thereof:
(a)
any representation or warranty by any Credit Party contained herein or in any of the other
Loan Documents shall be untrue or incorrect as of such date, except to the extent that any
such representation or warranty is expressly stated to relate to a specific earlier date, in
which case, such representation and warranty shall be true and correct as of such earlier
date;
(b)
any event or circumstance, which has had or reasonably could be expected to have a
Material Adverse Effect, shall have occurred since the Closing Date;
(c)
any Default shall have occurred and be continuing or would result after giving effect to such
Loan; or
(d)
after giving effect to such Loan, the Revolving Credit Loan would exceed the Borrowing
Availability.
The request and acceptance by a Borrower of the proceeds of any Loan shall be deemed to constitute, as
of the date of such request and the date of such acceptance: (i) a representation and warranty by Borrowers
that the conditions in this Section 2.2 have been satisfied; and (ii) a restatement by Borrowers of each of
the representations and warranties made by it in each Loan Document and a reaffirmation by Borrowers of
the granting and continuance of Lender’s Liens pursuant to the Loan Documents.
SECTION 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement and to make the Loans, each Borrower and each other Credit
Party executing this Agreement represent and warrant to Lender (each of which representations and
warranties shall survive the execution and delivery of this Agreement), and promise to and agree with
Lender at all times until the Termination Date as follows:
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3.1
Corporate Existence; Compliance with Law; Investment Company
Each Credit Party:
(a)
is, as of the Closing Date, and will continue to be: (i) a corporation or partnership, as
applicable, duly organized, validly existing, registered and in good standing under the laws
of the jurisdiction of its incorporation or formation; (ii) duly qualified to do business and in
good standing in each other jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect; and (iii) in
compliance with all Requirements of Law, including without limitation, laws relating to the
prevention of money laundering and terrorist financing and Contractual Obligations, except
to the extent failure to comply therewith could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
(b)
has and will continue to have: (i) the requisite power and authority and the legal right to
execute, deliver and perform its obligations under the Loan Documents, and to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore or proposed to be
conducted; and (ii) all licenses, permits, franchises, rights, powers, consents or approvals
from or by all Persons or Governmental Authorities having jurisdiction over such Credit
Party which are necessary or appropriate for the conduct of its business;
(c)
is Solvent; and
(d)
is not an “investment company”, or a company “controlled” by a “registered investment
company” or a “principal underwriter” of a “registered investment company”, within the
meaning of the Investment Company Act of 1940, as amended.
3.2
Executive Offices; Corporate or Other Names
The full legal name of and jurisdiction of organization of each Credit Party and each of its Subsidiaries is
set forth on Disclosure Schedule (3.2). The location of each Credit Party’s chief executive office, corporate
offices, warehouses, other locations of Collateral and locations where records with respect to Collateral are
kept (including in each case the county of such locations) are as set forth in Disclosure Schedule (3.2) and,
except as set forth in such Disclosure Schedule, such locations have not changed during the preceding
twelve (12) months. As of the Closing Date, during the prior five years, except as set forth in Disclosure
Schedule (3.2), no Credit Party has been known as or conducted business in any other name (including
trade or business names). Disclosure Schedule (3.2) also sets forth the corporate organizational chart of
the Credit Parties as of the Closing Date.
3.3
Corporate Power; Authorization; Enforceable Obligations
The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party,
and the creation of all Liens provided for herein and therein: (a) are and will continue to be within such
Credit Party’s power and authority; (b) have been and will continue to be duly authorized by all necessary
or proper action; (c) are not and will not be in violation of any Requirement of Law or Contractual Obligation
of such Credit Party (except in the case of Contractual Obligations, where such violation would not
reasonably be expected to result in a Material Adverse Effect) ; (d) do not and will not result in the creation
or imposition of any Lien (other than in favour of Lender) upon any of the Collateral; and (e) do not and will
not require the consent or approval of any Governmental Authority (except in the case of the assignment
of any receivables from a Governmental Authority) or any other Person, where such violation would not
reasonably be expected to result in a Material Adverse Effect. As of the Closing Date, each Loan Document
shall have been duly executed and delivered on behalf of each Credit Party thereto, and each such Loan
Document upon such execution and delivery shall be and will continue to be a legal, valid and binding
obligation of such Credit Party, enforceable against it in accordance with its terms, except as such
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enforcement may be limited by bankruptcy, insolvency and other similar laws affecting creditors’ rights
generally.
3.4
Financial Statements and Projections; Books and Records
(a)
The Financial Statements delivered by Borrowers to Lender for its most recently ended
Fiscal Year, Fiscal Quarter or and Fiscal Month, as applicable, are true, correct and
complete and reflect fairly and accurately the financial condition of Borrowers as of the date
of each such Financial Statement in accordance with GAAP with the exception that the
monthly statements do not include full note disclosure or tax accruals. The Projections
most recently delivered by Borrowers to Lender have been prepared in good faith, with
care and diligence and use assumptions that are reasonable under the circumstances at
the time such Projections were prepared and as of the date delivered to Lender and all
such assumptions are disclosed in the Projections; and
(b)
Each Borrower and the other Credit Parties shall keep adequate Books and Records with
respect to the Collateral and its business activities in which proper entries, reflecting all
consolidated and consolidating financial transactions, and payments and credits received
on, and all other dealings with, the Collateral, shall be made in accordance with GAAP and
all Requirements of Law and on a basis consistent with the Financial Statements.
3.5
Material Adverse Change
Between the date of the most recent audited consolidated Financial Statements of the Canadian Borrower
delivered to Lender and the Closing Date: (a) no Credit Party has incurred any obligations (except the
Convertible Debentures), contingent or non-contingent liabilities, or liabilities for Charges, long-term leases
or unusual forward or long-term commitments which are not reflected in the unaudited consolidated monthly
financial statements which could, alone or in the aggregate, reasonably be expected to have a Material
Adverse Effect; and (b) no events have occurred which alone or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect. No Credit Party is in default, and to such Credit
Party’s knowledge, no third party is in default, under or with respect to any of its Contractual Obligations,
which alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect.
3.6
Real Estate; Property
The real estate listed in Disclosure Schedule (3.6) constitutes, as of the Closing Date, all of the (i) real
property owned, or (ii) leased or used by each Credit Party in its business having Collateral in excess of
$50,000, and such Credit Party will not execute any material agreement or contract in respect of the material
real estate after the date of this Agreement without giving Lender prompt prior written notice thereof. Each
Credit Party holds and will continue to hold good and marketable fee simple title to all of its owned real
estate, and good and marketable title to all of its other properties and assets, and valid and insurable
leasehold interests in all of its leases (both as lessor and lessee, sublessee or assignee), and none of the
properties and assets of any Credit Party are or will be subject to any Liens, except Permitted
Encumbrances. With respect to each of the premises identified in Disclosure Schedule (3.6) on or prior to
the Closing Date, a bailee, landlord or mortgagee waiver acceptable to Lender has been obtained except
as expressly noted in Disclosure Schedule (3.6).
3.7
Ventures, Subsidiaries and Affiliates; Outstanding Shares and Indebtedness
As at the Closing Date, the ownership structure of the Canadian Borrower and its Subsidiaries is as set out
in forth in Disclosure Schedule (3.7) and except as set forth in such schedule, no Credit Party has any
Subsidiaries, is engaged in any joint venture or partnership with any other Person, or conducts any of its
business with an Affiliate. Except for the Canadian Borrower, all of the issued and outstanding Shares of
each Credit Party (including all rights to purchase options, warrants or similar rights or agreements pursuant
to which any Credit Party may be required to issue, sell, repurchase or redeem any of its Shares) as of the
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Closing Date are registered in the name of each of the Shareholders (and in the amounts) set forth on
Disclosure Schedule (3.7) or an updated Schedule (3.7) delivered pursuant to Section 4.2.
3.8
Government Regulations
To the extent any Credit Party is subject to or regulated under any federal, provincial, territorial or state
statute, rule or regulation that restricts or limits such Person’s ability to incur Indebtedness, pledge,
hypothecate, mortgage or otherwise encumber its assets, or to perform its obligations under the Loan
Documents, any such Credit Party has complied with such laws. The making of the Loans, the application
of the proceeds and repayment thereof, and the consummation of the transactions contemplated by the
Loan Documents do not and will not violate any Requirement of Law.
3.9
Taxes; Charges
Except as disclosed on Disclosure Schedule (3.9), all tax returns, reports and statements required by any
Governmental Authority to be filed by each Borrower or any other Credit Party have, as of the Closing Date,
been filed and will, until the Termination Date, be filed with the appropriate Governmental Authority and no
tax Lien (other than Permitted Encumbrances) has been filed against any Credit Party or any Credit Party’s
property. Proper and accurate amounts have been and will be withheld by each Borrower and each other
Credit Party from their respective past or present employees for all periods in complete compliance with all
Requirements of Law and such withholdings have been and will be timely paid to the appropriate
Governmental Authorities. Disclosure Schedule (3.9) sets forth as of the Closing Date those taxable years
for which any Credit Party’s tax returns are currently being audited by the Canada Revenue Agency, the
Internal Revenue Service or any other applicable Governmental Authority and any assessments or
threatened assessments in connection with such audit, or otherwise currently outstanding. Except as
described on Disclosure Schedule (3.9), none of the Credit Parties nor their respective predecessors are
liable for any Charges related to taxes: (a) under any agreement (including any tax sharing agreements or
agreement extending the period of assessment of any Charges); or (b) to each Credit Party’s knowledge,
as a transferee.
3.10
Payment of Obligations
Each Credit Party will pay, discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all of its Charges and other obligations of whatever nature, except where
the amount or validity thereof is at such time being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the books of such Credit
Party and none of the Collateral is or could reasonably be expected to become subject to any Lien or
forfeiture or loss as a result of such contest.
3.11
Pension Plans
Disclosure Schedule (3.11) lists all Plans applicable to the Credit Parties (other than, for greater certainty,
Plans maintained by the Government of Canada or any Government of a Province of Canada to which a
Credit Party is obligated to contribute under any applicable law). Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal, state, provincial or territorial
laws. No Pension Event has occurred or is reasonably expected to occur. The aggregate amount of all
normal contributions (as such term is defined for the purpose of the BIA) accruing due but not paid or
remitted, all amounts withheld from employees and not paid or remitted and other amounts which might
give rise to a Lien giving any priority under the BIA shall never exceed the Minimum Actionable Amount.
Notwithstanding anything to the contrary in this Agreement, to the extent that Lender determines that any
Lien associated with any Pension Event could reasonably be expected to have priority to any Lien
established by Lender, a reserve will immediately be established in an amount that Lender deems
necessary in its sole and absolute discretion (it being understood that such amount may equal the amount
of the obligation secured by such Lien), and to the extent that after the establishment of such reserve the
Revolving Credit Loans exceed Borrowing Availability and such overadvance is not cured within two (2)
days, it shall be an immediate Event of Default. No ERISA Event has occurred or is reasonably expected
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to occur. The present value of all accumulated benefit obligations under each Plan (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the
date of the most recent financial statements reflecting such amounts, exceed by more than the Minimum
Actionable Amount the fair market value of the assets of such Plan, and the present value of all accumulated
benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most recent Financial Statements
reflecting such amounts, exceed by more than the Minimum Actionable Amount, the fair market value of
the assets of all such underfunded Plans.
3.12
Litigation
No Litigation is pending or, to the knowledge of any Credit Party, threatened against any Credit Party or
against any Credit Party’s properties or revenues: (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby; or (b) which, if adversely determined, could reasonably
be expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule (3.12), as of
the Closing Date, there is no Litigation pending or threatened against any Credit Party which seeks
damages in excess of the Minimum Actionable Amount or injunctive relief or alleges criminal misconduct of
any Credit Party.
3.13
Intellectual Property
As of the Closing Date, all material Intellectual Property owned or used by any Credit Party is listed, together
with application or registration numbers, where applicable, in Disclosure Schedule (3.13). Each Credit
Party owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently
conducted except for such Intellectual Property the failure of which to own or license could not reasonably
be expected to have a Material Adverse Effect. Each Credit Party will maintain the patenting and
registration of all Intellectual Property owned by it with the appropriate Governmental Authority and each
Credit Party will promptly apply to patent or register, as the case may be, all new Intellectual Property
developed by it and notify Lender in writing five (5) Business Days after filing any such new patent or
registration provided that in each case the patenting or registration of such Intellectual Property is
commercially reasonable or necessary and the failure to patent or register could reasonably be expected
to result in a Material Adverse Effect.
3.14
Full Disclosure/Know Your Customer
No information contained in any Loan Document, the Financial Statements or any written statement
furnished by or on behalf of any Credit Party under any Loan Document, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the statements contained herein or therein
not misleading in light of the circumstances under which they were made. Without limitation to any other
term hereof, each Credit Party shall provide Lender with such documentation and other evidence as is
determined necessary by Lender in or for it to be satisfied that it has complied and all times will comply with
all “know your customer” requirements under all applicable Requirements of Law (including in connection
with any change of laws or requirement or any proposed or actual assignment by Lender). To the extent
applicable, each Credit Party is in compliance, in all material respects, with the (a) Trading with the Enemy
Act, as amended, and each of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive
order relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the "Patriot Act"). No part of the proceeds
of the Loans made hereunder will be used by any Credit Party or any of its Affiliates, directly or indirectly,
for any payments to any subsidiary, joint venture partner, governmental official or employee, political party,
official of a political party, candidate for political office, or anyone else acting in an official capacity, or any
other Person (i) in furtherance of an offer, payment, promise to pay or authorization of the payment of giving
of money, or anything else of value, to any Person in violation of the United States Foreign Corrupt Practices
Act of 1977, as amended, and the rules and regulations thereunder, or any other applicable anti-corruption
law.
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3.15
Environmental Matters
Except as set forth on Disclosure Schedule (3.15), as of the Closing Date: (a) each real property location
owned, leased or occupied by or otherwise in the charge, management or control of each Credit Party (the
“Real Property”) is maintained free of material contamination that is required by the applicable
Environmental Laws to be removed, remediated or mitigated; (b) no Credit Party is subject to any
Environmental Liabilities or, to any Credit Party’s knowledge, potential Environmental Liabilities, in excess
of the Minimum Actionable Amount in the aggregate; (c) no notice has been received by any Credit Party
identifying it as a “potentially responsible party” or otherwise identifying it as a potentially liable party or
requesting information under the EPA or analogous federal or provincial laws, in each case, to the extent
applicable, and to the knowledge of any Credit Party, there are no facts, circumstances or conditions that
may result in any Credit Party being identified as a “potentially responsible party” under the EPA or
analogous federal or provincial laws, in each case, to the extent applicable; and (d) each Credit Party has
provided to Lender copies of all existing environmental reports, reviews and audits and all written
information pertaining to actual or potential Environmental Liabilities, in each case relating to each Real
Property location. Each Credit Party shall comply in all material respects with all applicable Environmental
Laws and environmental permits.
3.16
Insurance
As of the Closing Date, Disclosure Schedule (3.16) lists all insurance of any nature maintained for current
occurrences by each Credit Party, as well as a summary of the terms of such insurance. Each Credit Party
shall deliver to Lender certificates of insurance evidencing all of its and those of its Subsidiaries: (a) “All
Risks” and business interruption insurance policies naming Lender as loss payee; and (b) commercial
general liability policies naming Lender as an additional insured. All policies of insurance on real and
personal property will be adequate in form, substance, scope and amount and will contain an endorsement,
all in form and substance acceptable to Lender, showing loss payable to Lender (I.B.C. Form 3000 or
equivalent) and extra expense and business interruption endorsements. Such endorsement, or an
independent instrument furnished to Lender, will provide that the insurance companies will give Lender at
least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or
cancelled and that no act or default of any Borrowers or any other Person shall affect the right of Lender to
recover under such policy or policies of insurance in case of loss or damage. Each Credit Party shall direct
all present and future insurers under its “All Risk” policies of insurance to pay all proceeds payable
thereunder directly to Lender. If any insurance proceeds are paid by cheque, draft or other instrument
payable to any Credit Party and Lender jointly, Lender may endorse such Credit Party’s name thereon and
do such other things as Lender may deem advisable to reduce the same to cash. Lender reserves the right
at any time, upon review of each Credit Party’s risk profile, to require additional forms and limits of
insurance, to be obtained on thirty (30) days notice to the applicable Credit Party, provided such insurance
is available and can be obtained on commercially reasonable terms. Each Credit Party shall, on each
anniversary of the Closing Date and from time to time at Lender’s request, deliver to Lender a report by a
reputable insurance broker, satisfactory to Lender, with respect to such Credit Party’s insurance policies.
Each Credit Party will maintain all such insurance in effect during the term of this Agreement.
3.17
Bank Accounts
Each Borrower and the other Credit Parties shall maintain deposit and/or other accounts, including the
Blocked Accounts and Disbursement Accounts, with Lender or an Affiliate of Lender acceptable to Lender
and will not have any other bank accounts except for the accounts shown on Disclosure Schedule (3.17)
without the prior consent of Lender.
3.18
Accounts
As of the date of each Borrowing Base Certificate delivered to Lender, each Account listed thereon as an
Eligible Account shall be an Eligible Account. No Credit Party has made, and will not make, any agreement
with any Account Debtor for any extension of time for the payment of any Account, any compromise or
settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or
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any deduction therefrom except a discount or allowance for prompt or early payment allowed by a Credit
Party or except for any extensions of time for payment in the ordinary course of its business consistent with
historical practice, or after taking into account current COVID pandemic conditions, and as previously
disclosed to Lender in writing. Disclosure Schedule (3.18) sets forth each Account Debtor from whom a
Credit Party has obtained an offset waiver in form and substance satisfactory to Lender. With respect to
the Accounts pledged as collateral pursuant to any Loan Document: (a) the amounts shown on all invoices,
statements and reports which may be delivered to Lender with respect thereto are actually and absolutely
owing to the relevant Credit Party as indicated thereon and are not in any way contingent; (b) no payments
have been or shall be made thereon except payments immediately delivered to the applicable accounts
described in paragraph 1 of Schedule D or Lender as required hereunder; and (c) to each Credit Parties’
knowledge, all Account Debtors have the capacity to contract.
3.19
Conduct of Business
Each Credit Party: (a) shall conduct its business substantially as now conducted or as otherwise permitted
hereunder; and (b) shall at all times maintain, preserve and protect all of the Collateral and all of such Credit
Party’s other property and assets, used or useful in the conduct of its business and keep the same in good
repair, working order and condition and make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices.
3.20
Material Contracts
As at the Closing Date, all of the Material Contracts of the Credit Parties are described in Schedule G. No
Credit Party has received any notice of default or termination under any Material Contracts and are not
aware of any default upon the basis of which the other party to any such agreement could terminate such
agreement.
3.21
Further Assurances
At any time and from time to time, upon the written request of Lender and at the sole expense of Borrowers,
Borrowers and each other Credit Party shall promptly and duly execute and deliver any and all such further
financing statements, financing change statements, instruments and documents and take such further
action as Lender may reasonably deem desirable: (a) to obtain the full benefits of this Agreement and the
other Loan Documents; (b) to protect, preserve and maintain Lender’s rights in any Collateral; or (c) to
enable Lender to exercise all or any of the rights and powers herein granted.
3.22
Default
No Default or Event of Default has occurred and is continuing.
3.23
Sanctions
No Credit Party nor any of its Subsidiaries is in violation of any of the country or list based economic and
trade sanctions administered and enforced by OFAC or Canadian Anti-Terrorism Laws. No Credit Party
nor any of its Subsidiaries: (a) is a Sanctioned Person or a Sanctioned Entity; (b) has assets located in
Sanctioned Entities; (c) derives revenues from investments in, or transactions with Sanctioned Persons or
Sanctioned Entities; or (d) engages in any dealing or transactions prohibited by Canadian Anti-Terrorism
Laws. The proceeds of any loan made hereunder will not be used (A) to fund any operations in, finance
any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity or
(B) in any other manner that would result in a violation of such sanctions by any Person.
3.24
Margin Regulations
No Credit Party is, or will be, engaged in the business of purchasing or selling Margin Stock or extending
credit for the purpose of purchasing or carrying Margin Stock.
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3.25
Post-Closing Undertakings
The Credit Parties will ensure that all post closing undertakings as set forth in Schedule J (collectively, the
“Post-Closing Undertakings”) have been satisfied within the time periods set forth therein and any failure
to satisfy any of the Post-Closing Undertakings within the applicable time periods shall constitute an Event
of Default.
SECTION 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES
4.1
Reports and Information
From the Closing Date until the Termination Date, the Borrowers shall deliver to Lender:
(a)
as frequently as Lender may reasonably request and in any event no less than (i)
within fifteen (15) Business Days following the end of each Fiscal Month or (ii) during a
Cash Dominion Period, weekly on a day agreed upon between Lender and Borrowers and
by 12:00 p.m. (Toronto time) on that day,
(i)
a Borrowing Base Certificate in the form of Exhibit B as of the close of business of
the previous Business Day or previous Fiscal Month, as applicable, detailing the
calculation of the Borrowing Base, certified as true and correct by an Authorized
Officer,
(ii)
an accounts receivable roll forward analysis in the form of Attachment 1 to Exhibit
B,
(iii)
an Inventory perpetual listing,
(iv)
Aged accounts payable listing, aged accounts receivable listing and if requested
by the Lender, reconciliations of the aged accounts receivable listing to the general
ledger and from the general ledger to the Financial Statements, and
(v)
electronic copies of all accounts receivable, accounts payable and inventory
ledgers, subledgers and other backup as Lender may reasonably require.
(b)
within thirty (30) days following the end of each Fiscal Month:
(i)
for each Borrower, its aged accounts payable listing by creditor, its aged accounts
receivable listing by Account Debtor, its Inventory perpetual or physical listing and
if requested by Lender, reconciliations of the aged accounts receivable listing by
Account Debtor and the Inventory perpetual or physical listing (as the case may
be) to each Borrower’s trial balance and from the trial balance to the Financial
Statements for such Fiscal Month, accompanied by supporting detail and
documentation as Lender may reasonably request;
(ii)
its trial balance for such Fiscal Month;
(iii)
for each Borrower, on a consolidated basis, Financial Statements for such Fiscal
Month, which shall provide comparisons to budget and actual results for the
corresponding period during the prior Fiscal Year, both on a monthly and year-to-
date basis;
(iv)
a Compliance Certificate, together with a statement in the form of Attachment 1 to
Exhibit C, showing the calculations used in determining compliance with the
financial covenants hereunder; and
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(v)
an updated Schedule G with the compliance certificate delivered pursuant to
Section 4.1(b)(iv).
(c)
within one hundred and twenty (120) days following the end of each Fiscal Year, the
consolidated audited Financial Statements for such Fiscal Year audited without
qualification by an independent qualified accounting firm reasonably acceptable to Lender,
which shall provide comparisons to the prior Fiscal Year, together with any management
letter that may be issued;
(d)
within sixty (60) days following the end of each Fiscal Year, consolidated Projections, by
month for the next Fiscal Year prepared by Borrowers in a manner consistent with GAAP
and accompanied by senior management’s discussion and analysis of such plan and
prepared by Borrower in good faith, with care and diligence, and using assumptions which
are reasonable under the circumstances at the time such Projections are delivered to
Lender and disclosed therein when delivered; and
(e)
all the other reports and information set forth in Exhibit B in the time frames set forth therein.
4.2
Notices
(a)
Borrowers shall advise Lender:
(i)
as soon as practicable, on becoming aware, in reasonable detail, of:
(A)
any Lien, other than Permitted Encumbrances, attaching to or asserted
against any of the Collateral or any occurrence causing a material loss or
decline in value of any Collateral and the estimated (or actual, if available)
amount of such loss or decline;
(B)
any material change in the composition of the Collateral;
(C)
the occurrence of any Default or other event which has had or could
reasonably be expected to have a Material Adverse Effect;
(D)
the existence or commencement of any Litigation against any Credit Party
or any Plan, seeking damages of more than the Minimum Actionable
Amount, in each case, if applicable, or any allegation of criminal
misconduct against any Credit Party; and
(E)
any event or circumstance which, to such Credit Parties’ knowledge would
cause Lender to consider any then existing Account as no longer
constituting an Eligible Account.
(ii)
if and when it becomes aware of any Release, on, at, in, under, above, to, from or
about any of its Real Property in writing within seven (7) Business Days and shall
promptly forward to Lender a copy of any order, notice, permit, application, or any
communication or report received by it or any other Credit Party in connection with
any such Release;
(iii)
promptly (a) upon written notice of the occurrence of any default or event of default
under the Surety Agreements; and (b) notice in writing of draws under Surety Letter
of Credit by the Surety as required by the Lender;
(iv)
promptly of any issuance of securities by the U.S. Borrower to any Person other
than the Canadian Borrower; and
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(v)
as soon as practicable, update Schedule (3.7) to reflect any issuance of securities
by the U.S. Borrower.
(b)
Each Credit Party shall, upon request of Lender, furnish to Lender such other reports and
information in connection with the affairs, business, financial condition, operations,
prospects or management of the Credit Parties or the Collateral as Lender may reasonably
request, all in reasonable detail.
SECTION 5 – FINANCIAL AND NEGATIVE COVENANTS
5.1
Financial Covenants
(a)
Upon an FCCR Trigger and each subsequent Fiscal Month thereafter until the Fiscal Month
in which Net Borrowing Availability exceeds the greater of (i) 15% of Borrowing Availability
or (ii) $3,000,000, for at least thirty (30) consecutive calendar days, the Canadian Borrower
shall maintain a consolidated Fixed Charge Coverage Ratio of not less than 1.10:1.00
calculated on a trailing twelve (12) month basis and tested as of the end of each Fiscal
Month.
5.2
Negative Covenants
Each Credit Party covenants to Lender that so long as this Agreement is in effect:
(a)
such Credit Party shall not form any Subsidiary or merge with, amalgamate with,
consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise
combine with or make any investment in or, make a loan or advance to, any Person, except
as provided in Section 5.2(c) below or except for transactions between Credit Parties;
provided that, if any such transaction among Credit Parties involves a Borrower, the
Borrower shall be the continuing or surviving Person or the surviving Person shall expressly
assume the obligations of the Borrower pursuant to documents reasonably acceptable to
the Lender and the Borrower (or, if not the Borrower, the surviving Person) and shall be a
corporation, a limited liability company or partnership organized under the laws of Canada
or the United States;
(b)
such Credit Party shall not cancel any debt owing to it (other than the write off of accounts
receivable (excluding Eligible Accounts) in the normal course) or create, incur, assume or
permit to exist any Indebtedness, except: (i) the Obligations; (ii) Indebtedness existing as
of the Closing Date set forth on Disclosure Schedule (5.2(b)); (iii) Indebtedness pursuant
to the RBC Leasing Facility, as amended, modified or supplemented from time to time; (iv)
deferred taxes; (v) by endorsement of instruments or items of payment for deposit to the
general account of such Credit Party; (vi) Guaranteed Indebtedness incurred for the benefit
of Borrower if the primary obligation is permitted by this Agreement; (vii) Capital Lease
Obligations and Indebtedness in respect of Purchase Money Indebtedness not to exceed
$5,000,000; (viii) Indebtedness in respect of corporate credit cards in an amount not to
exceed $1,000,000; (ix) Indebtedness between the Credit Parties; (x) Indebtedness
pursuant to the Convertible Debentures; (xi) Indebtedness pursuant to the Surety Bond
Facility, and (xii) additional Indebtedness incurred after the Closing Date in an aggregate
outstanding amount for all such Credit Parties combined not exceeding the Minimum
Actionable Amount;
(c)
such Credit Party shall not enter into any lending, borrowing or other commercial
transaction with any of its employees, directors, Affiliates or any other Credit Party other
than (i) loans or advances made by one Credit Party to any other Credit Party; (ii) loans or
advances to employees in the ordinary course of business in an aggregate outstanding
amount not exceeding the Minimum Actionable Amount; and (iii) Permitted Investments
made by the Credit Parties, provided that the aggregate amount of all such Permitted
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Investments outstanding at any time (valued at the time such investment was originally
made) shall not exceed the lesser of $5,000,000 and 10% of the Adjusted EBITDA of the
Borrower for the most recently completed twelve month period; and (iv) the sale, at fair
market value, of raw materials, inventory and finished goods between Credit Parties;
(d)
such Credit Party shall not make any changes in any of its business objectives, purposes,
or operations which could reasonably be expected to adversely affect repayment of the
Obligations or could reasonably be expected to have a Material Adverse Effect, or engage
in any business other than that presently engaged in, ancillary thereto, except as permitted
by Section 5.2(g) below, or amend its charter or by-laws or other organizational documents;
(e)
such Credit Party shall not create or permit any Lien on any of its properties or assets,
except for Permitted Encumbrances;
(f)
such Credit Party shall not sell, transfer, convey, assign or otherwise dispose of any of its
assets or properties, including its Accounts or any Shares or engage in any sale-leaseback,
synthetic lease or similar transaction, provided, that the foregoing shall not prohibit (i) the
sale of Inventory or obsolete or unnecessary Equipment in the ordinary course of its
business, (ii) the sale or transfer, at fair market value, of raw materials, inventory and
finished goods from one Credit Party to another Credit Party, (iii) a sale or disposition of
machinery or equipment, provided that the proceeds of sale of such machinery and
equipment shall not in any consecutive 12 month period exceed an amount equal to 10%
of Consolidated Assets, and (iv) the sale of shares by the Canadian Borrower which does
not result in a Change of Control;
(g)
such Credit Party shall not change its name, chief executive office, corporate offices,
warehouses or other material locations having Collateral in excess of $50,000, or location
of its records concerning the Collateral, or acquire, lease or use any real estate after the
Closing Date where books and records or Collateral in excess of $50,000 will be located
without such Person, in each instance, giving thirty (30) days prior written notice thereof to
Lender and taking all actions deemed necessary or appropriate by Lender to continuously
protect and perfect Lender’s Liens upon the Collateral;
(h)
such Credit Party shall not make or permit any Restricted Payment in any Fiscal Year,
unless, the Payment Conditions have been satisfied; and
(i)
no part of such proceeds of the Loans will be used by any Credit Party to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock or to reduce or retire any indebtedness incurred for any such purpose.
No Credit Party nor any of its Subsidiaries are engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or carrying any
Margin Stock.
SECTION 6 – SECURITY INTEREST
6.1
Grant of Security Interest
(a)
As collateral security for the prompt and complete payment and performance of the
Obligations, each Borrower and each other Credit Party executing this Agreement hereby
grants to Lender a security interest in, hypothec on and Lien upon all of its personal
property and assets, tangible or intangible, and whether now owned or hereafter acquired,
or in which it now has or at any time in the future may acquire any right, title, or interest,
including all of the following property in which it now has or at any time in the future may
acquire any right, title or interest: all Accounts; all bank and deposit accounts and all funds
on deposit therein; all cash and cash equivalents; all commodity contracts (including all
Commodity Contracts (as such term is defined in the UCC)); all investments, Shares and
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Investment Property; all Inventory and Equipment; all Goods; all Commercial Tort Claims
(as such term is defined in the UCC), all Chattel Paper, Documents and Instruments; all
Books and Records; all Intangibles; and to the extent not otherwise included, all Proceeds
and products of all and any of the foregoing and all collateral security and guarantees given
by any Person with respect to any of the foregoing, but excluding in all events Hazardous
Waste (all of the foregoing, together with any other collateral pledged to Lender or in
respect of which Lender may acquire any Lien pursuant to each other Loan Document,
collectively, the “Collateral”).
(b)
The security in the Collateral shall not extend or apply to consumer goods.
(c)
With respect to the US Borrower, the security in the Collateral shall not extend to consumer
goods or Excluded Property as defined in the U.S. Security Agreement.
(d)
The security in the Collateral shall not extend or apply to the last day of the term of any
lease or sublease or any agreement for a lease or sublease, now held or hereafter acquired
by the Borrowers in respect of real property, but the Borrowers shall stand possessed of
any such last day upon trust to assign and dispose of it as the Lender may direct.
(e)
Nothing in this Section shall constitute an assignment or attempted assignment of any
license, permit, contract or other agreement which by its provisions or by applicable law is
not assignable, which would result in the termination of or a breach under such contract,
or which requires the consent of a third party to its assignment unless such consent has
been obtained. With respect to any contract which the Lender reasonably determines to be
material, the applicable Borrower shall promptly, upon written request by the Lender,
attempt to obtain the consent of any necessary third party to its assignment under this
Agreement. Upon such consent being obtained or waived, this Section shall apply to the
applicable contract without the necessity of any further assurance to effect such
assignment. Unless and until such consent to assignment is obtained, such Borrower shall
hold all benefit to be derived from such contract in trust for the Lender as additional security
for payment of the Obligations and shall deliver up all such benefit to the Lender promptly
upon demand by the Lender.
(f)
Notwithstanding any other provisions of this Agreement, the security granted hereunder
with respect to trademarks constitutes a security interest in, and charge, hypothecation and
pledge of such collateral but does not constitute an assignment of such collateral to the
Lender and, notwithstanding the generality of the foregoing, the collateral shall not include
any intent-to-use trademark application prior to the filing of a “Statement of Use” or
“Amendment to Allege Use” with respect thereto, to the extent, if any, that, and solely during
the period, if any, in which the grant of a security interest therein would impair the validity
or enforceability of such intent-to-use trademark application under applicable law.
(g)
Each Borrower, Lender and each other Credit Party executing this Agreement agree that
this Agreement creates, and is intended to create, valid and continuing Liens upon the
Collateral in favour of Lender. Each Borrower and each other Credit Party executing this
Agreement represents, warrants and promises to Lender that: (i) each Borrower and each
other Credit Party granting a Lien in Collateral is the sole owner of, or otherwise has a valid
property interest in, each item of the Collateral upon which it purports to grant a Lien
pursuant to the Loan Documents, and has good and marketable title thereto free and clear
of any and all Liens of others, other than Permitted Encumbrances; (ii) the security
interests, hypothecs and Liens granted pursuant to this Agreement and the Loan
Documents, upon completion of the filings and other actions listed on Disclosure Schedule
(6.1) (which, in the case of all filings, registrations, publications and other documents
referred to in said Disclosure Schedule, have been delivered to Lender in duly executed
form, where applicable) will constitute valid perfected security interests and Liens in all
Collateral in which a security interest may be perfected by filing or taking such other actions
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pursuant to the PPSA or the UCC as applicable in favour of Lender as security for the
prompt and complete payment and performance of the Obligations, enforceable in
accordance with the terms hereof against any and all creditors of and purchasers from any
Credit Party (other than purchasers of Inventory in the ordinary course of business) and
such security interests and Liens are prior to all other Liens on the Collateral in existence
on the date hereof except for Permitted Encumbrances which have priority by operation of
law or which are permitted to be prior pursuant to the terms of this Agreement and the other
Loan Documents; and (iii) no effective security agreement, financing statement, deed of
hypothec, equivalent security or Lien covering, charging or hypothecating all or any part of
the Collateral is or will be on file or of record in any public office, except those relating to
Permitted Encumbrances. Each Borrower and each other Credit Party executing this
Agreement promise to defend the right, title and interest of Lender in and to the Collateral
against the claims and demands of all Persons whomsoever (other than Persons holding
Permitted Encumbrances on such Collateral that have priority over the Lender's Lien), and
each shall take such actions, including: (x) upon Lender's request, the prompt delivery of
all original Instruments, Chattel Paper and certificated Shares owned by each Borrower
and each other Credit Party granting a Lien on Collateral to Lender; (y) notification of
Lender’s interest in Collateral at Lender’s request; and (z) the institution of Litigation
against third parties as shall be reasonable and prudent in order to protect and preserve
each Credit Party’s and Lender’s respective and several interests in the Collateral. Upon
Lender’s request, each Borrower (and any other Credit Party granting a Lien on Collateral)
shall mark its Books and Records pertaining to the Collateral to evidence the Loan
Documents and the Liens granted under the Loan Documents. Upon Lender’s request, all
Chattel Paper shall be marked with the following legend: “This writing and the obligations
evidenced or secured hereby are subject to the security interest of Royal Bank of Canada”.
6.2
Lender’s Rights
(a)
(i) upon Lender’s request, Borrower shall cooperate with the Lender to (or subsequent to
an Event of Default Lender may at any time in Lender’s own name or in the name of either
Borrower), communicate with Account Debtors, parties to Contracts, and obligors in
respect of Instruments, Chattel Paper or other Collateral to verify to Lender’s satisfaction,
the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel
Paper or other Collateral; and (ii) Lender may subsequent to an Event of Default, notify
Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper,
Instruments, or other Collateral that the Collateral has been assigned to or is subject to
Liens in favour of Lender and that payments shall be made directly to Lender. Upon the
request of Lender, each Borrower shall so notify such Account Debtors, parties to
Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral. Upon
an Event of Default, each Borrower hereby constitutes Lender or Lender’s designee as
such Borrower’s legal attorney, agent and mandatary with power to endorse such
Borrower’s name upon any notes, acceptance drafts, money orders or other evidences of
payment or Collateral.
(b)
Each Borrower shall remain liable under each Contract, Instrument and License to observe
and perform all the conditions and obligations to be observed and performed by it
thereunder, and Lender shall have no obligation or liability whatsoever to any Person under
any Contract, Instrument or License (between any Borrower or any other Credit Party and
any Person other than Lender) by reason of or arising out of the execution, delivery or
performance of this Agreement or other Loan Documents and Lender shall not be required
or obligated in any manner: (i) to perform or fulfill any of the obligations of any Borrower or
the other Credit Parties; (ii) to make any payment or inquiry; or (iii) to take any action of
any kind to collect, compromise or enforce any performance or the payment of any
amounts which may have been assigned to it and/or which is the object of any Liens in its
favour or to which it may be entitled at any time or times under or pursuant to any Contract,
Instrument or License.
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(c)
Each Borrower and each other Credit Party shall, with respect to each owned, leased, or
controlled real property, during normal business hours and upon reasonable advance
notice (unless a Default shall have occurred and be continuing, in which event no notice
shall be required and Lender shall have access at any and all times subject to any
limitations imposed upon the Borrower by any landlord of such real property) and without
disruption to ordinary business operations: (i) provide access to such property to Lender
and any of its officers, employees and agents, as frequently as Lender determines to be
appropriate; (ii) permit Lender and any of its officers, employees and agents to inspect,
audit and make extracts and copies (or take originals if reasonably necessary) from all of
Borrowers’ and such Credit Party’s Books and Records; and (iii) permit Lender to inspect,
review, verify, evaluate and make physical verifications and appraisals of the Inventory and
other Collateral in any manner and through any medium that Lender considers advisable
(a “Field Examination”), and Borrowers and such Credit Party agree to render to Lender,
at Borrowers’ and such Credit Party’s cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. Without limiting the generality of the
foregoing, Lender shall be entitled to conduct one (1) Field Examination per year, provided
that, (A) if at any time a Net Borrowing Availability has been less than the greater of (y)
20% of Borrowing Availability or (z) $4,000,000, for five (5) consecutive Business Days
during such 12-month period, one (1) additional Field Examination will be permitted in such
12-month period, and (B) if an Event of Default has occurred and is continuing, the Lender
may do any of the foregoing at any time and as many times in any year during normal
business hours and without advance notice, including, without limitation, additional Field
Examinations. The Credit Parties shall be responsible for the reasonable, documented
costs and out of pocket expenses of all such visits, Field Examinations, including without
limitation, the Field Examination Fees.
(d)
After the occurrence and during the continuance of a Default, Borrower, at its own expense,
shall use reasonable commercial efforts to cause its auditors or any appraiser selected by
Lender to deliver to Lender the results of any physical verifications of all or any portion of
the Inventory made or observed by such auditors or appraisers when and if such
verification is conducted. Lender shall be permitted to observe and consult with Borrower’s
accountants or appraisers in the performance of these tasks.
6.3
Grant of License to Use Intellectual Property Collateral
Each Borrower and each other Credit Party executing this Agreement hereby grants to Lender an
irrevocable, non-exclusive license (exercisable upon the occurrence and during the continuance of an Event
of Default without payment of royalty or other compensation to such Borrower or such Credit Party) to use,
transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by
such Borrower or such Credit Party, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof and represents, promises and agrees
that any such license or sublicense is not and will not be in conflict with the contractual or commercial rights
of any third Person; provided, that such license will terminate on the Termination Date.
SECTION 7 – EVENTS OF DEFAULT, RIGHTS AND REMEDIES
7.1
Events of Default
The occurrence of any one or more of the following events (regardless of the reason therefor) shall
constitute an “Event of Default” hereunder which shall be deemed to be continuing unless and until waived
in writing by Lender in accordance with Section 8.3:
(a)
The Borrower or any other Credit Party shall fail to pay (i) when due and as required to be
paid herein, any amount of principal of any Loan, or (ii) within five (5) Business Days after
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the same becomes due and payable, any interest on any Loan or any fee due hereunder,
or any other amount payable hereunder or with respect to any other Loan Document; or
(b)
(i) any default occurs in the observance or performance of any of the covenants or
agreements contained in any of Sections 3.16, 3.17, 3.18, 4.1, 4.2, 5.1 or 5.2 of this
Agreement, or (ii) any default occurs in the observance or performance of any of the other
covenants or agreements contained in any other Section of this Agreement or any other
Loan Document to which any Credit Party and Lender are party (including in respect of any
Bank Products) and such default shall continue for thirty (30) days or more after the earlier
to occur of: (i) notice of default from the Lender to the Borrowers of the occurrence, or (ii)
the date any Borrower becomes aware of such default; or
(c)
an event of default occurs in respect of the RBC Lease Facility or the Convertible
Debentures;
(d)
(A) any Material Contract (excluding the RBC Lease Facility) terminates (other than, in
each case, pursuant to its terms), or otherwise ceases to be legal, valid, binding and
enforceable, (B) if a Credit Party breaches a Material Contract and such breach is not cured
within any applicable period of grace unless such breach is subject to a dispute and the
applicable Credit Party has accrued sufficient reserves in respect thereto in accordance
with GAAP, or (C) an event of default shall occur under any Contractual Obligation of
Borrower or any other Credit Party (other than this Agreement, the other Loan Documents
and the RBC Lease Facility), and such event of default under this clause (C) either: (i)
involves the failure to make any payment (whether or not such payment is blocked pursuant
to the terms of an intercreditor agreement or otherwise), whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment, acceleration,
demand or otherwise, in respect of any Indebtedness (other than the Obligations) of such
Person in an aggregate amount exceeding the Minimum Actionable Amount or which
results in the acceleration of any debt exceeding the Minimum Actionable Amount; or (ii)
causes such Indebtedness, or a portion thereof, in an aggregate amount exceeding the
Minimum Actionable Amount to become due prior to its stated maturity or prior to its
regularly scheduled date of payment; or
(e)
any representation or warranty in this Agreement or any other Loan Document is untrue or
incorrect in any material respect (or, in the case of any such representation or warranty
that is qualified as to materially or Material Adverse Effect, untrue or incorrect in any
respect) where made or deemed made; or
(f)
there shall be commenced against any Borrower or any other Credit Party any Litigation
seeking or effecting any seizure (whether in execution or otherwise), attachment,
execution, distraint or similar process against all or any substantial part of its assets which
remain unreleased or undismissed for thirty (30) consecutive days, unless within such thirty
(30) days, any seizure or taking possession of any property of such Credit Party shall have
occurred; or any creditor (other than Lender) takes possession of all or any substantial part
of the assets of any Borrower or any other Credit Party; or any creditor (other than Lender)
enforces or gives notice of its intention to enforce or gives prior notice with respect to the
exercise of any of its hypothecary or other rights under any Liens granted to it by or over
any assets of either Borrower or any other Credit Party which enforcement or exercise of
rights would reasonably be expected to result in a Material Adverse Effect; or any
custodian, receiver, interim receiver, liquidator, assignee, trustee, monitor, sequestrator or
similar official is appointed in respect of either Borrower or any other Credit Party or takes
possession of all or any substantial part of the assets of any Borrower or any other Credit
Party or either Borrower or any other Credit Party commits an “act of bankruptcy” (as
defined under the relevant provisions of the BIA), becomes insolvent or shall have
concealed, removed or permitted to be concealed or removed, any part of its property with
intent to hinder, delay or defraud any of its creditors or make or suffer a transfer of any of
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its property or the incurring of an obligation which may be fraudulent, reviewable or the
object of any proceedings under any applicable Federal, provincial, state or foreign
bankruptcy, insolvency, receivership legislation, creditor protection legislation or other
similar laws; or
(g)
a petition, proposal, notice of intention to file a proposal, case or proceeding shall have
been commenced involuntarily against any Borrower or any other Credit Party in a court
having competent jurisdiction seeking a declaration, judgment, decree, order or other relief:
(i) under the BIA, CCAA or any other applicable federal, provincial, state or foreign
bankruptcy, insolvency, receivership, or other law providing for suspension of operations
or reorganization of debts or relief of debtors, and seeking either (x) the appointment of a
custodian, receiver, interim receiver, liquidator, assignee, trustee, monitor or sequestrator
(or similar official) for such Person or of any substantial part of its properties, or (y) the
reorganization or winding up or liquidation of the affairs of any such Person, and such
proposal, case or proceeding shall remain undismissed or unstayed for sixty (60)
consecutive days or such court shall enter a declaration, judgment, decree or order
granting the relief sought in such case or proceeding; or (ii) invalidating or denying any
Person’s right, power, or competence to enter into or perform any of its obligations under
any Loan Document or invalidating or denying the validity or enforceability of this
Agreement or any other Loan Document or any action taken hereunder or thereunder; or
(h)
any Borrower or any other Credit Party shall: (i) commence any petition, proposal, notice
of intention to file a proposal, case, proceeding or other action under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, suspension of operations, conservatorship or relief of debtors, seeking to
have an order for relief entered with respect to it or seeking appointment of a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) for it or any
substantial part of its properties; (ii) make a general assignment for the benefit of creditors;
(iii) consent to or take any action in furtherance of, or, indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in paragraphs (e) or (f) of this Section 7.1 or
clauses (i) or (ii) of this paragraph (g); or (iv) shall admit in writing its inability to, or shall be
generally unable to, pay its debts as such debts become due; or
(i)
a final judgment or judgments for the payment of money in excess of the Minimum
Actionable Amount in the aggregate shall be rendered against any Borrower or any other
Credit Party, unless the same shall be: (i) fully covered by insurance and the issuer(s) of
the applicable insurance policies shall have acknowledged full coverage in writing within
fifteen (15) days of judgment; or (ii) vacated, stayed, bonded, paid or discharged within a
period of fifteen (15) days from the date of such judgment, unless within such fifteen (15)
days, any seizure or taking possession of any property of such Credit Party shall have
occurred; or
(j)
any other event shall have occurred which has had or could reasonably be expected to
have a Material Adverse Effect; or
(k)
any material provision of any Loan Document shall for any reason cease to be valid, binding
and enforceable in accordance with its terms, or any Lien granted, or intended by the Loan
Documents to be granted, to Lender shall cease to be a valid and perfected Lien having
the first priority (or a lesser priority if expressly permitted in the Loan Documents) in any of
the Collateral (or any Credit Party shall so assert any of the foregoing);
(l)
a Change of Control shall have occurred; or
(m)
a Pension Event or an ERISA Event shall have occurred that, alone or together with any
other Pension Event or ERISA Events that have occurred, in the opinion of Lender, could
give rise to a Material Adverse Effect or could result in any Lien or any liability on the part
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of Lender in either case in an aggregate amount exceeding the Minimum Actionable
Amount.
7.2
Remedies
(a)
If any Default shall have occurred and be continuing, then Lender may terminate or
suspend its obligation to make further Revolving Credit Advances and to incur additional
Letter of Credit or other Obligations. In addition, if any Event of Default shall have occurred
and be continuing, Lender may, without notice, take any one or more of the following
actions: (i) declare all or any portion of the Obligations to be forthwith due and payable,
including contingent liabilities with respect to Letter of Credit Obligations and EDC
Guaranteed Letter of Credit Obligations, whereupon such Obligations shall become and
be due and payable; (ii) require that all Letter of Credit Obligations and EDC Guaranteed
Letter of Credit Obligations be fully cash collateralized pursuant to Schedule C; or (iii)
exercise any rights and remedies provided to Lender under the Loan Documents or at law
or equity, including all remedies provided under the PPSA or the UCC; provided, that upon
the occurrence of any Event of Default specified in Sections 7.1(f), 7.1(g) or 7.1(h), the
Obligations shall become immediately due and payable (and any obligation of Lender to
make further Loans, if not previously terminated, shall immediately be terminated) without
declaration, notice or demand by Lender.
(b)
Without limiting the generality of the foregoing, each Borrower and each other Credit Party
executing this Agreement expressly agrees that upon the occurrence of any Event of
Default, Lender may collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or
options to purchase or otherwise dispose of and deliver said Collateral (or contract to do
so), or any part thereof, in one or more parcels at public or private sale or sales, at any
exchange or at such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. Lender shall have the right upon any such public
sale, to the extent permitted by law, to purchase for the benefit of Lender the whole or any
part of said Collateral so sold, which upon consummation of such purchase will be free of
any right of equity of redemption, which right the Borrowers and each other Credit Party
executing this Agreement hereby releases. Such sales may be adjourned, or continued
from time to time with or without notice. Lender shall have the right to conduct such sales
on any Credit Party’s premises or elsewhere and shall have the right to use any Credit
Party’s premises without rent or other charge for such sales or other action with respect to
the Collateral for such time as Lender deems necessary or advisable.
(c)
Upon the occurrence and during the continuance of an Event of Default and at Lender’s
request, each Borrower and each other Credit Party executing this Agreement further
agrees, to assemble the Collateral and make it available to Lender at places which Lender
shall reasonably select, whether at its premises or elsewhere. Until Lender is able to effect
a sale, lease, or other disposition of the Collateral, Lender shall have the right to complete,
assemble, use or operate the Collateral or any part thereof, to the extent that Lender deems
appropriate, for the purpose of preserving such Collateral or its value or for any other
purpose. Lender shall have no obligation to any Credit Party to maintain or preserve the
rights of any Credit Party as against third parties with respect to any Collateral while such
Collateral is in the possession of Lender. Lender may, if it so elects, seek the appointment
of a receiver or receiver manager to take possession of any Collateral and to enforce any
of Lender’s remedies with respect thereto without prior notice or hearing. To the maximum
extent permitted by applicable law, each Borrower and each other Credit Party executing
this Agreement waives all claims, damages, and demands against Lender, its Affiliates,
agents, and the officers and employees of any of them arising out of the repossession,
retention or sale of any Collateral except such as are determined in a final judgment by a
court of competent jurisdiction to have arisen solely out of the gross negligence or wilful
misconduct of such Person. Each Borrower and each other Credit Party executing this
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Agreement agrees that ten (10) days prior notice by Lender to such Credit Party of the time
and place of any public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Each Borrower and each other Credit Party shall
remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Lender is entitled.
(d)
Lender’s rights and remedies under this Agreement shall be cumulative and nonexclusive
of any other rights and remedies which Lender may have under any Loan Document or at
law or in equity. Recourse to the Collateral shall not be required. All provisions of this
Agreement are intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited, to the extent necessary, so that they do not render
this Agreement invalid or unenforceable, in whole or in part.
7.3
Waivers by Credit Parties
Except as otherwise provided for in this Agreement and to the fullest extent permitted by applicable law,
each of Borrower and each other Credit Party executing this Agreement waives: (a) presentment, demand
and protest, and notice of presentment, dishonour, intent to accelerate, acceleration, protest, default, non-
payment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents,
commercial paper, Accounts, Contracts, Documents, Instruments, Chattel Paper and guarantees at any
time held by Lender on which such Credit Party may in any way be liable, and hereby ratifies and confirms
whatever Lender may do in this regard; (b) all rights to notice and a hearing prior to Lender’s taking
possession or control of, or to Lender’s replevy, attachment or levy upon, any Collateral or any bond or
security which might be required by any court prior to allowing Lender to exercise any of its remedies; and
(c) the benefit of all valuation, appraisal and exemption laws. Each of Borrower and each other Credit Party
executing this Agreement acknowledges that it has been advised by counsel of its choices and decisions
with respect to this Agreement, the other Loan Documents and the transactions evidenced hereby and
thereby and any rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not apply to the construction or interpretation of this Agreement.
7.4
Proceeds
The Proceeds of any sale, disposition or other realization upon any Collateral shall be applied by Lender
upon receipt to the Obligations in such order as Lender may deem advisable in its sole discretion (including
the cash collateralization of any Letter of Credit Obligations and EDC Guaranteed Letter of Credit
Obligations) and after the indefeasible payment and satisfaction in full in cash of all of the Obligations, and
after the payment by Lender of any other amount required by any provision of law, the surplus, if any, shall
be paid to Borrowers or their representatives or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
SECTION 8 – MISCELLANEOUS
8.1
Complete Agreement; Modification of Agreement
This Agreement and the other Loan Documents constitute the complete agreement between the parties
with respect to the subject matter hereof and thereof, supersede all prior agreements, commitments,
understandings or inducements (oral or written, expressed or implied). No Loan Document may be
modified, altered or amended except by a written agreement signed by Lender and each other Credit Party
that is a party to such Loan Document. Each Borrower and each other Credit Party executing this
Agreement or any other Loan Document shall have all duties and obligations under this Agreement and
such other Loan Documents from the date of its execution and delivery, regardless of whether the initial
Loan has been funded at that time.
8.2
Expenses
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Each Borrower jointly and severally agrees to pay or reimburse Lender for all costs and expenses (including
the reasonable fees and expenses of all counsel, advisors, consultants (including environmental and
management consultants), field examiners, appraisers and auditors retained in connection therewith),
incurred in connection with: (a) the preparation, negotiation, execution, delivery, performance and
enforcement of the Loan Documents and the preservation of any rights thereunder; (b) collection, including
deficiency collections; (c) the forwarding to any Borrower or any other Person on behalf of any Borrower by
Lender of the proceeds of any Loan; (d) any amendment, waiver or other modification with respect to any
Loan Document or advice in connection with the administration of the Loans or the rights thereunder; (e)
any litigation, dispute, suit, proceeding or action (whether instituted by or between any combination of
Lender, a Borrower or any other Person), and an appeal or review thereof, in any way relating to the
Collateral, any Loan Document, or any action taken or any other agreements to be executed or delivered
in connection therewith, whether as a party, witness or otherwise; and (f) any effort to: (i) monitor the Loans
(ii) evaluate, observe or assess any Borrower or any other Credit Party or the affairs of such Person; and
(iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral.
Without limiting the foregoing, each Borrower will jointly and severally reimburse Lender for the costs
(including reasonable out of pocket expenses plus applicable taxes) related to the Lender’s due diligence
including Field Examinations and the verification, evaluation, assessment and approval of Collateral.
8.3
No Waiver
Neither Lender’s failure, at any time, to require strict performance by any Borrower or any other Credit Party
of any provision of any Loan Document, nor Lender’s failure to exercise, nor any delay in exercising, any
right, power or privilege hereunder, shall operate as a waiver thereof or waive, affect or diminish any right
of Lender thereafter to demand strict compliance and performance therewith. No single or partial exercise
of any right, power or privilege hereunder shall preclude any other or future exercise thereof or the exercise
of any other right, power or privilege. Any suspension or waiver of a Default or other provision under the
Loan Documents shall not suspend, waive or affect any other Default or other provision under any Loan
Document, and shall not be construed as a bar to any right or remedy which Lender would otherwise have
had on any future occasion. None of the undertakings, indemnities, agreements, warranties, covenants and
representations of any Borrower or any other Credit Party to Lender contained in any Loan Document and
no Default by a Borrower or any other Credit Party under any Loan Document shall be deemed to have
been suspended or waived by Lender, unless such waiver or suspension is by an instrument in writing
signed by an officer or other authorized employee of Lender and directed to any Borrower specifying such
suspension or waiver (and then such waiver shall be effective only to the extent therein expressly set forth),
and Lender shall not, by any act (other than execution of a formal written waiver), delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder.
8.4
Severability; Section Titles
Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of any Loan Document shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions of such Loan
Document. Except as otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement under the Loan Documents
shall in any way affect or impair the Obligations, duties, covenants, representations and warranties,
indemnities, and liabilities of any Borrower or any other Credit Party or the rights of Lender relating to any
unpaid Obligation (due or not due, liquidated, contingent or unliquidated), or any transaction or event
occurring prior to such termination, or any transaction or event, the performance of which is not required
until after the Commitment Termination Date, all of which shall not terminate or expire, but rather shall
survive such termination or cancellation and shall continue in full force and effect until the Termination Date;
provided, that all indemnity obligations of the Credit Parties under the Loan Documents shall survive the
Termination Date. The Section titles contained in any Loan Document are and shall be without substantive
meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.
8.5
Authorized Signature
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Until Lender shall be notified in writing by a Borrower or any other Credit Party to the contrary, the signature
upon any document or instrument delivered pursuant hereto and believed by Lender or any of Lender’s
officers, agents, or employees to be that of a Credit Party or of an officer of any Borrower or such other
Credit Party shall bind such Borrower or such other Credit Party and be deemed to be the act of such
Borrower or such other Credit Party affixed pursuant to and in accordance with resolutions duly adopted by
such Borrower’s or such other Credit Party’s board of directors, and Lender shall be entitled to assume the
authority of each signature and authority of the person whose signature it is or appears to be unless the
person acting in reliance thereon shall have actual knowledge to the contrary.
8.6
Notices
Except as otherwise provided herein, whenever any notice, demand, request or other communication shall
or may be given to or served upon any party by any other party, or whenever any party desires to give or
serve upon any other party any communication with respect to this Agreement, each such communication
shall be in writing and shall be deemed to have been validly served, given or delivered: (a) upon the earlier
of actual receipt (or refusal thereof) and three (3) Business Days after deposit in the mail, registered or
certified mail, return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by
telecopy, e-mail or other similar facsimile or electronic transmission (with such telecopy, e-mail or facsimile
promptly confirmed by delivery of a copy by personal delivery or mail as otherwise provided in this Section
8.6); (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or
(d) when hand-delivered, all of which shall be addressed to the party to be notified and sent to the address
or facsimile number indicated in Schedule B or to such other address (or facsimile number) as may be
substituted by notice given as herein provided. Failure or delay in delivering copies of any such
communication to any Person (other than a Borrower or Lender) designated in Schedule B to receive copies
shall in no way adversely affect the effectiveness of such communication.
8.7
Counterparts
This Agreement may be executed in any number of counterparts and by facsimile or other electronic format
(including pdf) and by different parties in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one and the same instrument. The
words “execution”, “execute”, “executed”, “signed”, “signature” and words of like import in this Agreement
or in or related to any document to be signed in connection with this Agreement and the transactions
contemplated hereby, shall be deemed to include electronic signatures or the keeping of records in
electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually
executed signature or the use of a paper-based recordkeeping system, as the case may be, in accordance
with applicable law including, without limitation, as in provided Parts 2 and 3 of the Personal Information
Protection and Electronic Documents Act (Canada), the Electronic Commerce Act, 2000 (Ontario), the
Electronic Transactions Act (British Columbia), the Electronic Transactions Act (Alberta), or any other
similar laws based on the Uniform Electronic Commerce Act of the Uniform Law Conference of Canada.
The parties may, in their discretion, require that any such documents and signatures executed electronically
or delivered by fax or other electronic transmission be confirmed by a manually-signed original thereof;
provided that the failure to request or deliver the same shall not limit the effectiveness of any document or
signature executed electronically or delivered by fax or other electronic transmission.
8.8
Assignments
This Agreement shall be binding upon and inure to the benefit of Lender, the Credit Parties and their
respective heirs, executors, administrators, other legal representatives, successors and assigns. Neither
this Agreement nor any interest in this Agreement may be assigned by any Borrower or any other Credit
Party without the prior written consent of Lender. Lender may assign or transfer or grant participations in
its rights or obligations under this Agreement in whole or in part at any time without notice to or consent of
the Credit Parties. Lender may disclose to potential or actual transferees or assignees or participants, any
information regarding the Credit Parties as Lender considers necessary and the Credit Parties consent to
such disclosure.
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8.9
Time of the Essence
Time is of the essence for performance of the Obligations under the Loan Documents.
8.10
Governing Law
Except for Loan Documents expressed to be governed by the laws of another jurisdiction, the Loan
Documents and the obligations arising under the Loan Documents shall be governed by, and construed
and enforced in accordance with, the laws of the Province of Alberta applicable to contracts made and
performed in such province, without regard to the principles thereof regarding conflicts of laws, and any
applicable laws and the federal laws of Canada applicable therein.
8.11
Submission to Jurisdiction; Waiver of Jury Trial
(a)
Each Borrower and each other Credit Party executing this Agreement hereby consent and agree
that the courts located in Alberta shall have exclusive jurisdiction to hear and determine any claims
or disputes between a Borrower and such Credit Party and Lender pertaining to this Agreement or
any of the other Loan Documents or to any matter arising out of or related to this Agreement or any
of the other Loan Documents; that nothing in this Agreement shall be deemed or operate to
preclude Lender from bringing suit or taking other legal action in any other jurisdiction to collect the
Obligations, to realize on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favour of Lender. Each Borrower and each other Credit Party
executing this Agreement expressly submit and consent in advance to such jurisdiction in any
action or suit commenced in any such court, and such Borrower and such Credit Party hereby
waive any objection which they may have based upon lack of personal jurisdiction, improper venue
or forum non conveniens. Each Borrower and each other Credit Party executing this Agreement
hereby waive personal service of the summons, complaint and other process issued in any such
action or suit and agree that service of such summons, complaint and other process may be made
by registered or certified mail addressed to such Borrower or such Credit Party at the address set
forth in Schedule B of this Agreement and that service so made shall be deemed completed upon
the earlier of such Borrower’s or such Credit Party’s actual receipt thereof (or refusal) or three (3)
Business Days after deposit in the mail, proper postage prepaid.
(b)
THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LENDER, ANY BORROWER AND ANY CREDIT PARTY
ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
8.12
Press Releases
Neither any Credit Party nor any of its Affiliates will in the future issue any press release or other public
disclosure using the name of Royal Bank of Canada or its affiliates without at least two (2) Business Days’
prior notice to Lender and without the prior written consent of Lender unless (and only to the extent that)
such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or
Affiliate will use reasonable commercial efforts to consult with Lender before issuing such press release or
other public disclosure. Each Credit Party consents to the publication (in the ordinary course) by Lender or
Lender’s counsel of customary advertising material (including under league tables, tombstones and for
advertising purposes) relating to the financing transactions contemplated by this Agreement using such
Credit Party’s name, product photographs, logos or trademarks. Such consent shall remain effective until
revoked by such Credit Party in writing to Lender.
8.13
Reinstatement
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This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time payment
of all or any part of the Obligations is rescinded or must otherwise be returned or restored by Lender upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower or any other Credit
Party, or otherwise, all as though such payments had not been made.
8.14
Illegality
(a)
In the event that Lender determines that, in consequence of any change in any
Requirement of Law or any policy applicable to it that it is illegal, unlawful or prohibited for
it to make or continue to make any Loans, Letter of Credit Obligations, EDC Guaranteed
Letter of Credit Obligations, Bank Products, the RBC Lease Facility or any other
Obligations hereunder, it shall have the right to immediately terminate such Loans, Letter
of Credit Obligations, EDC Guaranteed Letter of Credit Obligations, Bank Products, the
RBC Lease Facility or other Obligations as it shall determine necessary or appropriate and
to terminate any commitment to make or continue to make such Loans, Letters of Credit
Obligations, Bank Products, the RBC Lease Facility or other Obligations and/or to
terminate its commitments hereunder and any of the Loan Documents as it shall determine
necessary or appropriate.
(b)
If Lender determines that it is unlawful to make, maintain or fund any Revolving Credit
Advances based upon the Term SOFR Rate or Adjusted Term CORRA, as applicable,
each Borrower shall, upon its receipt of notice of such fact and demand from Lender,
prepay in full such Revolving Credit Advances then outstanding, together with interest
accrued thereon, either on the last day of the Interest Period thereof, if Lender may lawfully
continue to maintain such Revolving Credit Advances to such day, or immediately, if
Lender may not lawfully continue to maintain such Revolving Credit Advances. No payment
shall be due under Section 1.14 upon prepayment of Revolving Credit Advances based
upon the Term SOFR Rate or Adjusted Term CORRA pursuant to or as a result of the
circumstances described in the preceding sentence. If any Borrower is required to so
prepay any Revolving Credit Advances based upon the Term SOFR Rate or Adjusted Term
CORRA, as applicable, then concurrently with such prepayment, such Borrower shall
borrow from Lender, in the amount of such repayment, Revolving Credit Advances based
upon RBUSBR or RBP, as applicable.
8.15
Set Off and Survival
Without limitation to any other rights or remedies of Lender, Lender shall have the right at all times without
notice to the Credit Parties (which notice is hereby waived to the maximum extent permitted by law) to set
off or apply against any Obligations now and hereafter owing (whether matured or contingent) any deposits
at any time held by, or other indebtedness at any time owing by, Lender or any of its Affiliates to or for the
credit or account of any Credit Party. All indemnities hereunder or under the other Loan Documents shall
survive any termination of the Loan Documents unless expressly released in writing.
8.16
Increased Costs
If, by reason of: (a) any adoption of, taking effect of, or change in any Requirement of Law (including any
change by way of imposition or increase of statutory reserves or other reserve requirements) or the
application, administration, implementation or interpretation thereof; or (b) the compliance with any rule,
directive, guideline or request from any government authority or other Person exercising control over banks
or financial institutions generally (whether or not having the force of law), including the (x) the Dodd-Frank
Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder
or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the
Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III,
in each case regardless of the date enacted, adopted or issued:
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(i)
Lender (or its applicable lending office) shall be subject to any Tax with respect to any Loan
(including a Letter of Credit) or a change shall result in the basis of taxation of any payment
to Lender (or its applicable lending office) with respect to its obligation to make or continue
any Loan or issue Letters of Credit or participate in Letter of Credit Obligations or EDC
Guaranteed Letter of Credit Obligations; or
(ii)
any reserve (including any imposed by the board of governors or any other applicable
Governmental Authority), special deposits, compulsory loan, insurance charge or similar
requirement against assets of, deposits with or for the account of, or credit extended by,
Lender (or its applicable lending office) shall be imposed or deemed applicable, or any
other condition, affecting Lender’s (or its applicable lending office’s) obligation to make any
Loans or issue Letters of Credit, shall be imposed on Lender (or its applicable lending
office);
and as a result there shall be an increase in the cost to Lender (or its applicable lending office) of agreeing
to make or making, funding or maintaining Loans, Letters of Credit, Letter of Credit Obligations or EDC
Guaranteed Letter of Credit Obligations (except to the extent already included in determination of the rate
of interest), or there shall be a reduction in the amount received or receivable by Lender (or its applicable
office), then Lender shall promptly notify the Borrowers of such event, and each Borrower jointly and
severally agrees to, within five (5) Business Days following demand therefor, pay Lender the amount of
such increased costs or reduced amounts.
In the event that Lender shall have determined that the adoption, effectiveness, or applicability after the
Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any
change therein or in the interpretation or administration thereof by any any government authority, central
bank or comparable agency charged with the interpretation or administration thereof, or compliance by
Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy
(whether or not having the force of law) of any such governmental authority, central bank or comparable
agency (provided that for purposes of this Agreement, (x) the Dodd-Frank Wall Street Reform and
Consumer Protection Act and all requests, rules, guidelines or directives in connection therewith and (y) all
requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel
Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign
regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to have been
adopted and become effective after the date hereof), has or would have the effect of reducing the rate of
return on the capital of Lender or any corporation controlling Lender as a consequence of, or with reference
to, of agreeing to make or making, funding or maintaining Loans, Letters of Credit, Letter of Credit
Obligations or EDC Guaranteed Letter of Credit Obligations (except to the extent already included in
determination of the rate of interest) or of maintaining its obligation to make any such Loan or issue Letters
of Credit to a level below that which Lender or such controlling corporation could have achieved but for
such adoption, effectiveness, applicability, change or compliance (taking into consideration the policies of
Lender or such controlling corporation with regard to capital adequacy), then Lender shall promptly notify
the Borrowers of such event, and each Borrower jointly and severally agrees to, within five (5) Business
Days following demand therefor, pay Lender such additional amount or amounts as will compensate Lender
or such controlling corporation on an after-tax basis for such reduction.
If Lender determines that, because of circumstances described above or any other circumstances arising
hereafter affecting such Lender the Applicable Margin will not adequately and fairly reflect the cost to Lender
of funding Loans or incurring Letter of Credit Obligations, EDC Guaranteed Letter of Credit Obligations or
the cost to Lender of issuing Letters of Credit, then (A) Lender shall promptly notify the Borrowers of such
event; and (B) Lender’s obligation to fund Loans and issue Letters of Credit, shall be immediately
suspended, until each condition giving rise to such suspension no longer exists.
Notwithstanding anything herein to the contrary, each Borrower shall only be required to compensate
Lender in respect of any such increased costs or reduction in the amount received or receivable by Lender
to the extent any Borrower has received a written request for such compensation within ninety (90) days
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after Lender has received actual notice of the occurrence of the relevant circumstance giving rise to such
increased costs or reduction in the amount received or receivable by Lender.
8.17
Conflict
If any provision of this Agreement conflicts with and is incapable of being construed together with any other
Loan Document, then the provisions of this Agreement shall prevail to the extent necessary to remove such
conflict. If there is a representation, warranty, covenant, agreement or event of default contained in any
Loan Document which is not contained herein, or vice versa, such additional provision shall not constitute
a conflict.
SECTION 9 – SPECIAL PROVISIONS
9.1
Interest Act (Canada)
For the purposes of this Agreement, whenever interest or a fee to be paid hereunder is to be calculated on
the basis of a year of three hundred and sixty (360) days, as in the case of all Revolving Credit Advances
in U.S.$ made based upon the Term SOFR Rate, or any other period of time that is less than a calendar
year, the yearly rate of interest or the yearly fee 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 three hundred and sixty (360) or such other period of
time, as the case may be. Each Credit Party confirms that it fully understands and is able to calculate the
rate of interest applicable to Loans under this Agreement based on the methodology for calculating per
annum rates provided for in this Agreement. Each Credit Party hereby irrevocably agrees not to plead or
assert, whether by way of defence or otherwise, in any proceeding relating to this Agreement or any Loan
Documents, that the interest payable under this Agreement and the calculation thereof has not been
adequately disclosed to such Credit Party as required pursuant to Section 4 of the Interest Act (Canada).
9.2
Excess Resulting from Exchange Rate Change
If at any time following one or more fluctuations in the exchange rate of the Canadian Dollar against the
U.S. Dollar (a) the Obligations exceed any limitations hereunder or (b) any part of the Obligations exceeds
any limit set forth herein for such Obligations, each Borrower shall within three (3) Business Days or, if an
Event of Default has occurred and is continuing, immediately: (i) make the necessary payments or
repayments to reduce such Obligations to an amount necessary to eliminate such excess; or (ii) maintain
or cause to be maintained with Lender deposits in an amount equal to or greater than the amount of such
excess, such deposits to be maintained in such form and upon such terms as are acceptable to Lender in
its reasonable discretion. Without in any way limiting the foregoing provisions, Lender shall, weekly or more
frequently in Lender’s sole discretion, make the necessary exchange rate calculations (based upon the rate
of exchange established by Lender as at noon on the date of determination) to determine whether any such
excess exists on such date.
9.3
Judgment Currency
If for the purpose of obtaining judgment in any court it is necessary to convert an amount due hereunder in
the currency in which it is due (the “Original Currency”) into another currency (the “Second Currency”),
the rate of exchange applied shall be that at which, in accordance with normal banking procedures, Lender
could purchase in the Toronto foreign exchange market, the Original Currency with the Second Currency
on the date two (2) Business Days preceding that on which judgment is given. Each Borrower agrees that
its obligation in respect of any Original Currency due from it hereunder shall, notwithstanding any judgment
or payment in such other currency, be discharged only to the extent that, on the Business Day following the
date Lender receives payment of any sum so adjudged to be due hereunder in the Second Currency,
Lender may, in accordance with normal banking procedures, purchase, in the Toronto foreign exchange
market, the Original Currency with the amount of the Second Currency so paid; and if the amount of the
Original Currency so purchased or could have been so purchased is less than the amount originally due in
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the Original Currency, each Borrower jointly and severally agrees as a separate obligation and
notwithstanding any such payment or judgment to indemnify Lender against such loss. The term “rate of
exchange” in this Section means the spot rate at which Lender, in accordance with normal practices, is able
on the relevant date to purchase the Original Currency with the Second Currency, and includes any
premium and costs of exchange payable in connection with such purchase.
9.4
USA Patriot Act
Lender hereby notifies each Credit Party that, pursuant to the requirements of the USA Patriot Act (Title III
of Pub. L. 107-56 (signed into law October 26, 2001)), it is required to obtain, verify and record information
that identifies the Credit Parties, which information includes the name and address of each of the parties
hereto and other information that will allow Lender to identify all parties in accordance with said Act. The
Credit Party shall promptly provide such information upon request by Lender.
9.5
Calculations
All references in the Loan Documents to Loans, Letters of Credit, Obligations, Borrowing Base components
and other amounts shall be denominated in Canadian Dollars, unless expressly provided otherwise. The
Canadian Dollars equivalent of any amounts denominated or reported under a Loan Document in a
currency other than Canadian Dollars shall be determined by Lender on a daily basis, based on its rate of
exchange as determined on the date of determination. The Credit Parties shall report value and other
Borrowing Base components to Lender in the currency invoiced by Borrowers or shown in Borrowers’
financial records, and unless expressly provided otherwise, shall deliver Financial Statements and calculate
financial covenants in Canadian Dollars. Notwithstanding anything herein to the contrary, if any Obligation
is funded and expressly denominated in a currency other than Canadian Dollars, Borrowers shall repay
such Obligation in such other currency.
9.6
Language
The parties hereto confirm that it is their wish that this Agreement and any other document executed in
connection with the transactions contemplated herein be drawn up in the English language only (except if
another language is required under any Applicable Law) and that all other documents contemplated
thereunder or relating thereto, including notices, may also be drawn up in the English language only. Each
party hereto hereby confirms that it was represented by legal counsel and has had the opportunity to
negotiate the terms of this Agreement and any other Loan Documents, including the essential stipulations
thereof, with the assistance of its legal counsel. Les parties aux présentes confirment que c’est leur volonté
que cette convention et les autres documents de crédit soient rédigés en langue anglaise seulement et que
tous les documents, y compris tous avis, envisagés par cette convention et les autres documents peuvent
être rédigés en langue anglaise seulement (sauf si une autre langue est requise en vertu d’une loi
applicable). Chaque partie aux présentes confirme qu’elle a été représentée par des conseillers juridiques
et a eu l’opportunité de négocier les termes de cette convention et des autres documents de crédit, y
compris leurs stipulations essentielles, avec l’aide de ses conseillers juridiques.
[Signature Pages Follow]
Signature Page to Loan Agreement
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.
BORROWER:
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Per:
Name:
Title:
Per:
Name:
Title:
DIRTT ENVIRONMENTAL SOLUTIONS, INC.
Per:
Name:
Title:
Per:
Name:
Title:
Signature Page to Loan Agreement
LENDER:
ROYAL BANK OF CANADA
Per:
Name:
Title: Attorney in Fact
SCHEDULE A
DEFINITIONS
Capitalized terms used in this Agreement and the other Loan Documents shall have (unless otherwise
provided elsewhere in this Agreement or in the other Loan Documents) the following respective meanings:
“Account Debtor” shall mean any Person who is or may become obligated with respect to, or on account
of, an Account.
“Accounts” shall mean all “accounts,” as such term is defined in the PPSA or the UCC, as applicable, and
includes any right of any Person to payment for goods sold or leased or for services rendered, whether or
not it has been earned by performance, now owned or hereafter acquired by any Person, including: (i) all
accounts receivable, other receivables, book debts and other forms of obligations whether arising out of
goods sold or leased or services rendered or from any other transaction whatsoever (including any contract
rights); (ii) all of such Person’s rights in, to and under all purchase orders or receipts for goods or services;
(iii) all of such Person’s rights to any goods represented by any of the foregoing (including unpaid sellers’
rights of rescission, replevin, reclamation, stoppage in transit, repossession rights under any statute or law
including those under Section 81.1 of the BIA, and rights to returned, claimed or repossessed goods); (iv)
all monies due or to become due to such Person under all purchase orders and contracts for the sale or
lease of goods or the performance of services or both by such Person or in connection with any other
transaction (whether or not yet earned by performance on the part of such Person), including the right to
receive the proceeds of said purchase orders and contracts; and (v) all collateral security and guarantees
of any kind given by any other Person with respect to any of the foregoing.
“Adjusted EBITDA” means with respect to any Person for any period, the Net Income of such Person for
such period plus, without duplication and to the extent reflected as a charge in the statement of income
included in the financial statements of such Person:
(a)
all amounts deducted in the calculation thereof in respect of Depreciation Expense, and
current and deferred taxes, net losses of Subsidiaries and any other losses incurred in
respect of investments that are in each case accounted for on an equity basis;
(b)
Total Interest Expense;
(c)
all unrealized hedging losses; and
(d)
non-cash stock based compensation expenses (options, performance stock units, deferred
stock units) and any extraordinary, non-recurring or unusual expenses or losses (including,
whether or not otherwise includable as a separate item in such statement of income, losses
on sales outside of the ordinary course of business or on sales of property of a Credit Party
which is leased back to any Credit Party);
less, without duplication and to the extent reflected as a credit in such statement of net income:
(e)
any reduction of income taxes;
(f)
all unrealized hedging gains;
(g)
amounts included in the calculation thereof in respect of net profits of Subsidiaries and any
other profits in respect of investments that are in each case accounted for on an equity
basis; and
(h)
any extraordinary, non-recurring or unusual income or gains (including, whether or not
otherwise includable as a separate item in such statement of income, gains on sales
outside of the ordinary course of business or on sales of property by a Credit Party that are
leased back to any Credit Party).
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“Adjusted Term CORRA” means, for purposes of any calculation, the rate per annum equal to (a) Term
CORRA for such calculation plus (b) the Term CORRA Adjustment; provided that if Adjusted Term CORRA
as so determined shall ever be less than zero, then Adjusted Term CORRA shall be deemed to zero.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) the Term
SOFR Rate for such calculation plus (b) the Term SOFR Adjustment.
“Advance Rate” shall have the meaning assigned to it in Section 1.5.
“Affiliate” shall mean, with respect to a Person: (i) each other Person that, directly or indirectly, owns or
controls, whether beneficially, or as a trustee, guardian or other fiduciary, twenty five percent (25%) or more
of the Shares having ordinary voting power for the election of directors of such Person; (ii) each other
Person that controls, is controlled by or is under common control with such Person or any Affiliate of such
Person; or (iii) each of such Person’s directors, officers, managing members, partners, or trustees. For the
purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
“Agreement” shall mean this Agreement including all appendices, exhibits or schedules attached or
otherwise identified thereto, restatements and modifications and supplements thereto, and any appendices,
exhibits or schedules to any of the foregoing, each as in effect at the time such reference becomes
operative; provided, that except as specifically set forth in this Agreement, any reference to the Disclosure
Schedules to this Agreement shall be deemed a reference to the Disclosure Schedules as in effect on the
Closing Date or in a written amendment thereto executed by Borrowers and Lender.
“Applicable Margin” shall mean, for the purposes of determining the applicable interest rate for the
Revolving Credit Loans:
(a)
0.50% per annum in the case of RBP and RBUSBR based loans,
(b)
1.75% per annum in the case of Term CORRA Loans, and
(c)
1.75% per annum plus the Term SOFR Adjustment in the case of Term SOFR Loans.
“Appraisal Fees” shall have the meaning assigned to it in Schedule E.
“Authorized Officer” shall mean the president, chief financial officer, chief executive officer or such other
officer or signatory of Borrower (as may be appointed by corporate resolution, in writing) as is acceptable
to Lender.
“Bank Products” shall mean any ancillary services, facilities or obligations which Lender may in its sole
discretion undertake in connection with any of the Credit Parties and includes any Foreign Exchange Facility
described in Schedule H hereto.
“Bankruptcy Code” shall mean title 11 of the United States Code, 11 U.S.C. §§ 100. et seq., as in effect
from time to time or at any time.
“BIA” shall mean the Bankruptcy and Insolvency Act (Canada), and any successor act or statute, as in
effect from time to time or at any time.
“Blocked Accounts” shall have the meaning assigned to it in Schedule D.
“Blocked Accounts Agreement” shall have the meaning assigned to it in Schedule D.
“Books and Records” shall mean all books, records, board minutes, contracts, licenses, insurance
policies, environmental audits, business plans, files, computer files, computer discs and other data and
software storage and media devices, accounting books and records, financial statements (actual and pro
- 3 -
forma), filings with Governmental Authorities and any and all records and instruments relating to the
Collateral or any Borrower’s or any other Credit Party’s business.
“Borrower” shall mean the Persons identified as such in the preamble of this Agreement and includes their
successors.
“Borrowing Availability” shall mean, at any time, the lesser of: (i) the Maximum Amount; and (ii) the
Borrowing Base.
“Borrowing Base” shall mean at any time an amount equal to the sum at such time of: (i) eighty-five
percent (85%) of Eligible Accounts (other than Eligible Investment Grade or Insured Accounts), ninety
percent (90%) of Eligible Investment Grade or Insured Accounts, less (ii) reserves, established by Lender
from time to time in its good faith discretion, including the reserves set forth in Section 1.13.
“Borrowing Base Certificate” shall mean a certificate in the form of Exhibit B.
“Business Day” means a day on which chartered banks are open for over-the-counter business in Toronto,
Ontario, and excludes Saturday, Sunday and any other day which is a statutory holiday in Toronto, Ontario,
provided that, when used in connection with Term SOFR Loans or any other calculation or determination
involving SOFR, the term “Business Day” means any day that is only a U.S. Government Securities
Business Day.
“Canadian Anti-Terrorism Laws” shall mean all laws of Canada, or any province, territory or political
subdivision thereof relating to the prevention of money laundering and terrorist financing including without
limitation the Criminal Code (Canada), the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada), the United Nations Suppression of Terrorism Regulations and the Anti-terrorism Act
(Canada) and all regulations and orders made thereunder.
“Canadian Available Tenor” shall mean, as of any date of determination and with respect to the then-
current Canadian Benchmark, as applicable, (x) if such Canadian Benchmark is a term rate, any tenor for
such Canadian Benchmark (or component thereof) that is or may be used for determining the length of a
Interest Period pursuant to this Agreement or (y) otherwise, any payment period for interest calculated with
reference to such Canadian Benchmark (or component thereof) that is or may be used for determining any
frequency of making payments of interest calculated with reference to such Canadian Benchmark, in each
case, as of such date, and not including, for the avoidance of doubt, any tenor for such Canadian
Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 1.17(d).
“Canadian Benchmark” means, initially, the Term CORRA Reference Rate; provided that if a Canadian
Benchmark Transition Event has occurred with respect to the Term CORRA Reference Rate, or the then-
current Canadian Benchmark, then “Canadian Benchmark” means the applicable Canadian Benchmark
Replacement to the extent that such Canadian Benchmark Replacement has replaced such prior
benchmark rate pursuant to Section 1.17(a).
“Canadian Benchmark Replacement” means, with respect to any Canadian Benchmark Transition Event,
(a) where a Canadian Benchmark Transition Event has occurred with respect to Term CORRA
Reference Rate, Daily Compounded CORRA; and;
(b) where a Canadian Benchmark Transition Event has occurred with respect to a Canadian
Benchmark other than the Term CORRA Reference Rate, the sum of: (i) the alternate benchmark
rate that has been selected by Lender and the Borrower giving due consideration to (A) any
selection or recommendation of a replacement benchmark rate or the mechanism for determining
such a rate by the Relevant Canadian Governmental Body or (B) any evolving or then-prevailing
market convention for determining a benchmark rate as a replacement to the then-current
Canadian Benchmark for Dollar-denominated syndicated credit facilities and (ii) the related
Canadian Benchmark Replacement Adjustment.
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If the Canadian Benchmark Replacement as determined pursuant to clause (a) or (b) above would be less
than zero, the Canadian Benchmark Replacement will be deemed to be zero for the purposes of this
Agreement and the other Loan Documents.
“Canadian Benchmark Replacement Adjustment” means, with respect to any replacement of the then-
current Canadian Benchmark with an Unadjusted Canadian Benchmark Replacement, the spread
adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or
negative value or zero) that has been selected by Lender and the Borrower giving due consideration to (a)
any selection or recommendation of a spread adjustment, or method for calculating or determining such
spread adjustment, for the replacement of such Canadian Benchmark with the applicable Unadjusted
Canadian Benchmark Replacement by the Relevant Canadian Governmental Body or (b) any evolving or
then-prevailing market convention for determining a spread adjustment, or method for calculating or
determining such spread adjustment, for the replacement of such Canadian Benchmark with the applicable
Unadjusted Canadian Benchmark Replacement for Dollar-denominated syndicated credit facilities at such
time.
“Canadian Benchmark Replacement Date” means a date and time determined by the Lender, which date
shall be no later than the earliest to occur of the following events with respect to the then-current Canadian
Benchmark:
(a) in the case of clause (a) or (b) of the definition of “Canadian Benchmark Transition Event,” the later
of (i) the date of the public statement or publication of information referenced therein and (ii) the
date on which the administrator of such Canadian Benchmark (or the published component used
in the calculation thereof) permanently or indefinitely ceases to provide all Canadian Available
Tenors of such Canadian Benchmark (or such component thereof); or
(b) in the case of clause (c) of the definition of “Canadian Benchmark Transition Event,” the first date
on which such Canadian Benchmark (or the published component used in the calculation thereof)
has been determined and announced by the regulatory supervisor for the administrator of such
Canadian Benchmark (or such component thereof) to be non-representative; provided that such
non-representativeness will be determined by reference to the most recent statement or publication
referenced in such clause (c) and even if any of such Canadian Benchmark (or such component
thereof) continues to be provided on such date.
For the avoidance of doubt, the “Canadian Benchmark Replacement Date” will be deemed to have occurred
in the case of clause (a) or (b) with respect to any Canadian Benchmark upon the occurrence of the
applicable event or events set forth therein with respect to all then-current Canadian Available Tenors of
such Canadian Benchmark (or the published component used in the calculation thereof).
“Canadian Benchmark Transition Event” means the occurrence of one or more of the following events
with respect to the then-current Canadian Benchmark:
(a) a public statement or publication of information by or on behalf of the administrator of such
Canadian Benchmark (or the published component used in the calculation thereof) announcing that
such administrator has ceased or will cease to provide all Canadian Available Tenors of such
Canadian Benchmark (or such component thereof), permanently or indefinitely; provided that, at
the time of such statement or publication, there is no successor administrator that will continue to
provide any Canadian Available Tenor of such Canadian Benchmark (or such component thereof);
(b) a public statement or publication of information by the regulatory supervisor for the administrator of
such Canadian Benchmark (or the published component used in the calculation thereof), the Bank
of Canada, an insolvency official with jurisdiction over the administrator for such Canadian
Benchmark (or such component), a resolution authority with jurisdiction over the administrator for
such Canadian Benchmark (or such component) or a court or an entity with similar insolvency or
resolution authority over the administrator for such Canadian Benchmark (or such component),
which states that the administrator of such Canadian Benchmark (or such component) has ceased
or will cease to provide all Canadian Available Tenors of such Canadian Benchmark (or such
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component thereof) permanently or indefinitely; provided that, at the time of such statement or
publication, there is no successor administrator that will continue to provide any Canadian Available
Tenor of such Canadian Benchmark (or such component thereof); or
(c) a public statement or publication of information by the regulatory supervisor for the administrator of
such Canadian Benchmark (or the published component used in the calculation thereof)
announcing that all Canadian Available Tenors of such Canadian Benchmark (or such component
thereof) are not, or as of a specified future date will not be, representative.
For the avoidance of doubt, a “Canadian Benchmark Transition Event” will be deemed to have occurred
with respect to any Canadian Benchmark if a public statement or publication of information set forth above
has occurred with respect to each then-current Canadian Available Tenor of such Canadian Benchmark (or
the published component used in the calculation thereof).
“Canadian Benchmark Unavailability Period” means, the period (if any) (a) beginning at the time that a
Canadian Benchmark Replacement Date has occurred if, at such time, no Canadian Benchmark
Replacement has replaced the then-current Canadian Benchmark for all purposes hereunder and under
any Loan Document in accordance with Section 1.17 and (b) ending at the time that a Canadian Benchmark
Replacement has replaced the then-current Canadian Benchmark for all purposes hereunder and under
any Loan Document in accordance with Section 1.17.
“Canadian Borrower” DIRTT Environmental Solutions Ltd., a corporation incorporated under the laws of
the Province of Alberta.
“Canadian Conforming Changes” means, with respect to the use or administration of a Canadian
Benchmark or the use, administration, adoption or implementation of any Canadian Benchmark
Replacement, any technical, administrative or operational changes (including changes to the definition of
“RBP,” the definition of “Business Day,” the definition of “Interest Period” or any similar or analogous
definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and
making payments of interest, timing of borrowing requests or prepayment, conversion or continuation
notices, the applicability and length of lookback periods, the applicability of breakage provisions and other
technical, administrative or operational matters) that the Lender decides may be appropriate to reflect the
adoption and implementation of any such rate or to permit the use and administration thereof by the Lender
in a manner substantially consistent with market practice (or, if the Lender decides that adoption of any
portion of such market practice is not administratively feasible or if the Lender determines that no market
practice for the administration of any such rate exists, in such other manner of administration as the Lender
decides is reasonably necessary in connection with the administration of this Agreement and the other Loan
Documents).
“Canadian Dollars”, “CAD$” or “$” shall mean the lawful currency of Canada.
“Capital Expenditures” means all payments or accruals (including capital lease obligations) for any fixed
assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.
“Capital Lease” shall mean, with respect to any Person, any lease of any real property, fixtures or
equipment by such Person as lessee that, in accordance with GAAP, would be required to be classified
and accounted for as a capital lease or a finance lease on a balance sheet of such Person, other than, in
the case of any Borrower or any Credit Party, any such lease under which any Borrower is the lessor.
“Capital Lease Obligation” shall mean, with respect to any Capital Lease, the amount of the obligation of
the lessee thereunder that, in accordance with GAAP, would be capitalized on a balance sheet of such
lessee in respect of such Capital Lease.
“Cash Collateral Account” shall have the meaning assigned to it in Schedule C.
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“Cash Dominion Period” shall mean a period: (i) commencing on the date on which either (x) an Event of
Default has occurred and has been continuing; or (y) Net Borrowing Availability has been less than the
greater of (A) 20% of Borrowing Availability or (B) $4,000,000, for five (5) consecutive Business Days; and
(ii) ending on the first date thereafter on which both (x) no Event of Default has existed or been continuing
at any time; and (y) Net Borrowing Availability shall have been not less than the greater of (A) 20% of
Borrowing Availability or (B) $4,000,000, for thirty (30) consecutive calendar days.
"Cash Taxes" means for any Person for any period, the amount of all income Taxes (including federal and
provincial income Taxes) and other Taxes payable by such Person on its net taxable income or its capital
for such period (which for greater certainty, does not include deferred Taxes or refundable Taxes).
“CCAA” shall mean the Companies’ Creditors Arrangement Act (Canada) and any successor legislation
thereto, as in effect from time to time or at any time.
“Change of Control” shall mean, the occurrence of any of the following events:
(a)
one or more Persons, acting jointly or in concert (within the meaning of the Securities Act
(Alberta)), shall acquire more than 50% of the interests in the Shares of a Borrower; or
(b)
a Borrower or any other Credit Party shall cease to own, control or direct 100% of the voting
Shares of any Subsidiary of the Borrower.
“Charges” shall mean all federal, provincial, state, county, city, municipal, local, foreign or other
governmental or quasi-governmental taxes, levies, customs or other duties, assessments, charges, liens,
and all additional charges, interest, penalties, expenses, claims or encumbrances upon or relating to: (i)
the Collateral; (ii) the Obligations; (iii) the employees, payroll, income or gross receipts of any Credit Party;
(iv) the ownership or use of any assets by any Credit Party; or (v) any other aspect of any Credit Party’s
business as well as any and all amounts at any time due and payable by any Credit Party to and/or in
respect of any Plan (whether as a result of under-funding or otherwise).
“Chattel Paper” shall mean a writing or writings which evidence both a monetary obligation and a security
interest in or lease of specific goods, but a charter or other contract involving the use or hire of a vessel is
not Chattel Paper. When a transaction is evidenced by both such a security agreement or a lease and by
an instrument or a series of instruments, the group of writings then together constitutes Chattel Paper. With
respect to property located in the United States, Chattel Paper shall also include “Chattel Paper” as defined
in the UCC and “Electronic chattel paper” as defined in the UCC.
“Closing Date” shall mean the Business Day on which the conditions precedent set forth in Section 2 have
been satisfied or waived in writing by Lender and the initial Loan has been made.
“Closing Fee” shall have the meaning assigned to it in Schedule E.
“Code” means the U.S. Internal Revenue Code of 1986, and the United States Treasury Department
regulations promulgated thereunder, each as amended from time to time.
“Collateral” shall have the meaning assigned to it in Section 6.1.
“Collateral Monitoring Fee” shall have the meaning assigned to it in Schedule E.
“Commitment Termination Date” shall mean the earliest of: (i) the Stated Expiry Date; and (ii) the date
Lender’s obligation to advance funds, issue Letters of Credit or otherwise extend or continue any credit
hereunder is otherwise terminated pursuant to the terms hereof.
“Compliance Certificate” shall mean a certificate in the form of Exhibit C.
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“Consolidated Assets” means the total assets of the Canadian Borrower, as determined on a
consolidated basis and as shown on the most recent financial statements of the Borrowers delivered to the
Lender pursuant to Section 4.1.
“Continuation/Conversion Date” shall mean the date on which a Revolving Credit Advance is converted
from or into or continued as a Revolving Credit Advance based upon the Term SOFR Rate or Adjusted
Term CORRA.
“Contracts” shall mean all the contracts, undertakings, or agreements (other than rights evidenced by
Chattel Paper, Documents or Instruments) in or under which any Person may now or hereafter have any
right, title or interest, including any agreement relating to the terms of payment or the terms of performance
of any Account.
“Contractual Obligation” shall mean as to any Person, any provision of any security issued by such Person
or of any agreement, instrument, or other undertaking to which such Person is a party or by which it or any
of its property is bound.
"Convertible Debentures" means (i) the convertible unsecured subordinated debentures of the Canadian
Borrower in a principal amount of $40,250,000 issued pursuant to a first supplemental indenture dated as
of January 25, 2021; and (ii) the convertible unsecured subordinated debentures of the Canadian Borrower
in a principal amount not to exceed $50,000,000 to be issued pursuant to a second supplemental indenture
dated on or about November 2021.
“Copyright License” shall mean rights under any written agreement now owned or hereafter acquired by
any Person granting the right to use any Copyright or Copyright registration.
“Copyrights” shall mean all of the following now owned or hereafter acquired by any Person: (i) all
copyrights in any original work of authorship fixed in any tangible medium of expression, now known or
later developed, all registrations and applications for registration of any such copyrights in the United States,
Canada or any other country, including registrations, recordings and applications, and supplemental
registrations, recordings, and applications in the United States Copyright Office or in the applicable office
in Canada; and (ii) all Proceeds of the foregoing, including license royalties and proceeds of infringement
suits, the right to sue for past, present and future infringements, all rights corresponding thereto throughout
the world and all renewals and extensions thereof.
“CORRA” means the Canadian Overnight Repo Rate Average administered and published by the Bank of
Canada (or any successor administrator).
“Credit Party” shall mean each Borrower and each Guarantor.
“Daily Compounded CORRA” means, for any day (a “Daily Compounded CORRA Rate Day”), a rate per
annum equal to CORRA for the day (such day, the “Daily Compounded CORRA Determination Day”),
that is five (5) Business Days prior to (i) if such Daily Compounded CORRA Rate Day is a Business Day,
such Daily Compounded CORRA Rate Day or (ii) if such Daily Compounded CORRA Rate Day is not a
Business Day, the Business Day immediately preceding such Daily Compounded CORRA Rate Day, in
each case, as CORRA is published by the administrator; provided, however, that if as of 5:00 p.m. (Toronto
time) on any Daily Compounded CORRA Determination Day, CORRA for the applicable tenor has not been
published by the administrator and a Canadian Benchmark Replacement Date with respect to Daily
Compounded CORRA has not occurred, then Daily Compounded CORRA will be CORRA as published by
the administrator on the first preceding Business Day for which CORRA was published by the administrator
so long as such first preceding Business Day is not more than three (3) Business Days prior to such Daily
Compounded CORRA Determination Day; provided, that to the extent such rate as determined above shall,
at any time, be less than zero, such rate shall be deemed to be zero for all purposes herein.
“Default” shall mean the occurrence of any Event of Default or event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.
- 8 -
“Default Rate” shall have the meaning assigned to it in Section 1.5(c).
“Depreciation Expense” means, for any period with respect to any Person, depreciation, amortization,
depletion and other like reductions to income of such Person for such period not involving any outlay of
cash.
“Disbursement Accounts” shall have the meaning assigned to it in Schedule D.
“Documents” shall mean all documents of title (as defined in the PPSA), and with respect to property
located in the United States, “Documents” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including all bills of lading, dock warrants, dock receipts,
warehouse receipts, and other documents of title, whether negotiable or non-negotiable.
“EDC” means Export Development Canada, including its successors and assigns.
“EDC Confirmation” means each confirmation of request for cover issued by EDC to the Lender with
respect to each Letter of Credit that is a EDC Guaranteed Letter of Credit Obligation.
“EDC Effectiveness Notification” means each effectiveness notification issued by EDC to the Lender with
respect to each Letter of Credit that is a EDC Guaranteed Letter of Credit Obligation further to the payment
of the applicable EDC Guarantee Fee.
“EDC Guarantee Fee” means the applicable fee payable by the Lender to EDC pursuant to the EDC
Guarantee.
“EDC Guarantee” means, collectively, (i) the account performance security guarantee bearing no. 112638
issued by EDC on February 7, 2025 to the Lender pursuant to a certificate of cover (including the general
terms and conditions) and any other account performance security guarantee issued by EDC to the Lender
pursuant to a certificate of cover (including the general terms and conditions), (ii) the EDC Confirmation
and (iii) the EDC Effectiveness Notification, in each case, in form and substance satisfactory to the Lender.
“EDC Guaranteed Letter of Credit Facility” has the assigned to it in Section 1.1(g)
“EDC Guaranteed Letter of Credit Obligations” shall mean all outstanding obligations (including all duty,
freight, taxes, costs, insurance and any other charges and expenses) incurred by Lender, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee, by Lender
or another, of Letters of Credit that are guaranteed by the EDC Guarantee, all as further set forth in
Schedule C.
“EDC Guaranteed Maximum Amount” shall mean $5,000,000 or the Equivalent Amount thereof in U.S.$.
“Eligible Accounts” shall mean as at the date of determination, all Accounts of the Borrowers except any
Account:
(a)
that does not arise from the sale of goods or the performance of services by such Borrower
in the ordinary course of such Borrower’s business;
(b)
upon which: (i) such Borrower’s right to receive payment is not absolute or is contingent
upon the fulfillment of any condition whatsoever; or (ii) such Borrower is not able to bring
suit or otherwise enforce its remedies against the Account Debtor through judicial process;
(c)
to the extent of any concessions, offsets, deductions, contras, returns, chargebacks or
understandings with the Account Debtor therein that in any way could reasonably be
expected to adversely affect the payment of, or the amount of, such Account, or for which
the Account Debtor has disputed its obligation to pay all or any portion of the Account;
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(d)
with respect to which an invoice, acceptable to Lender in form and substance, has not
been sent to the Account Debtor;
(e)
that is not owned by such Borrower or is subject to any right, claim, or interest of another
Person, other than Permitted Encumbrances which are in favour of Lender or have been
subordinated on terms satisfactory to Lender to Liens in favour of Lender or which
otherwise rank in priority behind the Liens in favour of Lender;
(f)
that arises from a sale to or performance of services for an employee, Affiliate, Subsidiary
or Shareholder of such Borrower or any other Credit Party, or an entity which has common
officers or directors with such Borrower or any other Credit Party;
(g)
that is the obligation of an Account Debtor that is the federal, state, provincial or territorial
government or a political subdivision thereof, or any department, agency, public
corporation or instrumentality thereof unless Lender has agreed to the contrary in writing;
(h)
that is the obligation of an Account Debtor located other than in Canada or the continental
United States unless such Account is supported by a letter of credit in which Lender has a
first priority perfected security interest and Lien by possession or credit insurance
acceptable to Lender (and naming Lender as loss payee);
(i)
that is the obligation of an Account Debtor to whom such Borrower is or may become liable
for goods sold or services rendered by the Account Debtor to such Borrower, to the extent
of such Borrower’s liability to such Account Debtor;
(j)
that arises with respect to goods which are delivered on a cash-on-delivery basis or placed
on consignment, guaranteed sale or other terms by reason of which the payment by the
Account Debtor may be conditional;
(k)
that is an obligation for which the total unpaid Accounts of the Account Debtor exceed 25%
(or 50% in the case of Accounts (i) payable by an Investment Grade Debtor; or (ii) insured
with an insurer which is acceptable to Lender on terms satisfactory to Lender in its sole
discretion) of the aggregate of all gross Accounts as related to accounts receivable
(excluding any inter-company accounts receivable), to the extent of such excess;
(l)
that is not paid within sixty (60) days from its due date or ninety (90) days (one hundred
and twenty (120) days in the case of Accounts (i) payable by an Investment Grade Debtor;
or (ii) insured with an insurer which is acceptable to Lender on terms satisfactory to Lender
in its sole discretion) from its invoice date or that are Accounts of an Account Debtor if 50%
or more of the Accounts owing from such Account Debtor remain unpaid within such time
periods;
(m)
that has a due date of more than ninety (90) days from its invoice date;
(n)
that is an obligation of an Account Debtor that has suspended business, made a general
assignment for the benefit of creditors, is unable to pay its debts as they become due or
as to which a petition has been filed (voluntary or involuntary) under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors;
(o)
that arises from any pre-billing invoices, progress billing, bill-and-hold or other sale of
goods which remain in such Borrower’s possession or under Borrower’s control;
(p)
as to which Lender’s interest therein is not a first priority perfected security interest and
Lien;
(q)
to the extent that such Account exceeds any credit limit established by Lender in Lender’s
good faith discretion;
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(r)
as to which any of Borrower’s representations or warranties pertaining to Accounts are
untrue;
(s)
that represents interest payments, late or finance charges, or service charges owing to
such Borrower;
(t)
with respect to which the Account Debtor is located in any state of the United States or
province of Canada which requires the filing of a Notice of Business Activities Report or
registration or licensing to carry on business or similar report, registration or licensing in
order to permit Borrower to seek judicial enforcement in such state of the United States or
province of Canada of payment of such Account, unless such Borrower qualifies to do
business in such state or files a Notice of Business Activities Report or registration or
licensing to carry on business or equivalent report, registration or licensing following such
Account Debtor being delinquent in paying the amount due; or
(u)
that is not otherwise acceptable in the good faith discretion of Lender, provided, that Lender
shall have the right to create and adjust eligibility standards and related reserves from time
to time in its good faith discretion.
“Eligible Investment Grade or Insured Accounts” shall mean Eligible Accounts that are either: (i) payable
by an Investment Grade Debtor; or (ii) insured with an insurer which is acceptable to Lender on terms
satisfactory to Lender in its sole discretion.
“Environmental Laws” shall mean all federal, provincial, state, municipal and local laws, statutes,
ordinances, programs, permits, guidance, orders, decrees and regulations, now or hereafter in effect, and
in each case as amended or supplemented from time to time, and any applicable judicial or administrative
interpretation thereof relating to the regulation and protection of human health, safety, the environment and
natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface
strata, wildlife, aquatic species and vegetation).
“Environmental Liabilities” shall mean all liabilities, obligations, responsibilities, remedial actions, removal
costs, losses, damages of whatever nature, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand of
whatever nature by any Person and which relate to any health or safety condition regulated under any
Environmental Law, environmental permits or in connection with any Release, threatened Release, or the
presence of a Hazardous Material.
“EPA” shall mean the Environmental Protection and Enhancement Act (Alberta) and the similar laws of
Canada, the United States of America or any other country, including any province, state, territory or other
political subdivision thereof where any Collateral may be located, and any successor law or statute, as in
effect from time to time or at any time.
“Equipment” shall mean all “equipment” as defined in the PPSA (or with respect to property in the US, all
“equipment” as defined in Article 9 of the UCC) and, in any event, shall include tangible or corporeal property
other than Inventory, now or hereafter acquired by any Person, wherever located, including any and all
machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible or corporeal
personal or movable property (other than Inventory) of every kind and description which may be now or
hereafter used in such Person’s operations or which are owned by such Person or in which such Person
may have an interest, and all parts, accessories and accessions thereto and substitutions and replacements
therefor.
“Equivalent Amount” shall mean the amount of U.S.$ to which any amount in $ is equivalent as determined
by Lender based on its rate of exchange as determined at noon (Toronto time) on the date of determination.
“ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and regulations
promulgated thereunder.
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“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) under common control
with any Credit Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o)
of the Code for purposes of provisions relating to Section 412 of the Code).
“ERISA Event” shall mean (a) a Reportable Event with respect to a Plan, (b) a withdrawal by any Credit
Party or any ERISA Affiliate from a Plan during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal
under Section 4062(e) of ERISA, (c) a complete or partial withdrawal by any Credit Party or any ERISA
Affiliate from a Multi-employer Plan or other Plan regulated or governed by other applicable legislation or
notification that a Multi-employer Plan or Plan regulated or governed by or other applicable legislation is in
reorganization, (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA or other law, or the commencement of proceedings by
the PBGC pursuant to Section 4042 of ERISA or other applicable Governmental Authority to terminate a
Plan or to appoint a trustee to administer any Plan or Multi-employer Plan, or (e) the imposition of any
liability under Title IV of ERISA or other applicable legislation (other than for PBGC premiums due but not
delinquent under Section 4007 of ERISA or other similar legislation) upon any Credit Party or any ERISA
Affiliate.
“Event of Default” shall have the meaning assigned to it in Section 7.1.
“Existing Credit Facility” shall mean the Credit Agreement dated July 19, 2019 between DIRTT
Environmental Solutions Ltd. as Borrower, DIRTT Environmental Solutions, Inc. as Guarantor and Royal
Bank of Canada, as lender, as amended, supplemented and restated from time to time.
“FCCR Trigger” means any time that (i) an Event of Default has occurred and is continuing or (ii) Net
Borrowing Availability is less than the greater of (a) 15% of Borrowing Availability or (b) $3,000,000.
“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published
by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that
(a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for
such day shall be the average rate charged to the Royal Bank on such day on such transactions as
determined by the Lender.
“Fees” shall mean the fees due to Lender as set forth in Schedule E.
“Field Examination” shall have the meaning assigned to it in Section 6.2(c).
“Field Examination Fees” shall have the meaning assigned to it in Schedule E.
“Financial Statements” shall mean for any Person, the income statement, balance sheet and statement
of cash flows of such Person, prepared in accordance with GAAP.
“Fiscal Month” shall mean a monthly accounting period of Borrower or of a Credit Party, as applicable.
“Fiscal Year” shall mean the twelve (12) month period of Borrower ending December 31st of each year.
Subsequent changes of the fiscal year of Borrower shall not change the term “Fiscal Year” unless Lender
shall consent in writing to such change.
“Fixed Charge Coverage Ratio” shall mean with respect to the Canadian Borrower on a consolidated
basis, the ratio of (i) Adjusted EBITDA for the most recently completed twelve month period less Cash
Taxes actually paid during such twelve month period, Unfunded Capital Expenditures actually paid in such
twelve month period, and Restricted Payments actually made in such twelve month period, plus, in each
case without duplication, operating leases and rent, to (ii) Fixed Charges for the same period.
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“Fixed Charges” means, with respect to any Person for any period and on a consolidated basis, the sum
of (in each case, without duplication) (i) Total Interest Expense, (ii) all Indebtedness repayments required
to be paid by such Person during such period, (iii) all amounts actually paid by such Person in respect of
Capital Leases during such period, and (iv) all rent and other charges actually paid by such Person during
such period with respect to all operating leases.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of
this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to
Term SOFR. For the avoidance of doubt, the initial Floor for Term SOFR shall be 0.00%.
“FSCO” shall mean the Financial Services Commission of Ontario and any Person succeeding to the
functions thereof and includes the Superintendent under the PBA and any other public authority empowered
or created by the PBA.
“Funded Debt” shall mean, with respect to any Person, all of such Person’s Indebtedness consisting of or
relating to the borrowing of money or the obtaining of credit (other than trade payables incurred in the
ordinary course of business).
“Fx Contracts” shall have the meaning assigned to it in Schedule H.
“Fx Facility” shall have the meaning assigned to it in Schedule H.
“Fx Reserve” shall have the meaning assigned to it in Schedule H.
“GAAP” shall mean United States generally accepted accounting principles adopted by the United States
Securities and Exchange Commission, including United States Accounting Standards and interpretations
together with their accompanying documents which are set by the Financial Accounting Standards Board
and the Emerging Issues Task Force, but only to the extend the same are adopted by the American Institute
of Certified Public Accountants as generally accepted accounting principles in the United States and then
subject top such modifications thereto as are agreed by the American Institute of Certified Public
Accountants on a consistent basis. For greater certainty, for the purposes of this Agreement, including all
financial calculations to be made hereunder, any lease accounted for as an “operating lease” as defined
under U.S. GAAP shall be excluded from Capital Lease calculations.
“Goods” shall mean all “goods,” as such term is defined in the PPSA (or with respect to property located
in the United States, “Goods” as defined in the UCC) and, in any event, includes all things which are
movable at the time Lender’s Liens attach thereto (other than money, Documents, Instruments, Accounts,
Chattel Paper and Intangibles) as well as all fixtures, all now owned or hereafter acquired by any Person,
wherever located, including Equipment, Inventory and all other tangible or corporeal personal or movable
property.
“Goodwill” shall mean all goodwill, trade secrets, proprietary or confidential information, technical
information, procedures, formulae, quality control standards, designs, operating and training manuals,
customer lists, and distribution agreements now owned or hereafter acquired by any Person.
“Governmental Authority” shall mean any nation or government, any state, provincial, territorial or other
political subdivision thereof, and any agency, department or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
“Guarantee” shall mean any guarantee or any other agreement to perform all or any portion of the
Obligations on behalf of any Borrower or any other Credit Party, in favour of, and in form and substance
satisfactory to, Lender, together with all amendments, modifications and supplements thereto and
restatements and replacements thereof, and shall refer to such Guarantee as the same may be in effect at
the time such reference becomes operative.
“Guaranteed Indebtedness” shall mean, as to any Person, any obligation of such Person guaranteeing
any indebtedness, lease, dividend, or other obligation (“primary obligations”) of any other Person (the
- 13 -
“primary obligor”) in any manner, including any obligation or arrangement of such guaranteeing Person
(whether or not contingent): (i) to purchase or repurchase any such primary obligation; (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation, or (b) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor; (iii) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation; or (iv) to indemnify the owner of such primary obligation against
loss in respect thereof.
“Guarantor” shall mean each Person which executes a Guarantee in favour of Lender in connection with
the transactions contemplated by this Agreement.
“Hazardous Material” shall mean any substance, material or waste which is regulated by or forms the basis
of liability now or hereafter under, any Environmental Laws, including any material or substance which is:
(i) defined as a “solid waste,” “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely
hazardous waste,” “restricted hazardous waste,” “pollutant,” “contaminant,” “hazardous constituent,”
“special waste,” “toxic substance” or other similar term or phrase under any Environmental Laws; (ii)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB’s); or (iii) any
radioactive substance.
“Hazardous Waste” shall include any Hazardous Material as well as any other substance, material or waste
which is now or may hereafter be classified as hazardous (or similarly classified) under any applicable
legislation.
“Indebtedness” of any Person shall mean: (i) all indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services (including reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured, but not
including obligations to trade creditors incurred in the ordinary course of business and not more than forty
five (45) days past due); (ii) all obligations evidenced by notes, bonds, debentures or similar instruments;
(iii) all indebtedness created or arising under any conditional sale or other title retention agreements with
respect to property acquired by such Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale of such property); (iv) all
Capital Lease Obligations; (v) all Guaranteed Indebtedness; (vi) all Indebtedness referred to in clauses (i),
(ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness; and (vii) the Obligations.
“Indemnified Liabilities” and “Indemnified Person” shall have the meaning assigned to such terms in
Section 1.12.
“Instruments” shall mean all “instruments,” as defined in the PPSA (and with respect to property located
in the United States, all “Instruments” as defined in the UCC) and, in any event, includes all negotiable
instruments (including all bills of exchange and promissory notes), all certificated securities or any other
writing which evidences a right to the payment of money and is not itself a security agreement or lease and
is of a type which is, in the ordinary course of business, transferred by delivery with any necessary
endorsement or assignment, now owned or hereafter acquired by any Person, wherever located, including
all certificated securities and all notes and other evidences of indebtedness, other than instruments that
constitute, or are a part of a group of writings that constitute, Chattel Paper.
“Intangibles” shall mean all “intangibles” as defined in the PPSA (and with respect to any property located
in the United States, all “General Intangibles” as defined in the UCC) and, in any event, includes intangible
or incorporeal personal property, moveable or immovable now owned or hereafter acquired by any Person,
including all right, title and interest which such Person may now or hereafter have in or under any Contract,
Intellectual Property, interests in partnerships, joint ventures and other business associations, permits,
proprietary or confidential information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise,
- 14 -
experience, processes, models, drawings, materials, Books and Records, Goodwill (including the Goodwill
associated with any Intellectual Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss and casualty, whether covering personal or moveable property, real or
immovable property, tangible rights or intangible rights, corporeal or incorporeal rights, all liability, life, key-
person, and business interruption insurance, and all unearned premiums), uncertificated securities, choses
in action, deposit accounts, rights to receive tax refunds and other payments and rights of indemnification.
“Intellectual Property” shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets
and customer lists.
“Interest Determination Date” shall mean, with respect to any Revolving Credit Advances made based
upon the Term SOFR Rate, the date which is two (2) Business Days before the first day of the Interest
Period for the Term SOFR Rate applicable to such Revolving Credit Advance.
“Interest Payment Date” shall mean, with respect to Revolving Credit Advances made based upon
Adjusted Term CORRA or the Term SOFR Rate, the earlier of thirty (30) days from the Business Day of
the proposed advance of such Revolving Credit Advance and the last day of the Interest Period applicable
to such Revolving Credit Advance and, with respect to each Interest Period of more than 30 days, on each
date that occurs at intervals of 30 days duration after the commencement of the Interest Period.
“Interest Period” means, (a) with respect to each Term CORRA Loan, the initial period (subject to
availability) of one (1), three (3) months or such other period as the Lender permits commencing on and
including the date specified in the Notice of Borrowing or Notice of Continuation/Conversion in the form
attached hereto as Exhibit A, or if the Borrowers elect to continue any Term CORRA Loan in accordance
with Section 1.6(a)(iv), the date the Borrowers have notified the Lender as the date on which to continue
such Term CORRA Loan, as the case may be, as the case may be, applicable to such Term CORRA Loan
and ending on and excluding the last day of such initial period, and thereafter, each successive period
(subject to availability) of approximately one (1) or three (3) months or such other permitted period as
selected by the Borrower and notified to the Lender in writing commencing on and including the last day of
the prior Interest Period, or (b) with respect to each Revolving Credit Advance made based upon the Term
SOFR Rate, the period (subject to market availability) commencing on the Business Day of the proposed
advance of such Revolving Credit Advance or on the Continuation/Conversion Date on which such
Revolving Credit Advance is converted into or continued as a Revolving Credit Advance based upon the
Term SOFR Rate, and ending on the date that is one (1) or three (3) months thereafter as selected by a
Borrower in its Notice of Borrowing or Notice of Continuation/Conversion in the form attached hereto as
Exhibit A, provided that:
(a)
in the case of any continuation of a Term CORRA Loan pursuant to Section 1.6(a)(iv),
the last day of each Interest Period shall also be the first day of the next Interest Period;
(b)
the last day of each Interest Period shall be a Business Day and if not, the Borrower
shall be deemed to have selected an Interest Period the last day of which is the first
Business Day following the last day of the Interest Period selected by the Borrower,
unless such first Business Day is in a succeeding calendar month, in which case, the
last day of such Interest Period shall be the immediately preceding Business Day;
(c)
notwithstanding any of the foregoing, the last day of each Interest Period shall be on or
before the Stated Expiry Date;
(d)
no tenor that has been removed from this definition pursuant to Section 1.16 shall be
available for specification in such Notice of Borrowing or interest election; and
(e)
Interest Periods commencing on the same date for Revolving Credit Advances made
based on the Term SOFR Rate that are part of the same Revolving Credit Advance
shall be of the same duration.
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“Inventory” shall mean all “inventory,” as such term is defined in the PPSA (or with respect to property
located in the United States, all “inventory” as such term is defined in the UCC), now or hereafter owned or
acquired by any Person, wherever located, including all inventory, merchandise, goods and other personal
property which are held by or on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in process or materials used
or consumed or to be used or consumed in such Person’s business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including other supplies.
“Investment Grade Debtor” shall mean a debtor of a Borrower whose long-term unsecured and
unsubordinated indebtedness has been rated as follows by 2 of the 3 rating agencies below:
(a)
S&P:
>BBB-
(b)
Moody’s:
>Baa3
(c)
DBRS:
≥ BBB-
“Investment Property” shall mean all investment property now or hereafter acquired by any Person,
wherever located and includes securities (whether or not certificated), securities entitlement, securities
account, futures contract, commodity contract or commodity account and with respect to property located
in the United States shall include “Investment Property” as such term is defined in the UCC.
“Lender” shall mean Royal Bank of Canada and, if at any time Lender shall decide to assign or syndicate
all or any of the Obligations, such term shall include such assignee or such other members of the syndicate.
“Letters of Credit” shall mean any and all commercial, documentary or standby letters of credit issued at
the request and for the account of a Borrower for which Lender has incurred Letter of Credit Obligations or
EDC Guaranteed Letter of Credit Obligations, and includes any letters of guarantee issued in the discretion
of Lender.
“Letter of Credit Fee” shall mean the amounts set forth as “Letter of Credit Fees” for Letter of Credit
Obligations and EDC Guaranteed Letter of Credit Obligations in Schedule E.
“Letter of Credit Obligations” shall mean all outstanding obligations (including all duty, freight, taxes,
costs, insurance and any other charges and expenses) incurred by Lender, whether direct or indirect,
contingent or otherwise, due or not due, in connection with the issuance or guarantee, by Lender or another,
of Letters of Credit (excluding EDC Guaranteed Letter of Credit Obligations), all as further set forth in
Schedule C.
“Letter of Credit Sublimit” shall mean $7,500,000, or the Equivalent Amount thereof in U.S.$.
“License” shall mean any Copyright License, Patent License, Trademark License or other license of rights
or interests now held or hereafter acquired by any Person.
“Lien” shall mean, whether based on common law, statute or contract, whether choate or inchoate, whether
or not crystallized or fixed, whether or not for amounts due or accruing due: (i) any mortgage, security deed
or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, deemed trust, requirement to pay, easement, reservation, exception, encroachment,
privilege, title exception, garnishment right, prior claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or
title retention agreement and any financing lease having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest
under the PPSA the UCC, the Civil Code of Québec or comparable law of any jurisdiction); and (ii) any
rights of repossession or similar right of an unpaid supplier.
“Litigation” shall mean any claim, lawsuit, litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority.
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“Loan Documents” shall mean this Agreement, each Guarantee, the EDC Guarantee, the Blocked
Accounts Agreement, and the other documents and instruments listed in Schedule F, and all security
agreements, hypothecs, mortgages and all other documents, instruments, certificates, and notices at any
time delivered by any Person (other than Lender and its Affiliates) in connection with any of the foregoing.
“Loans” shall mean the Revolving Credit Loan (including Overdrafts and the Letter of Credit Obligations)
and EDC Guaranteed Letter of Credit Obligations.
“Material Adverse Effect” shall mean a material adverse effect on:
(a)
the financial condition of the Borrowers and the other Credit Parties, taken as a whole;
(b)
the Borrowers' and the other Credit Parties' ability taken as a whole to perform their
respective obligations under the Loan Documents;
(c)
the property, business, operations, corporate governance or liabilities of the Borrowers
and the other Credit Parties, taken as a whole; or
(d)
the priority ranking of any Collateral, or the rights or remedies intended or purported to
be granted to the Lender under or pursuant to this Agreement or any other Loan
Documents.
“Margin Stock” shall mean “margin stock” as such term is defined in Regulation T, U or X of the Board of
Governors of the Federal Reserve System (or any successor thereto).
“Material Contract” shall mean any agreement to which any Credit Party is party which constitutes a
guarantee in such Credit Party’s favour or otherwise providing for any Lien on another Person’s property,
is essential to a Credit Party’s ability to carry on business as currently conducted (including without
limitation, take or pay contracts and product licenses) or the breach or termination of which could otherwise
give rise to a Material Adverse Effect.
“Maximum Amount” shall mean $25,000,000 or the Equivalent Amount thereof in U.S.$.
“Minimum Actionable Amount” shall mean $500,000 or the Equivalent Amount thereof in U.S.$.
“Miscellaneous Fees” shall have the meaning assigned to it in Schedule E.
“Multi-employer Plan” shall mean a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which
is or was at any time during the current year or the immediately preceding six (6) years contributed to by
any Credit Party or any ERISA Affiliate.
“Net Borrowing Availability” shall mean at any time the Borrowing Availability less all outstanding
Revolving Credit Loans, plus, for so long as the Borrowers do not have any Loans outstanding (excluding
Letter of Credit Obligations which are fully cash collateralized in the manner set forth in Schedule C),
unrestricted cash of the Borrowers in which Lender has a first priority perfected security interest. For greater
certainty, upon delivery of the first Notice of Borrowing or first request for the incurrence of Letter of Credit
Obligations that are not cash collateralized under this Agreement, Net Borrowing Availability shall be
recalculated to exclude the unrestricted cash of the Borrowers.
“Net Income” shall mean with respect to any Person for any period, the net revenue of such Person for
such period on a consolidated basis, less all expenses and other charges not otherwise deducted in
computing such net revenue for such period, determined in accordance with GAAP, but excluding
extraordinary items as determined in accordance with GAAP, earnings resulting from any reappraisal,
revaluation or other write-up of assets and gains arising from the repurchase of any equity security of such
Person or any Subsidiary.
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“Notice of Borrowing” shall have the meaning assigned to it in Section 1.1(b).
“Notice of Continuation/Conversion” shall have the meaning assigned to in Section 1.6(b).
“Obligations” shall mean all loans, advances, debts, expense reimbursement, fees, liabilities, and
obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether
or not such performance is then required or contingent, or amounts are liquidated or determinable) owing
by any Borrowers and any other Credit Party to Lender, of any kind or nature, present or future, whether or
not evidenced by any note, agreement or other instrument, whether arising under any of the Loan
Documents or under any other agreement between Borrower, such Credit Party and Lender, and all
covenants and duties regarding such amounts including all such obligations and liabilities in respect of the
RBC Lease Facility, Bank Products, Overdrafts and reimbursement obligations in respect of Letters of
Credit. This term includes all principal, interest, Fees, Charges, expenses, legal fees and any other sum
chargeable to Borrower under any of the Loan Documents, and all principal and interest due in respect of
the Loans and all obligations and liabilities of any Guarantor under any Guarantee.
"OFAC" means the Office of Foreign Assets Control of the U.S. Department of the Treasury.
“Overdraft” shall have the meaning assigned to it in Section 1.1(f).
“Patent License” shall mean rights under any written agreement now owned or hereafter acquired by any
Person granting any right with respect to any invention on which a Patent is in existence.
“Patents” shall mean all of the following in which any Person now holds or hereafter acquires any interest:
(i) all patents and letters patent of the United States, Canada or any other country, all registrations and
recordings thereof, and all applications for patents and letters patent of the United States, Canada or any
other country, including registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, Canada or any province, state or
territory thereof, or any other country; and (ii) all reissues, continuations, continuations-in-part or extensions
thereof.
“Payment Conditions” shall mean that (a) no Default or Event of Default has occurred and is continuing
or would result from any applicable action, (b) Net Borrowing Availability will be at least $5,000,000 on a
pro forma basis after giving effect to the applicable action and on each of the thirty (30) consecutive calendar
days immediately prior to such action on a pro forma basis after giving effect to the applicable action, (c)
the Fixed Charge Coverage Ratio calculated on a trailing twelve month basis would be at least 1.10:1.00
on a pro forma basis as of the most recent Fiscal Month for which Financial Statements have been delivered
in accordance with Section 4.1, and (d) the Borrowers shall have delivered a customary officer’s certificate
certifying as to compliance with the foregoing conditions and setting forth the calculations thereof in
reasonable detail.
“PBA” shall mean the Pension Benefits Act (Ontario) and the similar laws of any other province or territory
of Canada, as in effect from time to time or at any time.
“PBGC” shall mean the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding
to the functions thereof.
“Pension Event” shall mean: (i) the existence of any unfunded liability or windup or Withdrawal Liability,
including contingent withdrawal or windup liability, or any solvency deficiency in respect of any Plan; (ii) the
whole or partial termination or windup of any Plan or occurrence of any act, event or circumstance which
could give rise to the whole or partial termination or windup of any Plan; (iii) the failure to make any
contribution or remittance in respect of any Plan when due; (iv) the failure to file any report, actuarial
valuation, return, statement or other document, when due, in respect of any Plan; (v) the existence of any
Lien except in respect of current contribution amounts not due in connection with any Plan; (vi) the
establishment or commencement to contribute to any Plan not in existence on the date thereof; or (vii) any
violation of, or non-compliance with, any of the rules or regulations contained in the Employee Retirement
Income Security Act of 1974 as same may be amended from time to time.
- 18 -
“Periodic Term CORRA Determination Day” has the meaning assigned to it under the definition of Term
CORRA.
“Permitted Encumbrances” shall mean (provided same shall not constitute any agreement by Lender to
subordinate any of its Liens to same) the following encumbrances:
(a)
any Lien created by, or arising under a statute or regulation or common law (in contrast
with Liens voluntarily granted) in connection with, without limiting the foregoing, workers’
compensation, employment insurance, employers’ health tax or other social security or
statutory obligations that secure amounts that are not yet due or which are being
contested in good faith by proper proceedings diligently pursued and as to which
adequate reserves have been established on the applicable Credit Parties’ books and
records and a stay of enforcement of the Lien is in effect;
(b)
Liens made or incurred in the ordinary course of business to secure the performance of
bids, tenders, contracts (other than for the borrowing of money), leases, statutory
obligations or surety and performance bonds;
(c)
any construction, workers’, materialmen’s or other like Lien created by law (in contrast
with Liens voluntarily granted), after the Closing Date arising in connection with
construction or maintenance in the ordinary course of business, in respect of obligations
which are not due or which are being contested in good faith by proper proceedings
diligently pursued and as to which adequate reserves have been established under
GAAP on any Credit Parties’ books and records and a stay of enforcement of the Lien
is in effect;
(d)
any Lien for taxes not due or being contested in good faith by appropriate proceedings
diligently pursued and as to which adequate reserves have been established on the
applicable Credit Parties’ books and records and a stay of enforcement of the Lien is in
effect;
(e)
minor imperfections in title on real property that do not materially detract from the value
of the real property subject thereto and do not materially impair any Credit Parties’ ability
to carry on its business or Lender’s rights and remedies under the Loan Documents;
(f)
restrictions, easements, rights-of-way, servitudes or other similar rights in 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 by other
Persons which in the aggregate do not materially impair the usefulness, in the operation
of the business of any Credit Party, of the real property subject to the restrictions,
easements, rights-of-way, servitudes or other similar rights in land granted to or
reserved by other Persons and, in each case, which do not impair the use and operation
of the business by the Credit Party or impair Lender’s rights and remedies under the
Loan Documents;
(g)
the rights reserved to or vested in any Person by the terms of any lease, licence,
franchise, grant or permit held by any Credit Party or by any statutory provision, to
terminate any such lease, licence, franchise, grant or permit, or to require annual or
periodic payments as a condition to the continuance thereof;
(h)
the reservations, limitations, provisos and conditions, if any, expressed in any original
grants from the Crown;
(i)
restrictive covenants affecting the use to which real property may be put, provided that
the covenants are complied with and do not materially detract from the value of the real
- 19 -
property concerned or materially impair its use in the operations of any Credit Party or
impair Lender’s rights and remedies under the Loan Documents;
(j)
Liens in favour of Lender created by the Loan Documents;
(k)
Liens disclosed in Disclosure Schedule (5.2(e)) but only to the extent such Liens
conform to their description in Disclosure Schedule (5.2(e)), and includes any extension
or renewal thereof provided the amount secured thereby does not exceed the original
amount secured immediately prior to the extension, renewal or refinancing and the
scope of security creating the Lien is not extended;
(l)
(i) Purchase Money Liens securing Purchase Money Indebtedness to the extent
permitted under Section 5.2(b)(vii), and (ii) Liens securing Capital Lease Obligations
permitted under Section 5.2(b)(viii) so long as such Liens do not at any time extend to
or cover any assets (except for replacements, additions and accessions to such assets)
other than the assets subject to such Capital Leases and the proceeds and products
thereof and customary security deposits; provided that individual financings of fixed
assets provided by one lender may be cross collateralized to other financings of fixed
assets provided by such lender;
(m)
Liens given to a public utility or any municipality or governmental or other public
authority when required by such utility or other authority in connection with the operation
of the business or the ownership of the assets of the Person, provided that such Liens
do not reduce the value of the assets of the Person or materially interfere with their use
in the operation of the business of the Person or impair Lender’s rights and remedies
under the Loan Documents;
(n)
servicing agreements, development agreements, site plan agreements, and other
agreements with governmental entities pertaining to the use or development of any of
the assets of the Person, provided same are complied with and do not reduce the value
of the assets of the Person or materially interfere with their use in the operation of the
business of the Person including, without limitation, any obligations to deliver letters of
credit and other security as required or impair Lender’s rights and remedies under the
Loan Documents;
(o)
applicable municipal and other governmental restrictions, including municipal by-laws
and regulations, affecting the use of land or the nature of any structures which may be
erected thereon, provided such restrictions have been complied with and do not reduce
the value of the assets of the Person or materially interfere with their use in the operation
of the business of the Person or impair Lender’s rights and remedies under the Loan
Documents;
(p)
Liens granted by the Canadian Borrower to Upper Canada Forrest Products Ltd. that
secure indebtedness owing by the Canadian Borrower to Upper Canada Forest
Products Ltd. for the supply of goods, which Liens are subject to a subordination and
postponement agreement, in form and substance satisfactory to the Lender;
(q)
security in cash collateral in an aggregate amount of up to $1,000,000 granted to the
issuer of credit cards in respect of corporate credit cards for the Borrowers and the other
Credit Parties;
(r)
Liens in favour of the Surety in respect of the Surety Bond Facility, so long as they are
subject to the Triparty Agreement or a subordination, priority or other intercreditor
agreement in form and substance satisfactory to the Lender; and
(s)
such other Liens as are agreed to in writing by the Lender.
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“Permitted Investment” any direct or indirect (i) acquisition of any shares, partnership interests,
participation interests in any arrangement, options or warrants, or any indebtedness, whether or not
evidenced by any bond, debenture or other written evidence of a Person, or (ii) acquisition, by purchase or
otherwise, of all or substantially all of the business, assets or stock or other evidence of beneficial ownership
of a Person. The amount of any Investment will be the original cost of such Investment, plus the cost of all
additions thereto and minus the amount of any portion of such Investment repaid to such Person in cash
as a return of capital, or repayment of the principal amount of indebtedness, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment. In determining the amount of any Investment involving a transfer of any
property other than cash, such property will be valued at its fair market value at the time of such transfer.
“Person” shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint
venture, trust, unincorporated organization, association, corporation, limited liability company, legal person,
institution, public benefit corporation, entity or government (whether federal, provincial, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and
shall include such Person’s successors and assigns.
“Plan” shall mean (i) any employee pension benefit plan which a Credit Party sponsors or maintains or to
which it makes or is making or is required to make contributions, and includes any pension or benefit plan
regulated by the FSCO or similar authority or otherwise subject to the PBA and (ii) any employee pension
benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412
of the Code or Section 302 of ERISA, and in respect of which any Credit Party or any ERISA Affiliate is (or,
if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as
defined in Section 3(5) of ERISA.
“PPSA” shall mean the Personal Property Security Act (or any successor statutes) as the same may, from
time to time, be in effect in the Province of Alberta; provided, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, non-perfection or priority of Lender’s security
interest in any Collateral is governed by the Personal Property Security Act as in effect in a jurisdiction other
than the Province of Alberta, the term “PPSA” shall mean the Personal Property Security Act or a similar
act or statute as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating
to such attachment, perfection or priority and for purposes of definitions related to such provisions.
“Proceeds” shall mean “proceeds,” as such term is defined in the PPSA (and with respect to property
located in the United States, “Proceeds” as defined in the UCC) and, in any event, includes whatever is
received or receivable upon the sale, exchange, collection or other disposition of the Collateral and, in any
event shall include: (i) any and all proceeds of any insurance, indemnity, warranty or guarantee payable to
any Borrower or any other Credit Party from time to time with respect to any Collateral; (ii) any and all
payments (in any form whatsoever) made or due and payable to any Borrower or any other Credit Party
from time to time in connection with any requisition, confiscation, expropriation, seizure or forfeiture of any
Collateral by any governmental body, authority, bureau or agency (or any person acting under colour of
governmental authority); (iii) any claim of any Borrower or any other Credit Party against third parties (a)
for past, present or future infringement of any Intellectual Property or (b) for past, present or future
infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark License; (iv) any
recoveries by any Borrower or any other Credit Party against third parties with respect to any Litigation or
dispute concerning any Collateral; and (v) any and all other amounts from time to time paid or payable
under or in connection with any Collateral, upon disposition or otherwise.
“Projections” shall mean the projected consolidated and, when requested, consolidating, income
statement, balance sheet, and statement of cash flows of Borrower and its Subsidiaries for any future
period, including forecasted Capital Expenditures and Net Borrowing Availability.
“Purchase Money Indebtedness” shall mean: (i) any Indebtedness incurred for the payment of all or any
part of the purchase price of any fixed asset; (ii) any Indebtedness incurred for the sole purpose of financing
or refinancing all or any part of the purchase price of any fixed asset; (iii) any Indebtedness owing to a
supplier incurred in the normal course of business for the sole purpose of financing all or any part of the
- 21 -
purchase price of equipment provided no Lien is registered in respect to such Indebtedness and such
Indebtedness is not overdue; and (iv) any renewals, extensions or refinancings thereof (but not any
increases in the principal amounts thereof outstanding at that time).
“Purchase Money Lien” shall mean any Lien upon any fixed assets which secures the Purchase Money
Indebtedness related thereto but only if such Lien shall at all times be confined solely to the asset the
purchase price of which was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such Purchase Money Indebtedness;
provided that individual financings of fixed assets provided by one lender may be cross collateralized to
other financings of fixed assets provided by such lender.
“RBC Lease Facility” shall mean all leasing arrangements which Royal Bank of Canada (or its Affiliates),
as lessor, may provide to a Credit Party, as lessee, from time to time and all leasing schedules,
supplements, exhibits and lease documentation related thereto (as from time to time amended, modified,
restated, supplemented or replaced) and includes the leasing facilities described in Schedule I hereto.
“RBP” means, with respect to a RBP based loan, on any day the greater of:
(a)
the annual rate of interest announced from time to time by the Lender as being its
reference rate then in effect on such day for determining interest rates on Canadian
Dollar denominated commercial loans made by it in Canada; and
(b)
Adjusted Term CORRA for an interest period of one month in effect from time to time
plus 100 basis points per annum,
and provided that in no event shall RBP be less than zero for the purposes of this Agreement. RBP is a
reference rate and does not necessarily represent the lowest or best rate actually charged to any customer.
Any change in RBP determined by the Lender shall be effective on the date the change becomes effective
generally.
“RBUSBR” and “Royal Bank U.S. Base Prime Rate” means the higher of: (i) the annual rate of interest
announced by the Royal Bank of Canada in Toronto, Ontario from time to time as being its reference rate
in effect for determining interest rates on US Dollar commercial loans made by the Royal Bank of Canada
in Canada, adjusted automatically with each quoted or published change in such rate, all without the
necessity of any notice to Borrower or any other person, provided that, if any such referenced rate is below
zero, then the RBUSBR shall be deemed to be zero, (ii) the Federal Funds Rate in effect on such day plus
½ of 1.00% and (iii) Adjusted Term SOFR for a one-month tenor in effect for such day plus 1.00%; provided
that to the extent such highest rate as calculated above shall, at any time, be less than zero, such rate shall
be deemed to be zero for all purposes herein. Any change in the RBUSBR due to a change in the prime
rate, the Federal Funds Rate or Adjusted Term SOFR shall be effective on the opening of business on the
day specified in the public announcement of such change in the prime rate, the Federal Funds Rate or
Adjusted Term SOFR, respectively.
“Real Property” shall have the meaning assigned to it in Section 3.15.
“Release” shall mean, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials in the indoor or
outdoor environment by such Person, including the movement of Hazardous Materials through or in the air,
soil, surface water, ground water or property.
“Relevant Canadian Governmental Body” means the Bank of Canada, or a committee officially endorsed
or convened by the Bank of Canada, or any successor thereto.
“Reportable Event" means any of the events set forth in Section 4043(c) of ERISA or the regulations
thereunder, other than any such event for which the 30 day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
- 22 -
“Requirement of Law” shall mean as to any Person, the certificate or articles of incorporation and by-laws
or other organizational or governing documents of such Person, and any law, treaty, judgment, declaration,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case
binding upon such Person or any of its property or to which such Person or any of its property is subject.
“Restricted Payment” shall mean:
(a)
the declaration or payment of any dividend or the incurrence of any liability to make any
other payment or distribution of cash or other property or assets on or in respect of any
Borrower’s or any other Credit Party’s Shares;
(b)
any payment or distribution made in respect of any subordinated Indebtedness of
Borrower or any other Credit Party (excluding, so long as no Event of Default has
occurred and is continuing, regularly scheduled payments of interest on Convertible
Debentures) in violation of any subordination or other agreement made in favour of
Lender, but subject in all cases to the subordination, priority or intercreditor agreement
with Lender;
(c)
any payment on account of the purchase, redemption, defeasance or other retirement
of Borrower’s or any other Credit Party’s Shares or Indebtedness (excluding the RBC
Leasing Facility and, so long as no Event of Default has occurred and is continuing,
regularly scheduled payments of interest on Convertible Debentures) or any other
payment, voluntary prepayment or distribution made in respect thereof, either directly
or indirectly other than: (i) that arising under this Agreement, or (ii) interest and principal,
when due without acceleration or modification of the amortization as in effect on the
Closing Date, under Indebtedness (not including subordinated Indebtedness, payments
of which shall be permitted only in accordance with the terms of the relevant
subordination, priority or intercreditor agreement made in favour of Lender) described
in Disclosure Schedule (5.2(b)) or otherwise permitted under Section 5.2(b)(vii), (viii),
(ix), and (xi); or
(d)
any payment, loan, contribution, or other transfer of funds or other property to any
Shareholder of such Person which is not expressly and specifically permitted in this
Agreement; provided, that no payment to Lender shall constitute a Restricted Payment
and no payment or transfer between Credit Parties shall constitute a Restricted
Payment.
“Revolving Credit Advance” shall have the meaning assigned to it in Section 1.1(a).
“Revolving Credit Loan” shall mean at any time the sum of: (i) the aggregate amount of Revolving Credit
Advances then outstanding; (ii) the total Letter of Credit Obligations incurred by Lender and outstanding at
such time; and (iii) the amount of accrued but unpaid interest thereon and Letter of Credit Fees with respect
thereto.
“Sanctioned Entity" shall mean (a) a country or a government of a country, (b) an agency of the
government of a country, (c) an organization directly or indirectly controlled by a country or its government,
(d) a Person resident in or determined to be resident in a country, in each case, that is subject to a country
sanctions
program
on
the
list
maintained
and
published
by
OFAC
and
available
at
http://www.treas.gov/offices/enforcement/ofac/programs, or as otherwise published from time to time as
such program may be applicable to such country, agency, organization or person.
“Sanctioned Person” means a person named on the list of Specially Designated Nationals or Blocked
Persons maintained by OFAC available at http://www.treas.gov/offices/enforcement/ofac/sdn/index.html,
or as otherwise published from time to time.
“Shareholder” shall mean each holder of Shares of any Borrower or any other Credit Party.
- 23 -
“Shares” shall mean all certificated and uncertificated shares, options, warrants, membership interests,
units, general or limited partnership interests, participation or other equivalents (regardless of how
designated) of or in a corporation, partnership, limited partnership, unlimited liability company, limited
liability company or equivalent entity whether voting or nonvoting, including common shares, preferred
shares, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act
of 1934) or “security” (as defined in the Securities Act (Alberta) or any other applicable Canadian provincial
legislation or regulations thereunder).
“SOFR” means a rate per annum equal to the secured overnight financing rate as administered by the
SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the
secured overnight financing rate).
“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently
at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified
as such by the SOFR Administrator from time to time.
“Solvent” means, with respect to any Credit Party, that as of the date of determination, (a) the sum of such
Credit Party’s debt and other liabilities (including contingent liabilities) does not exceed the present fair
saleable value of such Credit Party’s present assets as of such date, (b) such Credit Party’s capital is not
unreasonably small in relation to its business as contemplated on such date or with respect to any
transaction contemplated to be undertaken after such date, (c) such Credit Party has not incurred and does
not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts and liabilities
(including contingent liabilities) beyond its ability to pay such debts and liabilities as they become due
(whether at maturity or otherwise) and (d) such Credit Party is “solvent” within the meaning given to that
term and similar terms under applicable law relating to liquidation, administration, conservatorship,
bankruptcy, insolvency, assignment for the benefit of creditors, moratorium, receivership, winding-up,
dissolution, reorganization, restructuring, recapitalization, arrangement or rearrangement, or other similar
debtor relief law from time to time in effect, including without limitation the Bankruptcy and Insolvency Act
(Canada), the CCAA, the Canada Business Corporations Act (Canada), the Corporations Act 2001 (Cth),
the Bankruptcy Act 1966 (Cth) and the Bankruptcy Code and applicable laws relating to fraudulent transfers
and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall
be computed as the amount that, in light of all of the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or matured liability
(irrespective of whether such contingent liabilities meet the criteria for accrual under GAAP).
“Stated Expiry Date” shall mean, unless extended to a later date in the sole, unfettered discretion of Lender
following a written request by Borrower (and subject to an extension fee), November 30, 2025.
“Subsidiary” shall mean, with respect to any Person: (i) any corporation of which an aggregate of more
than 50% of the outstanding Shares having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether, at the time, Shares of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of
such Person, or with respect to which any such Person has the right to vote or designate the vote of 50%
or more of such Shares whether by proxy, agreement, operation of law or otherwise; and (ii) any partnership
or limited liability company in which such Person or one or more Subsidiaries of such Person has an equity
interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or
of which any such Person is a general partner or manager or may exercise the powers of a general partner
or manager.
“Surety” means Great Midwest Insurance Company and certain affiliates of Skyward Specialty Insurance
Group, Inc.
- 24 -
“Surety Agreements” means (i) the general indemnity agreement dated August 22, 2024; (ii) the indemnity
and security agreement dated August 27, 2024, and all other agreements, documents, instruments,
certificates, and notices in connection with the Surety Bond Facility.
“Surety Bond Facility” means a facility provided by the Surety to the Borrowers pursuant to the terms and
conditions of the Surety Agreements solely for purposes of issuing surety bonds in the ordinary course of
business, in an aggregate amount not to exceed U.S.$15,000,000.
“Surety Letter of Credit” means a letter of credit(s) in an aggregate amount not to exceed U.S.
$15,000,000 issued by the Borrowers in favour of the Surety to secure the payment and performance each
Borrower’s obligations and liabilities to the Surety under the Surety Agreements.
“Taxes” shall mean any and all present or future taxes, duties, levies, imposts, deductions, Charges
withholdings, value added taxes, or any other goods and services, use or sales taxes, assessments, fees
or other charges imposed by any Governmental Authority, including any interest, additions to tax, penalties
or other liabilities with respect thereto, but excluding taxes imposed on or measured by the net income of
Lender.
"Term CORRA” means, for any calculation with respect to a Term CORRA Loan, the Term CORRA
Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic
Term CORRA Determination Day”) that is two (2) Business Days prior to the first day of such Interest
Period, as such rate is published by the Term CORRA Administrator; provided, however, that if as of 1:00
p.m. (Toronto time) on any Periodic Term CORRA Determination Day the Term CORRA Reference Rate
for the applicable tenor has not been published by the Term CORRA Administrator and a Canadian
Benchmark Replacement Date with respect to the Term CORRA Reference Rate has not occurred, then
Term CORRA will be the Term CORRA Reference Rate for such tenor as published by the Term CORRA
Administrator on the first preceding Business Day for which such Term CORRA Reference Rate for such
tenor was published by the Term CORRA Administrator so long as such first preceding Business Day is
not more than three (3) Business Days prior to such Periodic Term CORRA Determination Day.
“Term CORRA Adjustment” means, with respect to Term CORRA, for an Interest Period of a duration of
(a) one-month a percentage equal to 0.29547% per annum (29.547 basis points), and (b) a percentage
equal to three-months, 0.32138 % per annum (32.138 basis points).
“Term CORRA Administrator” means Candeal Benchmark Administration Services Inc., TSX Inc., or any
successor administrator.
“Term CORRA Loan” means a Loan made pursuant to Section 1.1 that bears interest at a rate based on
Adjusted Term CORRA other than pursuant to clause (ii) of the definition of RBP.
“Term CORRA Reference Rate” means the forward-looking term rate based on CORRA.
"Term SOFR Administrator" means CME Group Benchmark Administration Limited (CBA) (or a successor
administrator of the Term SOFR Reference Rate selected by the Lender in its reasonable discretion).
“Term SOFR Adjustment” shall mean, with respect to Term SOFR, 0.10% (10 basis points) for an Interest
Period of one-month’s duration and 0.15% (15 basis points) for an Interest Period of three-month’s duration.
“Term SOFR Determination Day” has the meaning assigned to it under the definition of Term SOFR Rate.
“Term SOFR Loan” means a Loan that bears interest at a rate based on Adjusted Term SOFR, other than
pursuant to clause (iii) of the definition of “RBUSBR”.
“Term SOFR Rate” means, for any Interest Period for a Term SOFR Loan, the greater of (a) the Term
SOFR Reference Rate (rounded upward to the next one-sixteenth (1/16th) of one percent (0.0625%), if
necessary) for a tenor comparable to the applicable Interest Period on the day (the “Term SOFR
Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of
- 25 -
such Interest Period, as such rate is published by the Term SOFR Administrator and (b) the Floor; provided,
however, that if as of 5:00 p.m. (New York City time) on any Term SOFR Determination Day the Term
SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator
and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred,
then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR
Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR
Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first
preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities
Business Days prior to such Term SOFR Determination Day.
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Termination Date” shall mean the date on which the indefeasible payment in full of the Obligations has
occurred and Lender has no further obligation to advance funds, issue Letters of Credit or otherwise extend
or continue any credit hereunder (whether due to the Stated Expiry Date or otherwise pursuant to the terms
hereof).
“Total Interest Expense” means, with respect to any Person for any period, without duplication, the
aggregate amount of interest and other financing charges expensed by such Person on account of such
period with respect to Funded Debt including interest, discount financing fees, commissions, discounts, the
interest or time value of money component of costs related to factoring or securitizing receivables or
monetizing inventory and other fees and charges payable with respect to letters of credit, letters of
guarantee and bankers’ acceptance financing, standby fees, the interest component of Capital Leases and
net payments (if any) pursuant to hedge arrangements involving interest, but excluding any amount, such
as amortization of debt discount and expenses, that would qualify as Depreciation Expense and the amount
reflected in Net Income for such period in respect of gains (or losses) attributable to translation of Funded
Debt from one currency to another currency, all as determined on a consolidated basis in accordance with
Applicable Accounting Standards
“Trademark License” shall mean rights under any written agreement now owned or hereafter acquired by
any Person granting any right to use any Trademark or Trademark registration.
“Trademarks” shall mean all of the following now owned or hereafter acquired by any Person: (i) all
trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing have appeared or appear,
designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection therewith, including all registrations,
recordings and applications in the United States Patent and Trademark Office or in any similar office or
agency of the United States, Canada, any Province, State or Territory thereof, or any other country or any
political subdivision thereof; and (ii) all reissues, extensions or renewals thereof.
“Triparty Agreement” means the triparty agreement made as of [February 20, 2025] made by and
between, the Lender, the Surety and the Borrowers.
“UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of New York;
provided that, if perfection or the effect of perfection or non-perfection or the priority of the security interest
in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the
State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other
jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-
perfection or priority.
“Unadjusted Canadian Benchmark Replacement” means the applicable Canadian Benchmark
Replacement excluding the related Canadian Benchmark Replacement Adjustment.
"Unfunded Capital Expenditures" means the amount of all Capital Expenditures of the Borrower and its
Subsidiaries for the immediately preceding twelve month period, less any Capital Expenditures during such
twelve month period that are funded by cash reserves identified by the Borrower for such purpose from the
- 26 -
incurrence of Funded Debt (other than advances under this Agreement but, for certainty, including the
Convertible Debentures) or the issuance of Shares in the immediately prior twenty four month period.
“United States” and “U.S.” mean the United States of America.
“Unused Line Fee” shall mean the amounts set forth as “Unused Line Fees” for Letter of Credit Obligations
and EDC Guaranteed Letter of Credit Obligations in Schedule E.
“U.S. Dollars” or “U.S.$” shall mean the lawful currency of the United States of America.
“U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or
(iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed
income departments of its members be closed for the entire day for purposes of trading in United States
government securities.
“U.S. Security Agreement” means that certain Security Agreement, dated as of February 12, 2021, by and
among the U.S. Borrower, the Canadian Borrower and the Lender.
“US Borrower” means DIRTT Environmental Solutions, Inc., a corporation organized under the laws of the
State of Colorado, together with its successors and assigns.
“Visa Facility” shall have the meaning assigned to it in Schedule H.
“Visa Facility Agreements” shall have the meaning assigned to it in Schedule H.
“Visa Limit” shall have the meaning assigned to it in Schedule H.
“Visa Reserve” shall have the meaning assigned to it in Schedule H.
“Withdrawal Liability” shall mean liability to a Multi-employer Plan as a result of a complete or partial
withdrawal from such Multi-employer Plan, as such terms are defined in Part I of Subtitle E of Title IV of
ERISA.
Any accounting term used in this Agreement or the other Loan Documents shall have, unless otherwise
specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all
financial computations thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial covenants and calculations in the
Loan Documents shall be made in accordance with GAAP as in effect on the Closing Date unless Borrower
and Lender shall otherwise specifically agree in writing. That certain items or computations are explicitly
modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing. All
other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context
indicates otherwise, have the meanings provided for by the PPSA with respect to property in Canada, and
the UCC with respect to property located in the United States. The words “herein,” “hereof” and “hereunder”
or other words of similar import refer to this Agreement as a whole, including the exhibits and schedules
thereto, as the same may from time to time be amended, modified or supplemented, and not to any
particular section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following additional rules of
construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it
appears appropriate, each term stated in either the singular or plural shall include the singular and the
plural; (b) the term “or” is not exclusive; (c) the term “including” (or any form thereof) shall not be limiting or
exclusive; (d) all references to statutes, acts and related regulations shall include any amendments of same
and any successor statutes and regulations; (e) all references to any instruments or agreements, including
references to any of the Loan Documents, shall include any and all modifications or amendments thereto
and any and all extensions or renewals thereof; (f) the specification of any Lien as a Permitted Encumbrance
shall not constitute any postponement or subordination (or agreement to do so) of Lender’s Liens; and (g)
- 27 -
all references to “$” dollars or amounts of currency shall unless otherwise expressly provided mean lawful
currency of Canada.
The Lender does not warrant or accept any responsibility for, and shall not have any liability with respect
to, (a) the continuation of, the administration of, submission of, calculation of, performance of or any other
matter related to any interest rate used in this Agreement (including, without limitation, the Term SOFR
Rate) or any component definition thereof or rates referred to in the definition thereof, or with respect to any
alternative or successor rate thereto, or replacement rate thereof (including any Benchmark Replacement),
including without limitation, whether the composition or characteristics of any such alternative, successor
or replacement reference rate will be similar to, or produce the same value or economic equivalence of, or
have the same value or economic equivalence of the existing interest rate (or any component thereof) being
replaced or have the same volume or liquidity as did any existing interest rate (or any component thereof)
prior to its discontinuance or unavailability. The Lender and its affiliates and/or other related entities may
engage in transactions that affect the calculation of any interest rate (or component thereof) used in this
Agreement or any alternative, successor or alternative rate (including any Benchmark Replacement) and/or
any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Lender may
select information sources or services in its reasonable discretion to ascertain any interest rate used in this
Agreement, any component thereof, or rates referred to in the definition thereof, in each case pursuant to
the terms of this Agreement, and shall have no liability to the Borrower or any other person or entity for
damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages,
costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any
error or calculation of any such rate (or component thereof) provided by any such information source or
service.
The Credit Parties confirm and agree that for purposes of any Collateral located in the Province of Quebec
or charged by any deed of hypothec (or any other Loan Document) and for all other purposes pursuant to
which the interpretation or construction of a Loan Document may be subject to the laws of the Province of
Quebec or a court or tribunal exercising jurisdiction in the Province of Québec: (a) “personal property” shall
be deemed to include “movable property”; (b) “real property” shall be deemed to include “immovable
property”; (c) “tangible property” shall be deemed to include “corporeal property”; (d) “intangible property”
shall be deemed to include “incorporeal property”; (e) “security interest” and “mortgage” shall be deemed
to include a “hypothec”; (f) all references to filing, registering or recording under the UCC or the PPSA shall
be deemed to include publication under the Civil Code of Québec; (g) all references to “perfection” of or
“perfected” Liens shall be deemed to include a reference to the “opposability” of such Liens to third parties;
(h) any “right of offset”, “right of setoff” or similar expression shall be deemed to include a “right of
compensation”; (i) “goods” shall be deemed to include “corporeal movable property” other than chattel
paper, documents of title, instruments, money and securities; and (j) an “agent” shall be deemed to include
a “mandatary”.
EXHIBIT A
FORM OF NOTICE OF BORROWING OR CONTINUATION/CONVERSION
(Letter to be typed on a Borrower’s Letterhead)
[DATE]
Royal Bank of Canada
20 King Street West, 4th Floor
Toronto, Ontario M5H 1C4
Attention:
Operations Group
FAX:
***
E-MAIL:
***
cc:
Attention:
Portfolio Manager
E-MAIL:
***
BORROWING NOTICE
We refer to the loan agreement dated as of February 12, 2021 (as amended, restated, supplemented,
replaced or otherwise modified from time to time, the “Agreement”; capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement), DIRTT Environmental
Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a “Borrower”, and collectively the
“Borrowers”), each other Credit Party executing same and Royal Bank of Canada (“Lender”).
We hereby instruct and authorize Lender to [make advances] [continue/ convert an outstanding loan]
to our disbursement account(s), subject to and in accordance with the terms and provisions of the
Agreement to the account numbers specified below and to charge the Borrowers’ loan account with each
such [advance(s)] [continuation(s)/ conversion(s)].
The Borrower hereby requests [an advance] [the continuation/ conversion of an outstanding loan]
(the “Advance”) be made as follows:
A.
Date of Advance:
_________________
B.
Type/ amount of Advance1 to be made:
1 In the case of Advances made based upon RBP or RBUSBR, the amount of the Advance may not be less than $500,000 (in the
case of Advances made based upon RBP) or U.S.$500,000 (in the case of Advances made based upon RBUSBR) and must be
integral multiples of $100,000 (in the case of Advances made based upon Adjusted Term CORRA) or U.S.$100,000 (in the case of
Advances made based upon the Term SOFR Rate) in excess thereof. In the case of Advances made based upon Adjusted Term
CORRA or the Term SOFR Rate, the amount of the Advance may not be less than $1,000,000 (in the case of Advances made based
upon Adjusted Term CORRA) or U.S.$1,000,000 (in the case of Advances made based upon the Term SOFR Rate) and must be
integral multiples of $100,000 (in the case of Advances made based upon Adjusted Term CORRA) or U.S.$100,000 (in the case of
Advances made based upon the Term SOFR Rate) in excess thereof.
- 2 -
RBP based Advance (CAD$):
__________________
RBUSBR based Advance (U.S.$):
__________________
Adjusted Term CORRA based Advance (CAD$):
__________________
Term SOFR Rate based Advance (U.S.$):
__________________
C.
[Type of Advance resulting from the conversion or continuation (if applicable):
RBP based Advance (CAD$):
__________________
RBUSBR based Advance (U.S.$):
__________________
Adjusted Term CORRA based Advance (CAD$):
__________________
Term SOFR Loan (U.S.$):
__________________]
D.
Proceeds of the Advance are to be directed as follows:
CAD$ #________________________
U.S.$ #________________________
E.
Duration of the Interest Period (for Advances based upon Adjusted Term CORRA or the
Term SORF Rate)2:
__________________ [1 or 3
months]
Borrower hereby confirms as follows:
(a)
Each of the representations and warranties made by each of the Credit Parties in or pursuant to
the Agreement and the other Loan Documents are true and correct in all material respects on and
as of the date hereof as if made on and as of such date, except as Lender may have otherwise
agreed to herein or in a separate writing.
(b)
No Default has occurred as of the date hereof or will occur after the making of the Advance(s)
requested hereunder.
DATED this __ day of _______, 20__.
BORROWER: __________________
By:
c/s
Name:
Title:
Moreover, if the Notice of Borrowing or Notice of Continuation/Conversion does not specify whether the Advance is to be made based
upon RBP, RBUSBR, Adjusted Term CORRA or the Term SOFR Rate, then it shall be deemed to be a request for a RBUSBR based
Advance if denominated in U.S.$ and a RBP based Advance if denominated in CAD$.
2 If the Notice of Borrowing or Continuation/Conversion fails to specify the duration of the Interest Period for Advances made based
upon Adjusted Term CORRA or the Term SOFR Rate, such Interest Period shall be for one (1) month.
EXHIBIT B
FORM OF BORROWING BASE CERTIFICATE
I, the Authorized Officer of DIRTT Environmental Solutions Ltd. (“Borrower”) hereby certify as of ⚫,
20⚫⚫:
1. I am familiar with and have examined the provisions of the loan agreement (the “Agreement”) dated
February 12, 2021, DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc.
(each a “Borrower”, and collectively the “Borrowers”) and Royal Bank of Canada (“Lender”) and have
made reasonable investigations of records and inquiries of other officers and senior personnel of
Borrower. Terms defined in the Agreement have the same meanings where used in this certificate.
2.
The Net Borrowing Availability is $⚫, calculated as follows:
U.S.$ exchange rate at ⚫ (Bank of Canada noon rate for ⚫, 20⚫)
[Table of Calculations to be inserted here]
3. The reports and information provided herewith are accurate and complete in all respects and all
amounts included as potential prior ranking claims are current amounts owing and not in arrears
[indicate any claims that are past due other than those specifically noted].
Dated this ⚫ day of ⚫, 20⚫.
Per:_________________________
Authorized Officer
- 2 -
POTENTIAL PRIOR RANKING CLAIMS
CAD$
GST
_____________
HST
_____________
PST/QST
_____________
employee source deductions
_____________
(including EI, CPP and taxes)
past due employer health tax
_____________
past due workers’ compensation
_____________
WEPPA reserve ($2,000/full time employee;
$1,000/part time employee)
_____________
RRSP (employee contributions)
_____________
pension plan contributions
_____________
rent
_____________
[realty/municipal taxes if owned real estate]
_____________
other
_____________
total
_____________
number of full time employees:
_____________
number of part time employees:
_____________
ATTACHMENT “1”TO EXHIBIT B
ACCOUNTS RECEIVABLE ROLL FORWARD
CAD$
U.S.$
total accounts receivable as of last Borrowing Base Certificate dated
______
gross sales invoiced (+)
credit notes (-)
total cash deposits into Blocked Accounts (-)
cash deposits into Blocked Accounts not credited against accounts
receivable (+)
cash deposits into Blocked Accounts not related to accounts receivable
(+)
adjustments (+/-)
total accounts receivable as of current Borrowing Base Certificate dated
______
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
TO:
Royal Bank of Canada (“Lender”)
The undersigned, ____________________ [TITLE of AUTHORIZED OFFICER], of DIRTT Environmental
Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a “Borrower”, and collectively the
“Borrowers”), pursuant to the provisions of the loan agreement dated as of February 12, 2021, among,
inter alia, Lender and Borrowers (as amended, restated, supplemented, replaced or otherwise modified
from time to time, the “Agreement”), DOES HEREBY CERTIFY in [his/her] capacity as an authorized officer
of each Borrower and not in [his/her] personal capacity that:
1.
The Financial Statements attached hereto fairly and accurately represent the Canadian Borrower's
consolidated financial condition at the end of the particular accounting period set out in such
Financial Statements, as well as the Canadian Borrower’s consolidated operating results during
such accounting period, subject to year-end audit adjustments;
2.
A review of such Financial Statements and of the activities of the Credit Parties during the period
covered by such Financial Statements has been made under my supervision with a view to
determining whether the Credit Parties have fulfilled all of their obligations;
3.
From the commencement of the accounting period set out in such Financial Statements to the date
hereof:
(a)
there has been no Default or Event of Default under the Agreement;
(b)
no Credit Party is aware of any event or circumstance which could reasonably have or
could reasonably have had a Material Adverse Effect;
(c)
the representations and warranties contained in the Agreement and the other Loan
Documents are correct in all material respects on and as of the date hereof as though
made on and as of such date, other than any such representation or warranty which relates
to a specified prior date and except to the extent that Lender has been notified in writing
by a Borrower that any representation or warranty is not correct and Lender has explicitly
waived in writing compliance with such representation or warranty;
(d)
attached hereto is an updated Schedule G listing of Material Contracts of the Credit Parties;
(e)
each Credit Party has been in full compliance with all covenants set out in the Agreement,
including Financial Covenants as evidenced by the calculations attached hereto as
Attachment 1;
(f)
no new Subsidiaries were formed or acquired since the end of the previous calendar month
[If acquired or formed, indicate for each such Subsidiary, the date of the formation or
acquisition];
(g)
no change in GAAP or in the application thereof has occurred since the date of the most
recent audited annual Financial Statements of the Credit Parties delivered to Lender [If a
change has occurred, specify the details of the change and its effect on the
accompanying Financial Statements]; and
- 2 -
[if any of the foregoing is incorrect, revise wording accordingly to include particulars
of any variation.]
4.
Capitalized terms used herein and not otherwise defined shall have the meanings given to such
terms in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate on behalf of each
Borrower as of the _______ day of ________________, 20<⚫>.
By:
Name:
Title of Authorized Officer
- 3 -
ATTACHMENT “1”TO EXHIBIT C
FINANCIAL COVENANTS
COMPANY NAME
______________________________________
MONTHLY CERTIFICATE
_________________________________ 20__
A. Fixed Charge Coverage Ratio
Net Income
plus:
Depreciation Expense
current and deferred taxes
investment losses accounted for by equity
Total Interest Expense
unrealized hedging losses
non-cash stock based compensation expenses
extraordinary, non-recurring and unusual losses
minus:
reduction of income taxes
unrealized hedging gains
investment gains accounted for by equity
extraordinary, non-recurring and unusual gains
Adjusted EBITDA
minus:
cash income taxes paid
Unfunded Capital Expenditures
Restricted Payments
plus
operating leases and rent
(i) TOTAL
Total Interest Expense
scheduled payments of principal on Funded Debt
scheduled payments under Capital Leases
operating lease payments
(ii) TOTAL
Fixed Charge Coverage Ratio = (i)/(ii)
EXHIBIT D
FORM OF NOTICE OF REPAYMENT
(Letter to be typed on a Borrower’s Letterhead)
[DATE]
Royal Bank of Canada
20 King Street West, 4th Floor
Toronto, Ontario M5H 1C4
Attention:
Operations Group
FAX:
***
E-MAIL:
***
cc:
Attention:
Portfolio Manager
E-MAIL:
***
REPAYMENT NOTICE
We refer to the loan agreement dated as of February 12, 2021 (as amended, restated, supplemented,
replaced or otherwise modified from time to time, the “Agreement”; capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement), DIRTT Environmental
Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a “Borrower”, and collectively the
“Borrowers”), each other Credit Party executing same and Royal Bank of Canada (“Lender”).
The Borrowers hereby give you notice pursuant to Section 1.2(c) of the Credit Agreement that they intend
to make a prepayment of [RBP] [RBUSBR] [Term CORRA] [Term SOFR Rate] Revolving Loans in the
amount of [U.S.] / [CDN] $________________ on ________________, 20_____.
[Note to Draft: revise wording accordingly to include particulars if the prepayment is conditioned
upon the occurrence or non-occurrence of any event.]
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Per:
Name:
Title:
DIRTT ENVIRONMENTAL SOLUTIONS, INC.
Per:
Name:
Title:
2
Signature Page to Fifth Amendment
DATED as of the date first stated above.
Lender:
ROYAL BANK OF CANADA,
by its attorneys,
Per:
/s/ Vanja Tubin
Name: Vanja Tubin
Title: Vice President, Corporate Client Group -
Asset Based Lending
Per:
/s/ Jordan Falkenberg
Name: Jordan Falkenberg
Title: Vice-President, Corporate Client Group -
Finance
Signature Page to Fifth Amendment
Borrower:
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Per:
/s/ Fareeha Khan
Name: Fareeha Khan
Title: Chief Financial Officer
EXHIBIT 10.46
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH
NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR
CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH THREE
ASTERISKS [***].
Signature Page to Fifth Amendment
Extension
LEASE AMENDING AGREEMENT
THIS AGREEMENT made as of the 25th day of April, 2024,
B E T W E E N:
PIRET (7303-30TH STREET SE) HOLDINGS INC.
(hereinafter called "Landlord")
- and -
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
(hereinafter called "Tenant")
WHEREAS:
A.
By a lease dated September 15, 2012 between Landlord and Tenant (such lease hereinafter called
the "Original Lease"), Landlord leased to Tenant for a term of Ten (10) years (the "Original Term"),
expiring on September 30, 2022, certain leased premises (the "Leased Premises") (as more particularly
described in the Original Lease) comprising a Rentable Area of approximately [***] square feet, designated
as Unit No. 1 being comprised of the entirety of the building (the "Building") municipally known as 7303
and 7403 30th Street, Calgary, Alberta;
B.
By way of a lease amending agreement dated April 6, 2022, between Landlord and Tenant (the
“First Amending Agreement”), the parties agreed to extend the Original Term of the Original Lease for a
period of Five (5) years commencing on October 1, 2022 and expiring on September 30, 2027 (the “First
Extended Term”) and to amend certain other provisions of the Original Lease as further outlined therein;
C.
The Original Lease and the First Amending Agreement are hereinafter collectively referred to as
the “Lease”;
D.
The Original Term and the First Extended Term are hereinafter collectively referred to as the
“Term”; and
E.
The parties have agreed to extend the Term of the Lease for a further period of Three (3) years
commencing October 1, 2027, and expiring September 30, 2030, and to amend certain other provisions of
the Lease as outlined herein.
NOW THEREFORE this Agreement witnesses that in consideration of the covenants and agreements
herein contained (the receipt and sufficiency of which are hereby acknowledged) the parties hereto
covenant and agree with each other as follows:
1.
Interpretation: The recitals are true in fact and in substance. Except as otherwise expressly
provided in this Agreement the terms used herein shall have the meanings attributed to them in the
- 2 -
Lease. Terms defined herein, including in the recitals, will be incorporated by reference into the
Lease unless there is something in the subject matter or context inconsistent therewith.
2.
Second Extended Term: The Term of the Lease shall be and is hereby extended for a further
period of Three (3) years (the "Second Extended Term"), commencing on October 1, 2027 and
expiring on September 30, 2030. Tenant acknowledges and agrees that there shall be no further
right to renew or extend beyond the expiry of the Second Extended Term contemplated herein.
3.
Use: Tenant shall use the Leased Premises throughout the Second Extended Term only as
permitted in the Lease.
4.
Minimum Rent: For the Second Extended Term, Tenant shall pay to Landlord, in equal monthly
instalments in advance on the first day of each month in accordance with the Lease, annual
Minimum Rent with respect to the Leased Premises equal to:
Period
Annual Rate
(per sq. ft. of
Rentable Area)
Annual Amount
(plus taxes)
Monthly Amount
(plus taxes)
October 1, 2027 to
September 30, 2028
October 1, 2028 to
September 30, 2029
October 1, 2029 to
September 30, 2030
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
5.
Additional Rent: For the Second Extended Term, the Lease shall be fully net to Landlord. In
addition to the payment of Minimum Rent, Tenant shall pay to Landlord Additional Rent as provided
for and in accordance with the Lease.
6.
Condition of Leased Premises: Tenant accepts the Leased Premises in an "as-is" condition and
acknowledges and agrees that there shall be no rent concessions, no Landlord's work required, no
fixturing period and no tenant allowance or any other amount payable by Landlord to Tenant except
to the extent specifically provided for in this Agreement.
7.
Notices: The Lease is amended such that the address for notice of the Landlord is deleted and
replaced with the following:
Landlord:
121 King Street West
Suite 1200
P.O. Box 112
Toronto, Ontario
M5H 3T9
8.
Brokerage Commission: The Tenant acknowledges and represents that no agent, broker or other
intermediary, other than Colliers International (the “Broker”), participated in any way in this
transaction and it shall indemnify and hold the Landlord harmless from any demand made by any
person other than the Broker requiring a commission or compensation with respect to this
transaction.
- 3 -
9.
Capital Replacements (Roof, HVAC System & Asphalt): The parties acknowledge and agree
that notwithstanding anything contained in the Lease to the contrary, the Landlord shall bear a
portion of the Tenant’s Operating Costs with respect to any capital replacements to the roof, HVAC
System and asphalt (determined in accordance with generally accepted accounting principles), in
an amount being the lessor of: (i) ten percent (10%) of the total cost of any capital replacements to
the roof, the HVAC or the asphalt, or (ii) [***] plus GST. For certainty, prior to Tenant undertaking
any capital replacement to the roof, the HVAC System or the asphalt, Tenant shall first provide
Landlord with the costs associated with same for Landlord’s review and approval.
10.
Compliance with Laws: Tenant is responsible at all times to comply with and to keep the
Premises, and its leasehold improvements and trade fixtures in accordance with the requirements
of all applicable laws, directions, rules, regulations or codes of every federal, provincial and
municipal authority having jurisdiction and affecting the operation, condition, maintenance, use or
occupation of the Premises or the making of any repair or alteration including, without limitation,
relating to environmental matters, toxic substances and hazardous waste. Within ten (10) days
after Landlord's request, Tenant shall provide a true and complete copy of all environmental permits
and compliance certificates for the Tenant's permitted business operations and all other activities
by Tenant at, upon or about the Leased Premises required and/or issued by any Authority pursuant
to any Environmental Law.
11.
Environmental Questionnaire: The Environmental Questionnaire attached to this Agreement as
Schedule "A" has been certified by a senior officer of Tenant as complete and accurate responses
and which are hereby deemed to be representations and warranties of Tenant upon which Landlord
is relying. Schedule “A” attached hereto shall be inserted as Schedule “G” of the Lease.
12.
Ratification of Lease: Except as herein provided, the terms and conditions of the Lease shall
continue in full force and effect and the Lease as extended and amended herein is hereby ratified
and affirmed by each of Landlord and Tenant and shall be binding upon the parties hereto and their
respective successors and permitted assigns.
13.
General: Time, in all respects, shall remain of the essence. The section headings in this Agreement
have been inserted for convenience of reference only and shall not be referred to in the
interpretation of this Agreement nor the Lease. This Agreement shall be interpreted according to
and governed by the laws having application in the Province of Alberta.
14.
Amendment in Writing: No amendment or waiver of any provision of this Agreement is effective
unless it is in writing and signed by all parties, and then the amendment, waiver or consent is
effective only in the specific instance and for the specific purpose for which it is given.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE TO FOLLOW]
- 4 -
15.
Signatures: A facsimile or PDF or electronic signature shall constitute a valid and binding
signature with the same effect as if it were an original signature endorsed on this Agreement. A
signed copy of this Agreement transmitted by PDF or other electronic means of transmission shall
be deemed to have been validly delivered and shall bind the parties. The parties agree that
execution of this Agreement by use of digital signature software shall constitute valid execution. At
Landlord's request, Tenant shall ensure that this Agreement is executed and delivered in hard copy
within five (5) days of the acceptance or execution hereof by PDF or other electronic means of
transmission.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
LANDLORD:
PIRET (7303-30TH STREET SE) HOLDINGS INC.
Per:
/s/ Daivd Owen
Name:
David Owen
Title:
Authorized Signing Officer
I have authority to bind the Corporation.
TENANT:
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
Per:
/s/ Richard Hunter
Name:
Richard Hunter
Title:
Chief Operating Officer
Per:
Name:
Title:
I/We have authority to bind the Corporation.
- 5 -
SCHEUDLE A
ENVIRONMENTAL QUESTIONNAIRE
[***]
Exhibit 19.1
INSIDER TRADING POLICY
DIRTT ENVIRONMENTAL SOLUTIONS LTD. 2021 11 01
IN ORDER TO TAKE AN ACTIVE ROLE IN THE PREVENTION OF INSIDER
TRADING VIOLATIONS BY OFFICERS, DIRECTORS, EMPLOYEES AND OTHER
RELATED INDIVIDUALS OF DIRTT ENVIRONMENTAL SOLUTIONS LTD. (THE
“COMPANY”) AND ITS SUBSIDIARIES, THE COMPANY HAS ADOPTED THIS
INSIDER TRADING POLICY (THE “POLICY”).
STATEMENT OF INTENT
The Company opposes the misuse of material nonpublic information in the trading of securities.
This Policy implements procedures designed to prevent trading based on material nonpublic
information regarding the Company, including any of its subsidiaries.
COVERED PARTIES
The Policy covers officers, directors and all other employees of, or consultants or contractors
to, the Company or its subsidiaries, as well as their immediate families, and members of their
households (“Insider(s)”). Certain additional provisions apply specifically to members of the
Pre-Clearance Group (as defined under the heading “The Company’s Trading Window”).
COVERED TRANSACTIONS
This Policy applies to all transactions in the Company’s securities, including common shares,
options for common shares and any other securities the Company may issue from time to time,
such as preferred shares, warrants and convertible debentures, as well as to derivative securities
relating to the Company’s shares, whether or not issued by the Company.
PROHIBITED TRANSACTIONS
No Insider shall engage in any transaction involving a purchase or sale of the Company’s securities,
including any offer to purchase or offer to sell, during any period commencing with the date that the
Insider possesses material nonpublic information concerning the Company or its subsidiaries, and
ending at the beginning of the second trading day following the date of public disclosure
of that information, or at such time as such nonpublic information is no longer material.
No Insider shall disclose (“tip”) material nonpublic information about the Company or its
subsidiaries to any other person where such information may be used by such person to his or
her profit by trading in the securities of companies to which such information relates, nor shall
such Insider or related person make recommendations or express opinions on the basis of
material nonpublic information as to trading in the Company’s securities.
Exhibit 19.1
No Insider shall engage in any transaction involving the purchase or sale of another company’s securities
while in possession of material nonpublic information about such company when that information
is obtained in the course of employment with, or the performance of services on behalf of, the
Company and for which there is a relationship of trust and confidence concerning the information.
No Insider shall (i) make any “short sales” of any securities of the Company, (ii) engage in transactions
involving Company-based derivative securities, or (iii) otherwise engage in any other transactions that hedge or
offset, or are designed to hedge or offset, any decrease in the market value of the Company’s common shares or
other securities, including through prepaid variable forward contracts and exchange funds.
“Short sales” are sales of securities that the seller does not own at the time of the sale
or, if owned, that will not be delivered within 20 days of the sale.
“Derivative securities” are options, warrants, stock appreciation rights or similar rights whose value
is derived from the value of an equity security, such as the Company’s common shares. This
prohibition includes, but is not limited to, trading in Company-based option contracts, transacting in variable
forward contracts, equity swaps, straddles or collars, hedging, and writing puts or calls.
Nevertheless, your holding and exercising options, deferred share units, performance share
units, restricted stock units or other derivative securities granted under an equity-based
compensation or incentive plan of the Company are not prohibited by this Policy.
PROBLEMATIC TRANSACTIONS
While employees are not prohibited by law from using Company securities as collateral for loans or
in margin accounts, the Company discourages employees from such activity because, among other
problems, these types of transactions (i) may result in transactions in Company securities occurring
outside the Open Window (defined below). Limit orders with brokers should not extend
beyond any Open Window and be cancellable upon an imposition of a black-out period. Employees
interested in trading outside of the Open Window should look into adopting a 10b5-1 trading
plan, as described below. Exercising stock options issued pursuant to the Company’s long term
incentive plan, as otherwise permitted under this Policy, are not considered problematic.
THE COMPANY’S TRADING WINDOW
The Company has determined that all officers, directors, and those other persons identified on Attachment 1
(as may be amended from time to time by the Compliance Officer) (together “Pre-Clearance Group”), shall be
prohibited from buying, selling or otherwise effecting transactions in any shares or other securities of the
Company or derivative securities thereof EXCEPT during the following trading window:
• Beginning at the open of market on the third trading day following the date of public disclosure of the
Company’s financial results for a preceding calendar quarter or year and ending at the close of market on
the 21st day of the third calendar month of the current calendar quarter (the “Open Window”).
In addition, the Company, through the Compliance Officer, may authorize longer or additional
trading windows in which buying, selling or otherwise effecting transactions in the Company’s
securities shall be permitted pursuant to this Policy as if it were the “Open Window.” Similarly, the
Exhibit 19.1
Company, through the Compliance Officer, may impose special black-out periods during which certain
persons will be prohibited from buying, selling or otherwise effecting transactions in any stock or other
securities of the Company or derivative securities thereof, even though the trading window would
otherwise be open. If a special blackout period is imposed, the Company will notify affected individuals,
who should thereafter not engage in any transaction involving the purchase or sale of the Company’s
securities and should not disclose to others the fact of such suspension of trading.
Even during the Open Window, any person possessing material nonpublic information
should not engage in any transactions in the Company’s securities until the beginning of the
third trading day following the date of public disclosure of such information, whether or not
the Company has recommended a suspension of trading to that person.
PRE-CLEARANCE OF TRADES BY MEMBERS
OF THE PRE-CLEARANCE GROUP
All members of the Pre-Clearance Group must refrain from trading in the Company’s securities, even during the
Open Window, without first:
•
in the case of executive officers and directors, by contacting the Company’s Compliance Officer
(defined below) and obtaining pre-clearance to commence trading in the Company’s securities; and
•
in the case of all other members of the Pre-Clearance Group, either (i) by confirming
through such person’s online ShareWorks account that such person is not subject to a
blackout period; or (i) by contacting the Company’s Compliance Officer and obtaining
pre-clearance to commence trading in the Company’s securities.
In addition, all executive officers and directors are required to comply with Section 16 of the
Securities and Exchange Act of 1934, and related rules and regulations which set forth reporting
obligations as well as limitations on “short swing” transactions. The Company is available
to assist in filing Section 16 reporting, however, the obligation to comply with Section 16 is
personal. Please direct any inquiries concerning compliance to the Compliance Officer.
ADOPTION AND AFFECT OF QUALIFIED TRADING PLANS
The Company permits all directors, officers and other employees to adopt “Qualified Trading Plans” that
(i) conform to all of the requirements of Rule 10b5-1(c) as currently adopted or amended by the SEC and
any other restrictions applicable to your trading of Company shares (e.g., Rule 144) and (ii) qualify as an
“automatic securities purchase plan or other similar automatic plan” under applicable Canadian securities
laws and exchange rules. The restrictions on trading set forth in this Policy shall not apply to trades made
pursuant to an approved Qualified Trading Plan, unless otherwise required by applicable law. More
information concerning trading plans is available from the Compliance Officer.
EXEMPTIONS FROM THIS POLICY
The exercise of stock options under the Company’s long term incentive plan with a cash payment of the exercise
price is exempt from this Policy, since the other party to these transactions is the Company itself and the price
does not vary with the market, but is fixed by the terms of the option agreement. This exemption does not apply
to the sale of any shares issued upon such exercise and it does not apply to a cashless exercise of options, which
is accomplished by a sale of a portion of the shares issued upon exercise of an option. In addition, bona fide gifts
of the securities of the Company are exempt from this Policy.
CONSEQUENCES FOR VIOLATION
The exercise of stock options under the Company’s long term incentive plan with a cash
payment of the exercise price is exempt Employees who violate this Policy shall also be subject
to disciplinary action by the Company, which may include ineligibility for future participation
in the Company’s long term incentive plans or termination of employment.
Pursuant to applicable securities laws, Insiders may be subject to criminal and civil fines and penalties
as well as imprisonment for engaging in transactions in the Company’s securities at a time when they
have knowledge of material nonpublic information regarding the Company or its subsidiaries. In
addition, Insiders may be liable for improper transactions by any person (commonly referred to as a
“tippee”) to whom they have disclosed material nonpublic information regarding the Company or its
subsidiaries or to whom they have made recommendations or expressed opinions on the basis of such
information as to trading in the Company’s securities.
For the purposes of this Policy, “applicable securities laws” refer to (a) the Securities Act (Alberta) and the
equivalent thereof in each province and territory of Canada in which the Company is a “reporting issuer” or
equivalent thereof, together with the regulations, rules and blanket orders of the securities commission or
similar regulatory authority in each of those jurisdictions; (b) the United States Securities Act of 1933 (the
“U.S. Securities Act”), the United States Securities Exchange Act of 1934 (the “U.S. Exchange Act”) and any
rules or regulations thereunder; and (c) the rules of each of the Toronto Stock Exchange and The
Nasdaq Stock Market LLC, to the extent that any securities of the Company are listed on those exchanges.
INDIVIDUAL RESPONSIBILITY
Every officer, director and other employee, consultant and contractor has the individual responsibility
to comply with this Policy, and the applicable laws of their jurisdiction. An Insider may, from time to
time, have to forego a proposed transaction in the Company’s securities even if he or she planned to
make the transaction before learning of the material nonpublic information and even though
the Insider believes he or she may suffer an economic loss or forego anticipated profit by waiting.
Trading in the Company’s securities during the trading window should not be considered a “safe
harbor,” and all directors, officers and other persons should use good judgment at all times.
COMPLIANCE OFFICER
The Company’s General Counsel shall serve as the Insider Trading Compliance Officer (the “Compliance
Officer”). The duties of the Compliance Officer shall include, but not be limited to, the following:
•
Pre-clearing transactions as required under this Policy.
•
Assisting, as requested, in the preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for Section 16 reporting persons and SEDI reporting for reporting insiders in Canada.
•
Serving as the designated recipient at the Company of copies of reports filed with the Securities and
Exchange Commission by Section 16 reporting persons under Section 16 of the Exchange Act.
•
Periodically reminding all Section 16 reporting persons and reporting insiders
in Canada regarding their obligations to report and quarterly reminders of the
dates that the trading window described above begins and ends.
•
Assisting the Company in implementation of the Policy.
•
Assisting with compliance activities with respect to Rule 144 requirements and regarding changing
requirements and recommendations for compliance with Section 16 of the Exchange Act and insider
trading laws to ensure that the Policy is amended as necessary to comply with such requirements.
The duties may be delegated by the Compliance Officer to such other
individuals as the Compliance Officer deems appropriate.
DEFINITION OF MATERIAL NONPUBLIC INFORMATION
It is not possible to define all categories of material information. In general, all information that a reasonable
investor would consider important in deciding whether to buy, sell or hold securities is considered material.
Under Canadian securities laws and exchange rules, “material information” includes “material facts” and
“material changes” (as such terms are defined under applicable securities laws and exchange rules) and generally
includes any fact, information or change relating to an issuer that would reasonably be expected to have a
significant effect (either positive or negative) on the market price or value of the issuer’s securities. Under U.S.
securities laws, a fact is material (and therefore material information) if there is a substantial likelihood that
disclosure of the fact would be viewed by a reasonable investor as significantly altering the total mix of
information made available. Either positive or negative information may be material. Questions concerning
whether nonpublic information is material can be directed to the Compliance Officer.
Persons subject to trading window restrictions:
•
Employees designated by the Company’s finance department to the
Compliance Officer due to their receipt of monthly financial reports.
•
Any other individuals designated from time to time by the Compliance Officer or their designee.
Exhibit 19.2
October 1, 2019
DIRTT Environmental Solutions Ltd.
Insider Trading Policy
(Preclearance Group)
2
INSIDER TRADING POLICY
DIRTT Environmental Solutions Ltd. (“the Company”) has adopted an Insider Trading Policy that applies to each employee,
director and officer of the Company and its subsidiaries. The Company has also adopted this Insider Trading Policy
(Preclearance Group) (the “Policy”), which is applicable to directors, all persons holding the positions of Vice President or
above with the Company or any of its subsidiaries, and any others who are designated by the General Counsel as being subject
to this Policy. You must strictly follow both the Insider Trading Policy and this Policy.
The Company reserves the right to amend or rescind this Policy or any portion of it at any time and to adopt different policies and
procedures at any time. If any provisions of this Policy conflict with the Insider Trading Policy, you must follow this Policy.
For the purposes of this policy, “applicable securities laws and exchange rules” refer to (a) the Securities Act (Alberta) and the
equivalent thereof in each province and territory of Canada in which the Company is a “reporting issuer” or equivalent thereof,
together with the regulations, rules and blanket orders of the securities commission or similar regulatory authority in each of
those jurisdictions; (b) the United States Securities Act of 1933 (the “U.S. Securities Act”), the United States Securities
Exchange Act of 1934 (the “U.S. Exchange Act”) and any rules or regulations thereunder; and (c) the rules of each of the
Toronto Stock Exchange and The Nasdaq Stock Market LLC, to the extent that any securities of the Company are listed on those
exchanges.
INTRODUCTION
It is generally illegal for any person, either personally or on behalf of others, to trade in securities while in possession of
material, nonpublic information. It is also generally illegal to communicate (or “tip”) material information (as defined below)
that has not been generally disclosed to the public (such information, “material non-public information”) to others who may
trade in securities on the basis of that information. These illegal activities are commonly referred to as “insider trading.”
Penalties for insider trading violations under applicable Canadian laws include imprisonment for up to 10 years (up to 5 years
for tipping), fines of up to three times the profit gained or loss avoided by trading to a maximum of C$5 million, and additional
fines of up to C$5 million. There also may be liability to those damaged by the trading. A company whose employee violates the
insider trading prohibitions may be liable for a civil fine of up to the greater of C$1 million or three times the profit gained or
loss avoided as a result of the employee’s illegal insider trading.
Penalties for insider trading violations under U.S. laws include imprisonment for up to 20 years, civil fines of up to three times
the profit gained or loss avoided by trading, and criminal fines of up to US$5 million. There also may be liability to those
damaged by the trading. A company whose employee violates the insider trading prohibitions may be liable for a civil fine of up
to the greater of US$1 million or three times the profit gained or loss avoided as a result of the employee’s illegal insider
trading.
The Company may refer any breaches to the appropriate regulatory authorities.
For these reasons, the Company has adopted this Policy and requires your strict adherence to it. In addition to other penalties
that the Company, the government or others may impose on you, willful violation of this Policy constitutes cause to request your
resignation from the Board of Directors or termination of your employment.
You are encouraged to ask questions and seek any information you may require about this Policy. Please direct all questions to the
General Counsel. References in this Policy to the General Counsel mean the General Counsel or the General Counsel’s designee.
GENERAL STATEMENT
This Policy prohibits you from trading and from tipping others who may trade in the Company’s securities (both equity and debt securities)
when you know material, nonpublic information about the Company. You are also prohibited from trading and from tipping others who may
trade in the securities of another company if you learn material, nonpublic information about the other company in connection with your
employment or position at the Company.
3
What information is material? In general, all information that a reasonable investor would consider important in deciding
whether to buy, sell or hold securities is considered material. Under Canadian securities laws and exchange rules, “material
information” includes “material facts” and “material changes” (as such terms are defined under applicable securities laws and
exchange rules) and generally includes any fact, information or change relating to an issuer that would reasonably be expected to
have a significant effect (either positive or negative) on the market price or value of the issuer’s securities. Under U.S. securities
laws, a fact is material (and therefore material information) if there is a substantial likelihood that disclosure of the fact would be
viewed by a reasonable investor as significantly altering the total mix of information made available.
In making judgments as to what information constitutes material information, it is necessary to take into account a number of
factors, including the nature of the information itself, what other information is publicly available, the volatility of the
Company’s securities, and prevailing marketing conditions. Under volatile market conditions, apparently insignificant variances
between earnings projections and actual results can have a significant effect on share price once released. Examples of some
types of possible material information are:
•
preliminary or final earnings information, financial results, financial forecasts and budgets, including any significant or
unexpected changes or results, significant increases or decreases in near-term earnings prospects, or internally
developed financial projections;
•
possible reorganizations, amalgamations or mergers, acquisitions, tender offers, proxy fights or threatened proxy
fights, changes in control, changes in share ownership that may affect control of the Company, joint ventures,
investments in other companies, other purchases and sales of companies or assets, and any transactions that may
otherwise affect control of the Company;
•
major litigation or regulatory developments;
•
major changes in the business or operations of the Company, including any changes in corporate objective or
major disputes with labor forces, contractors or suppliers;
•
development of major, new products and developments affecting the Company’s resources, technology, products or market;
•
the entering into, amendment, termination or loss of important contracts;
•
changes in relationships with significant customers, suppliers or DIRTT distribution partners;
•
major financing developments, including borrowing of a significant amount of funds and events that create, accelerate
or increase financial obligations, whether direct or off-balance sheet;
•
major personnel changes, particularly departures or elections of directors or executive officers;
•
a significant cybersecurity incident, such as a data breach that harms the Company, its suppliers, its distribution
partners or customers;
•
impending bankruptcy or financial liquidity problems;
•
changes in auditors or notification that an audit report can no longer be relied upon;
•
de-listing of the Company’s securities or movement from one exchange to another;
•
events regarding the rights of security holders, such as:
1. defaults on senior securities (such as bank debt or publicly held notes);
2. calls of securities for redemption;
3. repurchase programs;
4. changes in capital structure;
5. share consolidation, share splits, share exchanges or changes in dividends; and
6. public or private sales of additional securities.
4
What is nonpublic information? Material information is considered to be nonpublic (i.e., material non-public information)
unless it has been disclosed effectively to the public. Examples of public disclosure include the dissemination of the full text
of the Company’s press releases distributed through widely circulated news or wire service and public filings with the
applicable securities commissions or other regulatory authorities in Canada through the System for Electronic Document
Analysis and Retrieval (“SEDAR”) and with the United States Securities and Exchange Commission (the “SEC”).
For information to be considered public, it must not only be disclosed publicly, but adequate time must have passed for the
market as a whole to assess the information. Although timing may vary depending upon the circumstances, it is safe for you to
assume that information is not considered public until the passage of two full trading days after the Company publicly discloses
it.
What transactions are prohibited? When you know material non-public information about any company, then you, your spouse,
people living in your house, and entities or trusts that you control generally are prohibited from three activities:
•
trading in that company’s securities (including trading in options, puts and calls for that company’s securities and gifts,
pledges, estate planning transactions and transactions or elections involving those securities held in the Company’s
plans);
•
having others trade for you in that company’s securities (except pursuant to a “Qualified Trading Plan” as defined in
this Policy); and
•
disclosing the information to anyone else who then might trade.
These prohibitions continue whenever and for as long as you know material non-public information about the company.
Although it is most likely that any material non-public information you might learn would be about the Company or its
subsidiaries, these prohibitions apply to trading in the securities of any company about which you have material non-public
information that you obtained in the course of your employment with the Company.
When are the most and least risky times to trade? Arguably the most risky time to trade in the Company’s securities is shortly
in advance of the Company’s public release of important financial information or other important news, while the least risky
time normally is the period shortly following the release and publication of the information (unless, of course, you are aware
of other
material information that the Company has not publicized). Even after the Company has released the information, it is risky to
trade until sufficient time has elapsed to enable the market to assess the information as a whole (generally, until the passage of
two full trading days after the Company has publicly disclosed the material information).
What transactions are excepted from this Policy? The only exceptions to this Policy are as follows:
•
Acquisition of shares under the Company’s employee share purchase plan. Note that this exception does not apply to
a subsequent sale of the acquired shares.
•
Other purchases of Company common shares pursuant to automatic payroll deductions made in accordance with a
contribution election under another employee benefit plan (provided that the election is made at a time that you are not
in possession of material non-public information) or from Company matching contributions made under any of its
employee benefit plans, if applicable.
•
Award payouts by the Company to you under any equity-based compensation plans, whether settled with shares or cash
(except that if settlement is at your election such election is made at a time that you are not in possession of material non-
public information).
•
The exercise of stock options received under any Company equity-based compensation or incentive plan. Note that this
exception does not include a broker-assisted cashless exercise of a stock option or other subsequent sale of the shares
acquired pursuant to the exercise of the option.
•
The exercise of share withholding rights pursuant to which you elect to have the Company withhold shares to pay
the exercise price of the stock options or satisfy tax withholding requirements.
5
•
Trades made pursuant to a “Qualified Trading Plan.” A Qualified Trading Plan for the purposes of this Policy is a
written plan for buying or selling Company shares that, at the time it is adopted, (i) conforms to all of the
requirements of Rule 10b5-1 as currently adopted or amended by the SEC and any other restrictions applicable to
your trading of Company shares (e.g., Rule 144) and (ii) qualifies as an “automatic securities purchase plan or other
similar automatic plan” under applicable securities laws and exchange rules, and complies with all applicable
securities laws and exchange rules applicable thereto, including prior approval by the Toronto Stock Exchange of the
Qualified Trading Plan and press release thereof, if applicable. You must obtain authorization from the General
Counsel before entering into a Qualified Trading Plan. Additionally, directors and executive officers of the
Company must obtain authorization from the Board of Directors of the Company before entering into a Qualified
Trading Plan.
•
Any transaction specifically approved in writing in advance by the General Counsel.
•
An election to entirely suspend future payroll deductions designated for the purchase of the Company’s common
shares through any Company employee share purchase plan, 401(k), or other employee benefit plan (provided that
the election is made at a time that you are not in possession of material non-public information).
UNAUTHORIZED DISCLOSURE
As previously discussed, the disclosure of material non-public information to others can lead to significant legal difficulties,
fines and punishment. You should not discuss material non-public information about the Company or its subsidiaries with
anyone, including other employees, except as required in the performance of your regular duties on a need-to-know basis.
Also, it is important that only a few representatives of the Company discuss the Company and its subsidiaries with the news
media, securities analysts and investors. Inquiries about the Company from these people should be referred to the Chief
Executive Officer or the Chief Financial Officer, as appropriate.
CONFIDENTIAL INFORMATION
The Company has strict policies to safeguard the confidentiality of its internal, proprietary information. These include
identifying, marking and safeguarding confidential information. You should comply with these policies at all times.
PROHIBITION ON TRANSACTIONS INVOLVING DERIVATIVE SECURITIES
You, your spouse, all members of your household, and entities or trusts that you control are prohibited from (i) making any
short sales of any securities of the Company, (ii) engaging in transactions involving Company-based derivative securities, or
(iii) otherwise engaging in any other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the
market value of the Company’s common shares, including through prepaid variable forward contracts and exchange funds.
“Short sales” are sales of securities that the seller does not own at the time of the sale or, if owned, that will not be delivered
within 20 days of the sale. It is illegal for directors and executive officers (including each individual subject to reporting under
Section 16 of the U.S. Exchange Act of the Company) to sell the Company’s securities short, and it is against this Policy for
you to sell the Company’s securities short. “Derivative securities” are options, warrants, stock appreciation rights or similar
rights whose value is derived from the value of an equity security, such as the Company’s common shares. This prohibition
includes, but is not limited to, trading in Company-based option contracts, transacting in variable forward contracts, equity
swaps, straddles or collars, hedging, and writing puts or calls. Nevertheless, your holding and exercising options, deferred
share units, performance share units, restricted stock units or other derivative securities granted under an equity-based
compensation or incentive plan of the Company are not prohibited by this Policy.
6
TRADING BLACKOUTS AND PRECLEARANCE
The following additional restrictions are also applicable to you.
1. Trading Blackouts. You, your spouse, all members of your household, and entities or trusts that you control are
prohibited from engaging in any transactions (including gifts, pledges, estate planning transactions and transactions
or elections involving Company share account in any 401(k) Plan, RRSP or other similar plans) involving the
Company’s securities (both equity and debt securities) during certain periods of the year referred to as “blackout”
periods. No transactions may be made until you are notified by the General Counsel that the relevant “blackout”
period has expired or has otherwise been terminated.
a. Automatic blackout periods. You are prohibited from engaging in transactions involving the Company’s
securities during the periods beginning on the 21th day of the last month of every fiscal quarter and ending two
full trading days (on all applicable stock exchanges) after the Company’s earnings for that quarter are publicly
announced in
a press release or otherwise. For example: the Company’s first fiscal quarter ends on March 31 each year. If the
Company publicly announces its earnings for that quarter before the market opens on May 3, then the “blackout”
period will be from March 21 through May 4. Transactions may begin (that is, the trading “window” will be open)
on May 5, assuming both May 3 and 4 are trading days on the applicable stock exchanges, unless the Company is
then in an additional blackout period, as discussed in the next paragraph.
b. Additional blackout periods. The Company may impose a trading blackout at any time if at the time the Company
believes that transactions by insiders would be inappropriate because of developments at the Company that are or
could become material. The General Counsel is responsible for advising whether or not a trading blackout is then
in effect.
2. Pre-Clearance. If you intend to engage in a transaction during a trading window, you must receive permission in
advance from the General Counsel. The General Counsel will not approve transaction requests when a blackout
period is in effect, except as set forth in paragraph 4 below. The General Counsel may also refuse to permit any
transaction if he or she determines that the transaction could give rise to a charge of insider trading.
You should notify the General Counsel two business days in advance of your intent to purchase or sell Company
securities, exercise options, or gift securities, even if the transaction may be otherwise excepted from these additional
restrictions under paragraph 4.
After you receive permission to engage in a transaction, you must complete your transaction within three trading days
(or such shorter period as is designated at the time of your request for permission) or make a new request for clearance.
3. Margin Accounts and Pledges. You are prohibited from entering into a pledge of Company securities as collateral for
a loan or holding Company securities in a margin account without advance approval from the Chief Executive Officer
and the General Counsel, unless you are a member of our Board of Directors, in which case approval must be received
from the Board of Directors. In considering a request for approval, the reviewing officer or Board of Directors, as the
case may be, may consider any factors that it deems relevant and may grant or withhold approval in its sole discretion.
4. Exceptions. The only exceptions to these additional restrictions are those listed earlier in this Policy in answer to
the question, “What transactions are excepted from this Policy?”
PROHIBITION OF DIRECTORS AND EXECUTIVE OFFICERS TRADING DURING
PENSION FUND BLACKOUT PERIODS
All directors and executive officers of the Company are prohibited by law from buying, selling or transferring, directly or
indirectly, securities of the Company during any “blackout period” affecting any “individual account plan.”1 This
prohibition applies to all equity securities and derivative securities a director or executive officer acquired in connection with his
or her service or employment as a director or executive officer, including shares acquired to satisfy the Company’s minimum
share ownership requirements for directors and executive officers, if any have been established.
It is illegal for directors and executive officers to engage in trading equity securities or derivative securities acquired in
connection with service as a director or executive officer during blackout periods affecting individual account plans, such as
401(k) plans or RRSPs. This prohibition prevents directors and executive officers from trading the Company’s securities when
plan participants are prohibited from trading. The SEC has adopted some limited exceptions to this prohibition, such as for
dividend reinvestment programs or trades made pursuant to Qualified Trading Plans. Our policy adopts the prohibitions and
exceptions provided in the law and will be deemed amended to conform to future changes to the law, if any, when they occur.
This document states a policy of DIRTT Environmental Solutions Ltd. and is not intended to be legal advice or a legal
opinion on any specific facts or circumstances. It is intended for general information only. A number of details and
exceptions were omitted from the Policy in order to simplify the presentation. Application to particular facts or
circumstances requires analysis by legal counsel. In addition, the rules cited in this Policy can and do change. You should contact
the General Counsel or your legal counsel if there is any question about the applicability of any of the requirements described in
this Policy.
1
These terms have the meanings given them in Regulation BTR under the U.S. Exchange Act.
1
Exhibit 21.1
DIRTT Environmental Solutions Ltd.
List of Subsidiaries
Name
Jurisdiction of Organization
DIRTT Environmental Solutions, Inc.
Colorado
2
1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-234143, 333-
238689, 333-273622 and 333-279503) of DIRTT Environmental Solutions Ltd. of our report dated February 26, 2025
relating to the consolidated financial statements, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Canada
February 26, 2025
1
Exhibit 31.1
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Benjamin Urban, certify that:
1.
I have reviewed this Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the “registrant”) for the year ended
December 31, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: February 26, 2025
By: /s/ Benjamin Urban
Benjamin Urban
Chief Executive Officer
(Principal Executive Officer)
1
Exhibit 31.2
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Fareeha Khan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the “registrant”) for the year ended
December 31, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: February 26, 2025
By: /s/ Fareeha Khan
Fareeha Khan
Chief Financial Officer
(Principal Financial Officer)
1
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the “Company”) for the year
ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Benjamin
Urban, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: February 26, 2025
By: /s/ Benjamin Urban
Benjamin Urban
Chief Executive Officer
(Principal Executive Officer)
1
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the “Company”) for the year
ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Fareeha Khan,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: February 26, 2025
By: /s/ Fareeha Khan
Fareeha Khan
Chief Financial Officer
(Principal Financial Officer)