EX-99.1 2 e4522_ex99-1.htm EXHIBIT 99.1

 

 

EXHIBIT 99.1

 

VICINITY MOTOR CORP.

ANNUAL INFORMATION FORM

FOR THE FINANCIAL YEAR ENDED
DECEMBER 31, 2022

March 30, 2023

 

 

 

TABLE OF CONTENTS

 

EXPLANATORY NOTES 2
Date of Information 2
Presentation of Financial Information 2
Defined Terms 2
Forward-Looking Statements 2
BACKGROUND AND CORPORATE STRUCTURE 3
Name, Address and Incorporation 3
Inter-Corporate Relationships 3
DEVELOPMENT OF THE BUSINESS 4
Three Year History 4
BUSINESS OF THE CORPORATION 11
Summary 11
RISK FACTORS 17
DIVIDENDS AND DISTRIBUTIONS 49
DESCRIPTION OF CAPITAL STRUCTURE 49
MARKET FOR SECURITIES 50
Trading Price and Volume 50
Prior Sales 52
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER 53
DIRECTORS AND OFFICERS 53
Name, Occupation and Security Holding 53
Cease Trade Orders and Bankruptcies 54
Penalties or Sanctions 55
Conflicts of Interest 55
PROMOTERS 55
LEGAL PROCEEDINGS AND REGULATORY ACTIONS 55
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 56
Related Party Transactions 56
AUDITOR AND REGISTRAR AND TRANSFER AGENT 56
MATERIAL CONTRACTS 56
INTERESTS OF EXPERTS 56
ADDITIONAL INFORMATION 56
APPENDIX “A” GLOSSARY OF TERMS 57

APPENDIX “B” AUDIT COMMITTEE DISCLOSURE FORM 52-110F1

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EXPLANATORY NOTES

 

Date of Information

 

Unless otherwise stated, the information in this AIF is stated as at December 31, 2022.

 

Presentation of Financial Information

 

Vicinity Motor Corp. (the “Corporation”) presented its consolidated financial statements in Canadian dollars for financial years ending up to December 31, 2020. For the financial year ended December 31, 2021, the Corporation switched to United States dollar reporting and continues to report in US dollars. All dollar figures in this AIF are in United States dollars, unless otherwise indicated. Canadian dollar amounts are indicated as “C$”. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

 

Defined Terms

 

For an explanation of the capitalized terms and expressions and certain defined terms, please refer to the “Glossary of Terms” at Appendix “A” of this AIF.

 

Forward-Looking Statements

 

Certain statements (collectively, “forward-looking statements”) in this AIF about the Corporation’s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking information and/or forward-looking statements within the meaning of applicable securities legislation, securities regulation and securities rules, as amended, and the policies, notices, instruments and blanket orders in force from time to time that are applicable to an issuer (collectively, “Securities Laws”). The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these words.

 

Discussions containing forward-looking statements include, among other places, those under “Business of the Corporation” and “Risk Factors”. Forward-looking statements are based on certain assumptions and estimates made by us in light of the experience and perception of historical trends, current conditions, expected future developments including projected growth in the security and related industries, and other factors we believe are appropriate and reasonable in the circumstances, but there can be no assurance that such assumptions and estimates will prove to be correct.

 

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the factors, which are discussed in greater detail in the “Risk Factors” section of this AIF.

 

The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations regarding the Corporation’s financial performance and may not be appropriate for other purposes. Readers should not place undue reliance on forward-looking statements made herein. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from those anticipated in such forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by forward-looking statements contained in this AIF. Furthermore, unless otherwise stated, the forward-looking statements contained in this AIF are made as of the date of this AIF, and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained in this AIF are expressly qualified by this cautionary statement.

 

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BACKGROUND AND CORPORATE STRUCTURE

 

Name, Address and Incorporation

 

The Corporation was incorporated under the Business Corporations Act (British Columbia) (the “BCBCA”) on December 4, 2012 under the name “Grande West Transport Group Inc.”. On August 7, 2013, the Corporation changed its name to “Grande West Transportation Group Inc.”. On March 29, 2021, the Corporation changed its name to “Vicinity Motor Corp.” to reflect the Corporation’s increasing focus on the commercialization of its next-generation electric buses and consolidated its share capital on the basis of three pre-consolidation common shares to one post-consolidation common share (the “Consolidation”).

 

The Corporation’s common shares (the “Common Shares”) are publicly traded on the TSX Venture Exchange (“TSXV”) under the symbol “VMC”, on the NASDAQ under the symbol VEV and on the Frankfurt Stock Exchange (the “FSE”) under the symbol “6LGA”.

 

The Corporation conducts its active operations in Canada through its wholly owned operating subsidiary, Vicinity Motor (Bus) Corp. (“VMCBC”), which was incorporated on September 2, 2008 under the BCBCA under the name “Grande West Transportation International Ltd.” and changed its name to “Vicinity Motor (Bus) Corp.” on September 15, 2021. The Corporation conducts its active operations in the United States through its wholly owned operating subsidiary, Vicinity Motor (Bus) USA Corp. (“VMUSA”), which was incorporated on April 8, 2014 under the laws of the State of Delaware under the name “Grande West Transportation USA Inc.” and changed its name to “Vicinity Motor (Bus) USA Corp.” on June 10, 2021. VMUSA has one wholly-owned subsidiary “Vicinity Motor Property LLC” (“Vicinity Property”), which was formed on September 16, 2022 under the laws of the State of Delaware, and is also registered in the State of Washington.

 

Inter-Corporate Relationships

 

As of the date hereof, the Corporation has three active 100% wholly-owned subsidiaries, VMCBC, VMUSA and Vicinity Property.

 

The current organization structure of the Corporation is as follows:

 

  

  

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DEVELOPMENT OF THE BUSINESS

 

Three Year History

 

Financial Year Ended December 31, 2020

 

Beginning in March 2020, the Corporation’s business and operations began to adapt to changes brought about by the COVID-19 global pandemic. As an essential business manufacturing on behalf of the transit industry, the Corporation was able to maintain production, although levels were at times reduced compared to prior to the COVID-19 pandemic. Some of the Corporation’s suppliers and contract manufacturers temporarily suspended or reduced their production levels, and the Corporation’s internal staffing levels in production were temporarily reduced in order to comply with government regulations and maintain physical distancing in order to protect the health of its staff, customers and other stakeholders. While the Corporation maintained sales and production since the start of the COVID-19 pandemic, the Corporation did so at a reduced rate in order to comply with physical distancing requirements and government health regulations. The Corporation was able to secure government business grants in Canada to support its business through this period, including aid from the Canadian government in the amount of C$543,654 during the nine months ended September 30, 2020.

 

On March 20, 2020, the Corporation announced the closing of a non-brokered financing of unsecured convertible debenture units by issuing 1,750 debenture units (“Debenture Units”) for gross proceeds of approximately C$1,750,000, each Debenture Unit sold at a price of C$980.00 per Debenture Unit and consisting of one 10.0% unsecured convertible debenture of the Corporation in the principal amount of C$1,000 (each, a “Debenture”) with interest payable upon maturity being 12 months from the date the Debentures are issued, and 600 Warrants expiring 12 months after the date of issuance of such Warrants, the Debentures to be repaid in cash at maturity and each Warrant entitling the holder thereof to purchase one Warrant Share at an exercise price of C$0.38 per Warrant Share at any time up to 12 months following the closing date of the debenture financing.

 

On October 26, 2020, the Corporation announced that it had renewed its C$20,000,000 credit facility with the Royal Bank of Canada, to be used for ongoing working capital requirements.

 

On November 18, 2020, the Corporation announced that it had closed the first tranche of its private placement of Units announced on November 4, 2020 which consisted of 7,816,118 Units for gross proceeds of C$7,816,118. Each Unit consisted of one Common Share and one-half of one Warrant. Each whole Warrant entitles the holder to acquire one Warrant Share at a price of C$1.50 per Warrant Share for a period of two years from the date of closing of the first tranche of the private placement. In circumstances where, any time after the expiry of the four-month restricted period, the Corporation’s stock trades at $1.75 or greater for 20 consecutive trading days, the Corporation may give notice accelerating the expiry date of the exercise period of the Warrants to that date which is 30 days from the date of such notice. 389,100 Finder’s Warrants (non-transferable) having the same terms as the Warrants were issued in compensation.

 

On November 20, 2020, the Corporation closed the second tranche of its private placement originally announced on November 4, 2020, which consisted of 843,000 Units for gross proceeds of C$843,000. 33,780 Finder’s warrants (non-transferable) having the same terms as the Warrants were issued in compensation.

 

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Fiscal Year Ended December 31, 2021

 

On March 29, 2021, the Consolidation and change of corporate name to “Vicinity Motor Corp.” was made effective at market open.

 

On April 19, 2021, the Corporation filed a Canadian short form base shelf prospectus (the “Base Shelf Prospectus”) covering an offering amount not to exceed C$150,000,000 during the 25 month period that the Base Shelf Prospectus remains effective.

 

On July 7, 2021, the Common Shares began trading on the NASDAQ under the symbol “VEV.”

 

On August 27, 2021, the Corporation entered into an equity distribution agreement with B. Riley Securities, Inc. on behalf of itself and co-sales agent Spartan Capital Securities, LLC (the “Equity Distribution Agreement”), whereby the Corporation may, at its discretion and from-time-to-time, sell up to US$50 million of Common Shares using “at-the-market” distributions in connection with the said sales agents (the “ATM Program”). The Corporation filed a prospectus supplement dated August 27, 2021 in respect of the ATM Program.

 

On October 5, 2021, the Corporation entered into a Sales and Marketing Agreement (the “Sales and Marketing Agreement”) with Optimal Electric Vehicles, LLC (“Optimal-EV”) to distribute and sell the Optimal S1 and E1 product lines for a period of 10 years in exchange for a license fee of US$20,000,000 (the “License Fee”). Pursuant to the terms and conditions of the Sales and Marketing Agreement, Optimal-EV appointed the Corporation as its exclusive sales and marketing agent for such product lines directly in Canada and through a dealer network in the U.S. and Mexico. The License Fee is payable in accordance with the following schedule: (i) US$3,000,000, which was paid within two days from the date of the Sales and Marketing Agreement; (ii) US$12,000,000 payable which was paid on October 31, 2021; and (iii) the remaining US$5,000,000 when the combined deliveries of the vehicles exceed 250 units. Optimal-EV has the right to terminate the Sales and Marketing Agreement if the License Fee is not paid when due. The Corporation will share in the profits of every sale of licensed Optimal-EV products based on agreed upon calculations with amounts varying depending on the type of transaction. During the year ended December 31, 2022, the Corporation terminated the Sales and Marketing Agreement.

 

On October 5, 2021, the Corporation also closed its non-brokered financing of unsecured Debenture Units in the principal amount of C$10,300,000 (the “2021 Debentures”). Each Debenture Unit was sold at an offering price of C$985.00 per Debenture Unit and consisted of one 8% unsecured 2021 Debenture of the Corporation in the principal amount of C$1,000 with interest payable upon maturity being 12 months from the date the 2021 Debentures were issued and 40 Warrants expiring 12 months after the date of issuance of such Warrants. The 2021 Debentures will be repaid in cash at maturity. Each Warrant entitles the holder thereof to purchase one Warrant Share at an exercise price of C$7.50 per Warrant Share at any time up to 12 months following the issuance date, subject to adjustment in certain events. The 2021 Debentures, in whole or in part, will be convertible into Common Shares at the option of the holder at any time following the occurrence of an event of default that is uncured for a period of 10 business days, at a conversion price equal to the market price on the date the event of default. Holders converting their 2021 Debentures will receive accrued and unpaid interest thereon to the date of actual conversion. The Corporation has the right at any time, on 10 days’ notice, to prepay the 2021 Debentures in whole or in part, pro rata among the holders. The repayment shall be in cash, against the principal amount of the 2021 Debenture plus accrued and unpaid interest. The Corporation paid an administrative fee of 0.5% of the funds raised to Leede Jones Gable Inc. The maturity date of the 2021 Debentures was subsequently extended to October 4, 2023, and 1,000,000 Warrants exercisable into Warrant Shares at C$2.25 per Warrant Share were issued in consideration of the extension, also expiring on October 4, 2023. 412,000 Warrants dated October 4, 2021 that were issued in connection with the original 2021 Debentures, were cancelled as part of the debt extension.

 

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On October 25, 2021 the Corporation closed an underwritten public offering of 3,990,610 Units at a price of US$4.26 per Unit for gross proceeds to the Corporation of US$16,999,998.60. Spartan Capital Securities, LLC (“Spartan”), acted as sole book-running manager for the offering. Revere Securities, LLC, was the exclusive selling group member for the offering.

 

Each Unit consisted of one Common Share and one-half of one Warrant. Each whole Warrant entitled the holder to purchase one Warrant Share at an exercise price of US$5.10 per Warrant Share, subject to adjustment in certain circumstances. The Warrants will be exercisable immediately upon issuance and expire three years from the issuance date. The Units were issued under an underwriting agreement dated October 21, 2021 between the Corporation and Spartan (the “Underwriting Agreement”). Spartan received underwriting commissions equal to 7% of the gross proceeds raised in the offering, equal to approximately US$1.19-million. The Corporation filed a prospectus supplement dated October 21, 2021 to qualify the distribution of the Units.

 

Fiscal Year Ended December 31, 2022

 

On January 5, 2022, the Corporation announced the receipt of a new C$3.5 million purchase order from North American private transit operator First Transit for eight (8) Vicinity™ Classic buses. Per the terms of the supply agreement, First Transit has ordered eight (8) of the Corporation’s 35-foot Vicinity™ Classic buses with expected delivery in 2023. The buses will service the city of Yellowknife, Canada.

 

On January 19, 2022, the Corporation announced it had secured a C$14 million purchase order from Pioneer Auto Group, a leading retail automotive dealer primarily based in British Columbia, for 100 VMC 1200 Class 3 electric trucks, and Pioneer has been appointed to act as the Corporation’s exclusive dealer in the province of British Columbia.

  

On January 26, 2022, the Corporation announced it had entered into an investor relations agreement with MarketSmart Communications Inc., under which MarketSmart would provide Canadian investor relations services. The investor relations agreement was for an initial term of twelve months commencing on January 25, 2022, with an option for renewal. Either party may terminate the agreement for any reason, with or without cause, on 30-days written notice to the other. Pursuant to the investor relations agreement, MarketSmart was paid a fee of $7,000 per month, plus applicable taxes. As of the date of this AIF, the agreement is expired.

  

On February 1, 2022, the Corporation announced that it had signed a sales and marketing agreement with Skydome Auto and Truck Centre Inc., an automotive dealer and service centre in the Greater Toronto Area of Ontario, Canada, including an initial order for 50 VMC 1200 Class 3 electric trucks. Skydome has also been appointed to act as the Corporation’s exclusive dealer in the city of Brampton, a part of the Greater Toronto region in Ontario, Canada.

 

On February 8, 2022, the Corporation announced it had received an initial C$2.57 million grant from Sustainable Development Technology Canada (“SDTC”), a foundation created by the Canadian government, for the development of zero-emission transit busses. SDTC helps Canadian entrepreneurs accelerate the development and deployment of globally competitive clean technology solutions. The non-repayable grant from SDTC is expected to help the Corporation to introduce its new all-electric, true low-floor wheelchair-accessible (fully ADA-compliant), mid-sized, medium-duty bus.

 

6

 

 

On February 21, 2022, the Corporation announced that it has signed a sales and marketing agreement with Paradigm Automotive Corporation (“Paradigm”), an automotive sales, leasing and upfitting company in Ontario, Canada, including an initial C$12.0 million order for 100 VMC 1200 Class 3 electric trucks. Paradigm has also been appointed to act as Vicinity’s exclusive dealer in the Hamilton and Niagara regions of Ontario. The VMC 1200 deliveries are expected to begin in the second quarter of 2022.

 

On various dates in Q1, Q2 and Q3 2022, the Corporation announced purchase orders for VMC Optimal E1 and S1 electric chassis vehicles. Given the Corporation’s subsequent termination of the Sales and Marketing Agreement before the end of the financial year ended December 31, 2022, the Corporation is no longer producing VMC Optimal vehicles. See “Legal Proceedings and Regulatory Actions” for additional information about the dispute with Optimal-EV.

 

On March 15, 2022, the Corporation announced it has expanded its strategic U.S. distribution agreement with ABC Companies, a leading provider of motorcoach and transit equipment in North America. The ABC distributorship supports the Corporation’s focus on U.S. expansion. Under the expanded agreement, ABC will distribute the Corporation’s product portfolio to 18 states covering key population centers across the country important to the Corporation’s growth markets. The Vicinity line fills in key transit and private shuttle markets within the ABC portfolio of new vehicles for these locations, enhancing the offering to current customers while expanding to other sectors.

 

On March 17, 2022, the Corporation announced that it had entered into a strategic U.S. distribution agreement with DATTCO, Inc. a U.S. full-service passenger transportation company, to distribute Vicinity vehicles within the Northeastern United States. Headquartered in New Britain, Connecticut, DATTCO operates facilities throughout New England and employs over 2,000 people in Massachusetts, New Hampshire, Maine, Rhode Island and Vermont. The distributorship supports Vicinity’s focus on U.S. distribution expansion for its growing portfolio of electric vehicles and conventionally powered buses. In addition to operating a fleet of over 1,200 buses, DATTCO provides sales, parts, warranty and service support for transportation providers in the region. Under the new agreement, DATTCO will distribute Vicinity vehicles throughout New England. The Vicinity line fills in key transit, EV and shuttle opportunities within the DATTCO portfolio of vehicles, further enhancing its offering to current customers while expanding to new sectors. In conjunction with the agreement, DATTCO has placed an initial order valued at over $2 million for various Vicinity vehicles.

 

On March 28, 2022, the Corporation issued 4,444,445 Units comprised of 4,444,445 Common Shares and 4,444,445 Warrants at a combined purchase price of US$2.70 per Unit in a registered direct offering for gross proceeds of US$12,000,001.50, before deducting placement agent fees and expenses. The Warrants will be exercisable 6 months from the closing of the offering (the “Initial Exercise Date”) at an exercise price of US$3.36 per Warrant Share and will expire three years from the Initial Exercise Date. A.G.P. / Alliance Global Partners was the sole placement agent for the offering and received cash commission of 7% of the gross proceeds of the offering and 133,333 placement agent warrants at an exercise price of US$2.97 per Warrant Share and will expire two years from the Initial Exercise Date. The Corporation filed a prospectus supplement dated March 23, 2022, including in the Registration Statement to qualify the distribution of the Units, the placement agent warrants and the underlying securities.

 

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On April 4, 2022, the Corporation announced that it has signed a distribution agreement with Central States Bus Sales, Inc. (“Central States”), one of the largest school and commercial bus dealers in the U.S., to offer the Company’s full product portfolio, including an initial commitment for 18 demo and stock buses. Headquarter in Fenton, MO, Central States has been a regional leader in bus sales and service since 1975. Central States supplies thousands of school and commercial buses annually to customers throughout the region, providing a host of transportation solutions. As one of the largest bus dealers in the country, Central States offers full-service facilities in Missouri, Illinois, Tennessee, Kentucky and Arkansas. The VMC distribution agreement covers 7 states extending from Kentucky to Nebraska providing VMC a significant advantage in this important market. Under the new agreement, Central States will distribute Vicinity vehicles throughout the entire central region. The Vicinity line fills in key transit, EV and shuttle opportunities within Central States’ portfolio of vehicles, further enhancing its product offering to current customers while expanding into new market sectors. The agreement includes a commitment to 18 stock and demonstration vehicles.

 

On April 13, 2022, the Corporation announced that it has signed a new distribution agreement with Hoekstra Transportation, Inc. (“Hoekstra”), Michigan’s largest school bus, commercial bus, cargo and custom van dealer, to offer the Corporation’s vehicles, including an initial order for eight (8) vehicles. Under the terms of the agreement, Hoekstra will distribute Vicinity vehicles throughout Michigan, Indiana and Ohio. The Vicinity line adds to Hoekstra’s portfolio of traditional and electric vehicles.

 

On April 26, 2022, the Corporation announced that it signed a non-exclusive distribution agreement with Soderholm Sales & Leasing, Inc. (“SSL”), a full service bus dealer in Hawaii and the Pacific islands region, to offer the Corporation’s vehicles, including an initial commitment for four (4) demo and stock buses. Under the new agreement, SSL will distribute Vicinity vehicles throughout Hawaii. The Vicinity line adds to the SSL’s growing portfolio of traditional and electric vehicles.

 

On May 17, 2022, the Corporation announced it has entered into a Master Goods and Service Agreement with Sustainability Partners LLC (“SP”), an ESG focused company committed to eliminating deferred maintenance infrastructure by enabling sustainability, to utilize its Electric Vehicles as a Service™ (EVaaS) program to finance the conversion of traditional government fleets to Vicinity’s electric vehicles. Under the terms of the agreement, SP will engage Vicinity as an independent contractor to purchase its portfolio of electric vehicles for government and corporate fleets utilizing its EVaaS program.

 

On June 15, 2022, the Corporation announced that it has completed the extension of the maturity date of its 8% unsecured debenture in the principal amount of CAD$10,300,000 by a further year to October 4, 2023. In consideration for the extension, the Company has issued to the debt holders (on a pro rata basis), 1,000,000 share purchase warrants (the “New Warrants”) exercisable until October 4, 2023 at an exercise price of $2.25 per common share. The New Warrants will bear a four month and one day restricted period from the date of issuance. 412,000 share purchase warrants dated October 4, 2021 that were issued in connection with the original debt issuance, have been cancelled as part of the debt extension.

 

On June 23, 2022, the Corporation announced that it has received an order from the TOK Group, a transportation solutions provider, for six (6) Vicinity Lightning™ electric buses valued at over CAD$3.0 million. These shuttle buses will be used to support a cleaner, greener, quieter shuttle bus service, provided by Nieuport Aviation between Billy Bishop Toronto City Airport and Union Station in Toronto, Canada. The order of six new electric buses are scheduled for delivery in the first quarter of 2023.

 

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On July 19, 2022, the Corporation announced that it has signed a distribution agreement with Schetky Bus and Van Sales (“Schetky”), a dealership and transportation solutions provider, to offer the Vicinity vehicles, including an initial commitment for 18 vehicles. Under the terms of the agreement, Schetky will distribute Vicinity vehicles throughout Washington, Oregon, Idaho and Alaska. The Vicinity line adds to Schetky’s portfolio of existing internal combustion and electric vehicles.

 

On July 21, 2022, the Corporation announced that its VMC 1200 Class 3 electric trucks have been approved for the Incentives for Medium and Heavy-duty Zero-Emission Vehicles (iMHZEV) Program administered by Transport Canada, which helps to make buying or leasing zero-emission vehicles more affordable. The iMHZEV Program offers point-of-sale incentives for Canadian organizations and businesses who buy or lease an approved MHZEV. Before including a vehicle on the list of eligible vehicles, Transport Canada reviews an application from the automaker to certify that the vehicle meets the iMHZEV Program requirements. Incentives range from CAD$10,000 to $200,000 depending on vehicle type. Businesses will have the option to purchase or lease new vehicles under the iMHZEV program, with a maximum of 10 incentives or CAD$1,000,000 available per calendar year per organization.

 

On August 16, 2022, the Corporation announced that it has signed a distribution agreement with the TOK Group (“TOK”), a Canadian transportation solutions provider, to offer the Corporation’s VMC 1200 Class 3 electric trucks, including an initial commitment for 10 vehicles. Under the new agreement, TOK will distribute Vicinity’s VMC 1200 Class 3 Electric Truck’s throughout the York Region of the Greater Toronto Area. The VMC 1200 adds to TOK’s portfolio expertise in electric vehicle sales. The agreement includes an initial commitment for 10 VMC 1200 vehicles.

  

On October 4, 2022, the Corporation announced that it has officially launched and begun deliveries of the first Class 3 electric truck to roll off the assembly line in Canada.

 

On October 6, 2022. The Corporation announced that it has received an order from strategic partner Sustainability Partners LLC (“SP”), an ESG focused Public Benefit Company committed to eliminating deferred maintenance infrastructure by enabling sustainability, for four (4) Vicinity Lightning™ electric buses via Soderholm Sales & Leasing, Inc. (“Soderholm”), Vicinity’s Pacific Islands distributor. The Vicinity Lightning™ shuttle buses will be used at the Daniel K. Inouye International Airport in Honolulu, the largest airport in the State of Hawaii serving 12 million passengers per year. The State of Hawaii Department of Transportation will utilize SP’s Electric Vehicles as a Service™ (EVaaS) program to finance the conversion of traditional government fleets to Vicinity’s electric vehicles. Soderholm will facilitate the sale and provide long-term technical and maintenance support for the project. The order of four new electric buses is scheduled for delivery in 2023.

 

On October 17, 2022, the Corporation announced the receipt of a purchase order for 1,000 VMC 1200 Class 3 Electric Trucks (the “PO”) from Pioneer Auto Group – Vicinity’s exclusive dealer in the province of British Columbia, Canada. Per the terms of the PO, which exceeds US$100 million in revenue, Vicinity is to deliver 1,000 VMC Class 3 Electric Trucks throughout 2023 as they are available.

 

On November 9, 2022, the Corporation provided a corporate update on the construction of the Corporation’s new manufacturing facility in Ferndale, Washington (the “Washington Facility”) and expected procurement and installation of a power solution by the end of 2022. As previously announced, the Washington Facility is located near the Corporation’s Aldergrove, British Columbia Canadian Headquarters with easy access to port, rail and truck shipping and receiving facilities. Operations at the Washington Facility will include vehicle assembly and upfitting, “Buy America” compliant assembly, pre-delivery inspections, research and development, as well as general technical work and servicing.

 

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On December 6, 2022, the Corporation announced it has partnered with Québec-based Omega Liquid Waste Solutions (“Omega”) to upfit and resell the Corporation’s VMC 1200 Class 3 Electric Truck with vacuum system used for sewer, septic tank and grease trap cleaning. Omega has purchased and is upfitting a VMC 1200 with its vacuum solution that will be showcased at the Water & Wastewater Equipment, Treatment & Transport (WWETT) Show. WWETT is the world’s largest annual trade show for wastewater and environmental service professionals and took place in Indianapolis, Indiana in February, 2023. Omega intends to purchase additional vehicles for upfit and resale to its North American client base.

  

Subsequent Events

 

On January 4, 2023, the Corporation announced that it has secured US$30M in credit commitments (“credit commitments”) from Royal Bank of Canada (“RBC”) and Export Development Canada (“EDC”) to fund production of the Corporation’s VMC 1200 class 3 electric truck.

 

On February 21, 2023, the Corporation announced that it had successfully closed on a previously announced US$30M credit facility from RBC and EDC to fund production of the Corporation’s VMC 1200 class 3 electric truck. The US$30 million credit facility is designed for use with Vicinity’s VMC 1200 all-electric class 3 truck and can be used for up to 100% of eligible production costs on the vehicle, excluding labor and overhead from Vicinity’s assembly plants. The interest rate on this new facility is prime plus 2% and is secured by the existing assets of the Corporation. In addition to the US$30 million credit facility for the VMC 1200 trucks, RBC will continue to provide Vicinity with C$10 million in an asset-backed facility (ABL) for use with its existing bus orders and a US$3 million letter of credit facility. The additional facility is an amendment to the current asset-backed facility (“ABL”) currently in place with RBC, and was reflected in an amended and restated loan agreement between RBC and VMCBC dated February 17, 2023 (the “Amended Loan Agreement”), with the Corporation, VMUSA and Vicinity Property as guarantors.

  

On February 23, 2023, the Corporation announced it signed a dealer network development services agreement with Dealer Solutions Mergers and Acquisitions (“DSMA”) to enhance North American market penetration for its industry-leading, Class 3 VMC 1200 all-electric trucks. Per the terms of the services agreement, DSMA will assist Vicinity in identifying and establishing dealer performance criteria, metrics, and guidelines for selecting and prioritizing dealership opportunities, setting the strategy for “early adopters”, prioritizing geographic focus and helping define opportunities to enter different markets or introduce new vehicle offerings.

 

On March 1, 2023, the Corporation announced that it has received a notification letter from the Nasdaq Stock Market LLC dated February 28, 2023, notifying the Corporation that due to its closing bid price being below $1.00 per share for 30 consecutive days, it is not in compliance with the minimum bid price requirement as set forth under NASDAQ Listing Rule 5550(a)(2) for continued listing on the NASDAQ. In accordance with the NASDAQ Listing Rule 5810(c)(3)(A), the Corporation has been provided 180 calendar days, or until August 28, 2023, to regain compliance with NASDAQ Listing Rule 5550(a)(2). To regain compliance, the Corporation’s shares must have a closing bid price of at least US$1.00 for a minimum of 10 consecutive business days, at which point the matter will be closed. In the event that the Corporation does not regain compliance by August 28, 2023 the Corporation may be eligible for an additional 180-day period to regain compliance. The receipt of the Notification Letter has no immediate effect on the listing of the Corporation’s shares, which will continue to trade uninterrupted on NASDAQ under the ticker “VEV”.

 

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On March 27, 2023, the Corporation announced that it had completed a private placement of unsecured convertible debentures for gross proceeds of C$4,000,000. The convertible debentures are issued in denominations of C$1,000, bear interest at 15% per annum, and mature 18 months from the closing date. Interest payments on the convertible debentures have been deferred to the twelve-month anniversary and/or maturity.

 

Each convertible debenture is convertible at the holder’s option into Units at any time prior to maturity at a conversion price of C$1.45 per Unit. Upon conversion, each Unit will consist of one Common Share and 0.2 of a Warrant. Each Warrant is exercisable into a Warrant Share at an exercise price of C$1.45 for a period of thirty-six months following the initial debenture closing date.

 

BUSINESS OF THE CORPORATION

 

Summary

 

The Corporation designs, builds and distributes a full suite of mid-size transit buses for public and commercial use, including electric, CNG and clean diesel buses and also commercial electric trucks (collectively, the “Vicinity Vehicles”). The Corporation has been successful in supplying Canadian and U.S.-based municipal transportation agencies and private operators with Vicinity Buses. The Corporation, with its strong distribution chain in the U.S., is actively pursuing opportunities in public and private transit fleet operations that would benefit from the Corporation’s vehicles.

 

The Corporation has worldwide strategic partnerships and supply agreements to manufacture Vicinity products in Europe, Asia, Canada, and the United States. The Corporation is currently completing the construction of an assembly plant in Ferndale, Washington State, a cost-effective location in proximity to the border between Canada and the USA. The Washington State facility will produce buses to be compliant with the “Buy America” Act and is expected to be capable of producing electric, CNG, clean diesel and EV truck units across all sizes and powertrains.

 

In a large and unsaturated market segment, the Corporation is poised to capture sales growth from both the replacement of cut-away buses and the need for transit fleets to find the appropriate balance of vehicle sizes across Canada and the United States. The Corporation is at the forefront of the changeover of industrial combustion engines to electric vehicles for the bus and truck markets.

 

The Corporation has established a Disadvantaged Business Enterprise program in accordance with regulations of the U.S. Department of Transportation (DOT), 49 CFR Part 26.

 

The Corporation’s revenue is summarized as follows (in thousands of dollars):

  

   Year ended 
December 31, 2022		  Year ended
December 31, 2021
   $  $
Vehicle Sales:           
Bus Sales   11,699    38,197 
Truck Sales   982    — 
Shuttle Sales   484    — 
Other revenue:           
Spare part sales   5,183    2,701 
Operating lease revenue   127    810 
           
Total Revenue   18,475    41,708 

   

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Products

 

Vicinity Vehicles

 

General

 

Vicinity buses were born from a need expressed by transit systems looking for a durable, reliable, customer oriented mid-size vehicle at a reasonable price point. The Corporation designs the Vicinity buses with affordability, accessibility and global responsibility in mind. The Vicinity Buses cost significantly less than a 40’ bus and are considerably more durable than cut-away buses which are based on a truck chassis.

 

The VMC Truck line builds on the in-house expertise of electric commercial vehicle development the Corporation has invested in the transit bus business expanding product reach into the broad commercial truck market, specifically Class 3 low cab forward chassis solutions.

 

Vicinity Classic

 

Vicinity’s flagship bus offers significant fuel savings, lower upfront costs, low operating costs, and provides a smoother ride than competitors providing greatly improved overall value. The Vicinity buses are designed to meet North America’s rigorous operating conditions and are durability tested by the Federal Government at Altoona, Pennsylvania. Vicinity buses are ranked “Best in Class” in the FTA’s Bus Test Program.

 

Vicinity Buses’ features include:

 

●Big bus technology in a compact, affordable platform;

 

●Worry-free two-year bumper-to-bumper warranty;

 

●Galvanized steel monocoque structure;

 

●Air Ride with Independent Front Suspension;

 

●Bonded windows;

 

●Fiberglass body panels;

 

●Cummins engine;

 

●ZF, Allison or Voith transmission;

 

●Low Floor Step-free Entry with ADA Compliant Front entry ramp; and

 

●Customizable electronic ‘smart bus’ technical features.

 

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Vicinity LightningTM

 

The Vicinity Lightning is the Corporation’s first fully electric bus and the newest bus model in the Corporation’s product portfolio. The Vicinity Lightning is an environmentally friendly alternative to diesel buses currently used in a broad product segment. Uniquely positioned to offer the size and maneuverability of small buses with the durability and capacity of larger buses, the Vicinity Lightning places the Corporation in an excellent position to capture market share as customers and policy drive demand for zero emission transportation solutions.

 

The Vicinity Lightning is a low-floor transit bus, scaled down for a diverse range of uses including transit, airports, community shuttles, para-transit, university shuttles, corporate and other unique applications. The Vicinity Lightning is designed from the ground up and purpose-built to use commercially available high-volume, reliable components from the automotive industry. It features 19.5” tires and hydraulic disc brakes, high-power AC direct on-board charging and DC fast charging options. Its design allows it to fit into any standard commercial garage with no major infrastructural electrical upgrades.

 

The Vicinity Lightning uses proven zero emission technology supporting a cleaner and more sustainable planet and drives community prosperity through increased access to mobility. The size and design of the bus provides maximum versatility supporting multiple transportation applications. The Vicinity Lightning incorporates high quality, proven, and commercially validated technology along with standardized electric-vehicle charging solutions. The Vicinity Lightning delivers ease of use without high-cost proprietary technology and charging systems. The smart intentional design allows a diverse range of users to adapt the Vicinity Lightning platform conveniently into operations with very low transition burden.

 

VMC 1200 Electric Truck

 

The VMC 1200 is a fully electric Class 3 Commercial EV which has the power and potential to transform the freight industry in North America. Powered by cutting edge Li-Ion battery technology the VMC 1200 is a 11,000 GVWR medium-duty electric truck with a 5,000-pound load capacity and range up to 150 miles on a single charge. The popular cab-over design provides ease of operation, maneuverability, visibility and simplified body integration.

 

Parts Sales

 

The Corporation earns additional recurring revenues by selling aftermarket parts. Aftermarket parts sales are expected to continue to increase as the existing Vicinity bus fleet ages and new vehicles are placed into service. Aging of the installed fleet base in addition to ongoing expansion into the passenger transportation and freight market naturally increases the reach of aftermarket parts and continued improvements in volume pricing expand the Corporation’s competitiveness in this high-margin business segment.

 

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Washington Facility

 

The Corporation expects to bring production online at the Washington Facility in Q2 2023. Operations at the Washington Facility will include vehicle assembly and upfitting, “Buy America” compliant assembly, pre-delivery inspections, research and development, as well as general technical work and servicing.

 

Marketing

 

The Corporation’s sales team is focused on the goal of securing purchase orders from commercial transportation companies, transit operators, government agencies and universities.

 

The Corporation’s priority is to generate customers across all sectors targeted by the Corporation including, but not limited to, transit, shuttle, universities, government and commercial sectors. Many of the customers that the Corporation has deployed or is targeting have other buses in their fleet that the Corporation may potentially replace with the Classic and the Vicinity Lightning. Ultimately, the Corporation intends to be the best choice for buses in this segment regardless of the fuel type that the customer chooses.

 

The Corporation’s bus sales plan in Canada is to meet with the top potential customers and obtain purchase orders for new buses for their production vehicle requirements.

 

United States bus distribution strategy involves localized bus dealers that actively engage and promote the sales of the Corporation’s buses, leveraging current client relationship and market presence. The Corporation works with dealers and their customers to address customer needs by responding with technical information and competitive proposals to generate sales.

 

In Canada, the Corporation is expanding its VMC 1200 truck dealer distribution network to promote the sales and service of VMC trucks throughout the country. VMC truck dealers will inventory and sell the VMC 1200 trucks to end-users. As announced in February 2023, the Corporation has engaged Dealer Solutions Mergers and Acquisitions to support the Corporation in developing its Canadian dealer distribution network.

 

Specialized Skill and Knowledge

 

There is a specialized skill required for the development, operations, maintenance, sales and marketing of the Corporation’s technology and buses. The Corporation’s current staff possesses the necessary skills, knowledge, and expertise required for the Corporation’s business. As additional employees are added to the Corporation, they will be trained by existing Corporation staff as needed.

 

As the Corporation expands operations and continues to grow, ensuring that all employees possess the necessary skills, education, and appropriate licenses as required by regulatory agencies will be important in sustaining the Corporation’s growth.

 

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Competitive Conditions

 

The North American medium and heavy-duty bus market is highly competitive today and the Corporation expects it will become even more so in the future. The Corporation’s principal competition for their traditional medium and heavy-duty buses come from manufacturers of buses with internal combustion engines powered by diesel, CNG fuels and battery electric power. This includes New Flyer, Nova, Gillig and Rev Group, and other automotive manufacturers. The Corporation cannot assure that customers will choose its vehicles over those of its competitors’ traditional buses. The Corporation expects that an increasing number of competitors will enter the electric vehicle market within the next several years and as they do, the Corporation expects that it will experience significant and growing competition. A number of private and public companies have announced plans to offer battery electric buses, including companies such as GreenPower, Motiv, Lightning Motors and others. Based on publicly available information, a number of these competitors have displayed prototype buses and have announced target availability and production timelines, while others have launched pilot programs in some markets. In addition, the Corporation is aware that competitors, including New Flyer, Proterra, GreenPower, Lion Electric and others, are currently manufacturing and selling battery electric buses.

 

Components

 

The Corporation utilizes a global supply chain for component parts for buses ensuring high quality and cost-effective products with the highest safety standards. Wherever possible there are multiple suppliers for components to ensure there is no economic dependence on any individual supplier.

 

However, as a result of the COVID-19 global pandemic, some of the Corporation’s suppliers suspended or scaled back their operations and continued supply chain disruptions all over the world continue to impact the Corporation and deliveries of component parts for production of its vehicles. These impacts resulted in order backlogs for the Corporation’s vehicles. The Corporation actively pursues opportunities to offset and balance supply chain risks through design and evaluation of alternative vendors and resources where possible.

 

Intangible Properties

 

The Corporation has invested significant resources in developing its suite of Vicinity Buses. The Corporation created and owns the rights to the design of its buses and ongoing product development. The Corporation has intellectual property agreements in place where necessary with partners and developers ensuring oversight over maintaining internally created or developed intellectual property. The Vicinity Buses use key components from established third-party suppliers. The Corporation does not currently have patents, and licenses, but may choose to obtain patents and licenses on our designs, processes or inventions in the future. The Corporation’s grant from SDTC is recorded in the Financial Statements as a reduction in intangible assets.

 

Cycles

 

The Corporation does not expect the market for transit buses to experience normal cyclical or seasonal changes. The Corporation has entered the EV truck market which has more steady demand than the transit bus industry.

 

Significant United States and Canadian state and federal funding programs are in place which incentivize the addition of battery electric commercial vehicles which helps contribute to demand.

 

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Economic Dependence

 

The Corporation’s sales within a calendar year have been concentrated on a small number of customers and therefore the Corporation’s revenues are reliant on a small number of customers. However, on a year-to-year basis the customers have changed and are not the same small number of customers on a repeated basis and the Corporation endeavors to expand its base of customers.

 

Changes to Contracts

 

The Corporation does not reasonably expect any material changes to contracts or business relationships in the current financial year, other than the Amended Loan Agreement with RBC, as described elsewhere in this AIF.

 

Environmental Protection

 

Environmental laws and regulations may affect the operations of the Corporation. The Corporation is subject to numerous environmental and health and safety laws, including statutes, regulations, bylaws and other legal requirements. These laws relate to the generation, use, handling, storage, transportation and disposal of regulated substances, including hazardous substances, dangerous goods and waste, emissions or discharges into soil, water and air, including noise and odors (which could result in remediation obligations), and occupational health and safety matters, including indoor air quality. Failure to dispose of these in a manner compliant with local environmental regulation could expose the Corporation to penalties and clean-up costs. These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws, regulations or requirements may negatively affect on our Corporation and its operating results.

 

Growing concerns about climate change may result in the imposition of additional regulation particularly with respect to greenhouse gas emissions. Several jurisdictions around the world, including Canada, and various provinces within Canada, have implemented or intend to implement regulations to put a price on carbon emissions to address climate change concerns. These regulations may impact the Corporation’s business in terms of increased cost and compliance efforts. However, given the evolving nature of policies related to climate change and the regulation of carbon emissions, it is not currently possible to predict either the nature of anticipated requirements or the impact on the Corporation’s business. Further, such policies may increase interest in and demand for the Corporation’s electric vehicles.

 

Employees

 

As at the date of this AIF, the Corporation has approximately 60 employees, who are responsible for assisting the management of the Corporation and its day-to-day operations. The Corporation relies heavily on its senior management team. Operations could be impacted if one or more members of the senior management team were to depart unless the Corporation has in place sufficient safeguards. The Corporation has developed a succession plan to ensure continuity and mitigate any potential disruptions from any departures in the senior management team.

 

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Foreign Operations

 

The Corporation has worldwide strategic partnerships to manufacture its products in Europe, Asia, Canada, and the United States. See “Three Year History” and “Business of the Corporation” for details of our foreign operations. As the Corporation continues to grow, the Corporation expects to expand our United States operations. The Corporation’s Washington Facility is expected to be operational in Q2 2023.

 

There are risks associated with foreign operations, including currency risk and regulatory risk. In the event there is a dispute, the Corporation may be unable to obtain legal remedy or legal proceedings may be prohibitively expensive.

 

Lending

 

The Corporation’s operations generally do not include any lending operations. Invoices paid by customers must be paid in a reasonable time period.

 

RISK FACTORS

 

You should carefully consider the risks described below, which are qualified in their entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this AIF, and all other information contained in this AIF. The risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business, prospects, financial condition, results of operations and cash flows and consequently the price of the Corporation’s common shares could be materially and adversely affected.

 

Failure to drastically increase manufacturing capacity and efficiency could have a material adverse effect on the Corporation’s business, results of operations or financial condition.

  

Although the Corporation’s existing manufacturing facilities, including contract manufacturers, which were used in 2022 to manufacture over 44 Vicinity Buses and 20 VMC Trucks, are able to satisfy the Corporation’s current manufacturing requirements, the future success of the Corporation’s business depends in part on its ability to drastically increase manufacturing capacity and efficiency, particularly in the United States in order to comply with the “Buy American” Act. The Corporation is currently completing the construction of the Washington Facility, an assembly facility in Washington State that is expected to be able to deliver up to 1,000 vehicles annually over all sizes and powertrains. The Corporation may be unable to expand its business, satisfy demand from its current and new customers, maintain its competitive position and improve profitability if it is unable to operate the Washington Facility and otherwise allow for increases in manufacturing output and speed. The construction of such a facility will require significant cash investments and management resources and may not meet the Corporation’s expectations with respect to increasing capacity, efficiency and satisfying additional demand. For example, if there are further delays in the Washington Facility becoming fully operational or achieving target yields and output, the Corporation may not meet its target for adding capacity, which would limit its ability to increase sales and result in lower than expected sales and higher than expected costs and expenses. Failure to drastically increase manufacturing capacity or otherwise satisfy customers’ demands may result in a loss of market share to competitors, damage the Corporation’s relationships with its key customers, a loss of business opportunities or otherwise materially adversely affect its business, results of operations or financial condition.

 

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The Corporation is and will be dependent on its manufacturing facilities. If one or more of its current or future manufacturing facilities becomes inoperable, capacity constrained or if operations are disrupted, the Corporation’s business, results of operations or financial condition could be materially adversely affected.

  

The Corporation’s revenue is and will be dependent on the continued operations of its existing manufacturing facilities as well as its other planned facilities, the Washington Facility. To the extent that the Corporation experiences any operational risk including, among other things, fire and explosions, severe weather and natural disasters (such as floods and hurricanes), failures in water supply, major power failures, equipment failures (including any failure of its information technology, air conditioning, and cooling and compressor systems), failures to comply with applicable regulations and standards, labor force and work stoppages, or if its current or future manufacturing facilities become capacity constrained, the Corporation will be required to make capital expenditures even though it may not have available resources at such time. Additionally, there is no guarantee that the proceeds available from the Corporation’s insurance policies will be sufficient to cover such capital expenditures. As a result, the Corporation’s insurance coverage and available resources may prove to be inadequate for events that may cause significant disruption to its operations. Any disruption in the Corporation’s manufacturing processes could result in delivery delays, scheduling problems, increased costs, or production interruption, which, in turn, may result in its customers deciding to purchase products from its competitors. The Corporation is and will be dependent on its current and future manufacturing facilities which will in the future require a high degree of capital expenditures. If one or more of the Corporation’s current or future manufacturing facilities becomes inoperative, capacity constrained or if operations are disrupted, its business, results of operations or financial condition could be materially adversely affected.

  

The Corporation may not succeed in establishing, maintaining and strengthening its brand, which would materially and adversely affect customer acceptance of its vehicles, which in turn could materially adversely affect its business, results of operations or financial condition.

  

The Corporation’s business and prospects heavily depend on its ability to develop, maintain and strengthen the Vicinity brand. If it is unable to establish, maintain and strengthen its brand, the Corporation may lose the opportunity to build and maintain a critical mass of customers. The Corporation’s ability to develop, maintain and strengthen the Vicinity brand will depend heavily on the success of its marketing efforts. The bus industry, the battery electric vehicle industry, and the alternative fuel vehicle industry in general, are highly competitive, and the Corporation may not be successful in building, maintaining and strengthening its brand. Many of the Corporation’s current and potential competitors, particularly bus manufacturers headquartered in the United States and Canada, have greater name recognition, broader customer relationships and substantially greater marketing resources than the Corporation. Failure to develop and maintain a strong brand would materially and adversely affect customer acceptance of the Corporation’s vehicles, could result in suppliers and other third parties being less likely to invest time and resources in developing business relationships with the Corporation, and could materially adversely affect the Corporation’s business, results of operations or financial condition.

  

Increases in costs, disruption of supply or shortage of lithium-ion battery cells could materially adversely affect the Corporation’s business, results of operations or financial condition.

  

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Any disruption in the supply of battery cells could temporarily disrupt production of the Corporation’s vehicles until a different supplier is fully qualified. Moreover, battery cell manufacturers may refuse to supply electric vehicle manufacturers if they determine that the vehicles are not sufficiently safe. Furthermore, various fluctuations in market and economic conditions may cause the Corporation to experience significant increases in freight charges and battery cell costs. Substantial increases in the prices for battery cells would increase the Corporation’s operating costs and could reduce the Corporation’s margins if the increased costs cannot be recouped through increased vehicle prices. There can be no assurance that the Corporation will be able to recoup increasing costs of battery cells by increasing vehicle prices.

 

The Corporation’s projected operating and financial results relies in large part upon assumptions and analyses developed by it. If these assumptions or analyses prove to be incorrect, the Corporation’s actual operating and financial results may be materially different from its forecasted results.

  

The financial and operating information of the Corporation appearing elsewhere in this AIF reflects current estimates of future performance made by it. Whether actual operating and financial results and business developments will be consistent with those expectations and assumptions as reflected in projected financial and operating information depends on a number of factors, some of which are outside the Corporation’s control, including, but not limited to:

 

  ● its ability to economically manufacture and distribute its vehicles at scale and meet customers’ business needs;
     
  ● its ability to obtain sufficient capital and successfully execute its growth strategy, including planned additions to its current manufacturing plant, property and equipment as well as the operation of the Washington Facility;
     
  ● its ability to manage its growth;
     
  ● its ability to accurately forecast supply and demand;
     
  ● its ability to secure and maintain required strategic supply arrangements;
     
  ● projected improvements in technology;
     
  ● rates of adoption of battery electric vehicles by customers in the markets in which it operates;
     
  ● continued availability of favorable regulations and government incentives affecting the industry and markets in which it operates;
     
  ● competition, including from established and future competitors;
     
  ● its ability to attract and retain management or other employees who possess specialized market knowledge and technical skills; and
     
  ● the overall strength and stability of the U.S. and Canadian economies.

   

Unfavorable changes in any of these or other factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from the Corporation’s projections and other forward-looking information included in this AIF, and could materially and adversely affect the Corporation’s business, results of operations or financial condition.

 

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Some of the Corporation’s vehicles use lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame.

  

The battery packs within some of the Corporation’s vehicles use lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While the battery pack is designed to contain any single cell’s release of energy without spreading to neighboring cells, a field or testing failure of the Corporation’s vehicles could occur, which could result in bodily injury or death and could subject the Corporation to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of cobalt mining or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident does not involve the Corporation’s vehicles, could materially adversely affect the Corporation’s business, results of operations or financial condition.

 

In addition, manufacturing of some of the Corporation’s vehicles requires it to store a significant number of lithium-ion cells at its facility. Any mishandling of battery cells may cause disruption to the operation of the Corporation’s current or future facilities. While the Corporation has implemented safety procedures related to the handling of the cells, a safety issue or fire related to the cells could disrupt the Corporation’s operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle or energy storage product may cause indirect adverse publicity for the Corporation and its products. Such adverse publicity could negatively affect the Corporation’s brand or could materially adversely affect the Corporation’s business, results of operations or financial condition.

 

The Corporation is dependent on third-party suppliers, some of which are single-source suppliers, and expects to continue to rely on third-party suppliers. The inability of any supplier to deliver necessary parts or components according to schedule and at prices, volumes or quality levels acceptable to it, or the termination or interruption of any supply arrangement could materially adversely affect the Corporation’s business, results of operations or financial condition.

 

The Corporation is dependent on its third-party suppliers, some of which are single or limited source suppliers, and such suppliers’ ability to supply and manufacture parts and components included in the Corporation’s vehicles. The Corporation expects to continue to rely on third parties to supply and manufacture such parts and components in the future, as well as to maintain and grow its supply chain for its manufacturing operations in both Canada and the United States. While the Corporation obtains components from multiple sources whenever possible, some of the components used in its vehicles, including certain key battery system components, are purchased from a single source. While the Corporation believes that it may be able to establish alternate supply relationships and can obtain or potentially engineer replacement components for some of its single source components, it may be unable to do so in the short term or at all, or at prices, volumes or quality levels that are acceptable to it. In addition, the inability of any of the Corporation’s suppliers to deliver necessary parts or components according to the Corporation’s schedule and at prices, volumes or quality levels acceptable to the Corporation, or the termination or interruption of any material supply arrangement could materially adversely affect the business, results of operations or financial condition. Also, if any suppliers become economically distressed or go bankrupt, or is acquired by a competitor, the Corporation may be required to, as applicable, provide substantial financial support or take other measures to ensure supplies of components or materials, which could increase its costs, affect its liquidity or cause production disruptions, all of which could materially adversely affect the business, results of operations or financial condition.

 

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In addition, the Corporation operates in multiple jurisdictions is party to certain agreements with suppliers, vendors, and other third parties located in jurisdictions that could impact enforcement of judgments against such third parties. These agreements may contain provisions that limit such third parties’ liability, require arbitration or litigation in a specific jurisdiction, or provide for indemnification against certain claims. Any limitation in the Corporation enforcing its rights of judgments against suppliers or other third parties could materially adversely affect The Corporation’s business, results of operations or financial condition.

 

The Corporation may not be able to adequately forecast the supply and demand for its vehicles, its manufacturing capacity or its profitability under supply arrangements, which could result in a variety of inefficiencies in its business and hinder its ability to generate revenue.

  

It is difficult to predict the Corporation’s future sales and appropriately budget for the Corporation’s expenses, and the Corporation may have limited insight into trends that may emerge and affect its business. The Corporation will be required to provide forecasts of its demand to its suppliers several months prior to the scheduled delivery of products to customers. If the Corporation fails to accurately predict its manufacturing requirements, it could incur additional costs or experience delays. If the Corporation overestimates manufacturing requirements, its suppliers may have excess inventory, which indirectly would increase the Corporation’s costs. If the Corporation underestimates manufacturing requirements, its suppliers may have inadequate inventory, which could interrupt manufacturing of the Corporation’s vehicles and result in delays in shipments and revenues. In addition, lead times for materials and components that the Corporation’s suppliers order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If the Corporation fails to order sufficient quantities of product components in a timely manner, the delivery of vehicles to its customers could be delayed, which could materially adversely affect its business, results of operations or financial condition.

  

The Corporation’s operating and financial results may vary significantly from period to period due to fluctuations in its operating costs and other factors.

  

The Corporation expects its period-to-period operating and financial results to vary based on a multitude of factors, some of which are outside of the Corporation’s control. The Corporation expects its period-to-period financial results to vary based on operating costs, which it anticipates will fluctuate with the pace at which it increases its manufacturing capacity and continues to design, develop and produce new products. In addition, the Corporation’s revenues from period to period may fluctuate as it develops and introduces new vehicles. As a result of these factors, the Corporation believes that quarter-to-quarter comparisons of its operating or financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, the Corporation’s financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be focused only on quarterly financial results. If any of this occurs, the trading price of the Common Shares could fall substantially, either suddenly or over time, which could have a material adverse effect on the Corporation’s business, results of operations or financial condition.

 

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While the Corporation expects to generate positive cash flows and profitability over time, the aforementioned anticipated expenditures will make it very challenging for the Corporation to achieve profitability and positive cash flow and the Corporation cannot guarantee it will achieve either in the near or medium term, or at all. If the Corporation is unable to generate adequate revenue growth and manage its expenses, it may continue to incur losses and have negative cash flows from operating activities.

 

The Corporation may make decisions that could reduce its short-term operating results if it believes those decisions will improve the quality of its products or services or improve its operating results, business or prospects over the long-term. These decisions may not be consistent with the expectations of investors and may not produce the long-term benefits that the Corporation expects, in which case the business, results of operations or financial condition may be materially and adversely affected.

 

The Corporation’s business may not continue to generate cash flow from operations in the future sufficient to satisfy its obligations under its existing indebtedness and any future indebtedness it may incur. If the Corporation is unable to generate such cash flow, it may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be highly onerous or dilutive. The Corporation’s ability to refinance existing or future indebtedness, including its facility with RBC, will depend on the capital markets and its financial condition at such time. The Corporation’s ability to make payments may be limited by law, by regulatory authority or by agreements governing the Corporation’s current or future indebtedness. The Corporation may not be able to engage in these activities on desirable terms or at all. In addition, the Corporation’s ability to finance its operations, capital expenditures and working capital needs could be impacted by a rise in interest rates, as any such increase in interest rates would lead to higher costs of borrowing for the Corporation. The Corporation may not be able to effectively manage its borrowing costs and may lack alternative sources of funding to mitigate risks associated with a rise in interest rates. Any of the foregoing could materially adversely affect the business, results of operations or financial condition.

  

The Corporation may experience significant delays in the design, production and launch of its new products.

  

The Corporation is still in the development and testing phase with respect to certain of its vehicles, including, among others, the Vicinity Lightning. The commercial deliveries of such vehicles are not expected to begin until the second quarter of 2023 (depending on the product) and may occur later or not at all. Any delay in the financing, design, production and launch of any such new vehicles, including future production of the aforementioned all-electric buses and trucks could harm the Corporation’s reputation or materially adversely affect its business, results of operations or financial condition.

  

Increased freight and shipping costs or disruptions in transportation and shipping infrastructure could materially adversely impact the Corporation’s business, results of operations or financial condition.

 

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The Corporation uses external freight shipping and transportation services to transport and deliver its vehicles as well as subcomponents and raw materials incorporated therein. Adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important shipping and delivery points for the Corporation’s products, as well as for subcomponents incorporated in the Corporation’s vehicles could materially adversely affect the Corporation’s business, financial condition and results of operations. For example, delivery delays or increases in transportation costs (including through increased fuel costs, increased carrier rates or driver wages as a result of driver shortages, a decrease in transportation capacity, or work stoppages or slowdowns) could significantly decrease the Corporation’s ability to make sales and earn profits. Labor shortages or work stoppages in the transportation industry or long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of deliveries or which would necessitate the Corporation securing alternative shipping suppliers could also increase the Corporation’s costs or otherwise materially adversely affect its business, results of operations or financial condition. Disruptions in the movement of freight may also impact our freight costs and ultimately our results of operations.

  

The Corporation’s employees and independent contractors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could have a material adverse effect on its business, results of operations or financial condition.

  

The Corporation is exposed to the risk that its employees, independent contractors or other parties it collaborates with may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or other activities that violate laws and regulations, including production standards, federal, state and provincial fraud, abuse, data privacy and security laws, other similar laws or laws that require the true, complete and accurate reporting of financial information or data. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions the Corporation takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, the Corporation is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against the Corporation and it is not successful in defending itself or asserting its rights, those actions could have a material adverse effect on its business, results of operations or financial condition, including, without limitation, by way of imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of its operations.

  

The Corporation has and may in the future make strategic alliances, partnerships or investments or acquisitions, all of which could divert management’s attention, result in the Corporation incurring significant costs or operating difficulties and dilution to its shareholders and otherwise disrupt its operations and materially adversely affect its business, results of operations or financial condition.

 

Pursuing potential strategic alliances, partnerships or investments or acquisitions and/or inorganic growth opportunities is part of the Corporation’s growth strategy. There are risks associated with any strategic partnership or arrangement, the termination or operation of joint ventures or other strategic alliances and pursuing strategic acquisitions or investment opportunities, including:

 

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  ● the sharing of confidential information;
     
  ● the diversion of management’s time and focus from operating its business;
  ● the use of resources that are needed in other areas of its business;
     
  ● unforeseen costs or liabilities;
     
  ● adverse effects to the Corporation’s existing business relationships with partners and suppliers;
     
  ● litigation or other claims arising in connection with the acquired corporation, investment, partnership or joint venture;
     
  ● the possibility of adverse tax consequences;
     
  ● in the case of an acquisition, implementation or remediation of controls, procedures and policies of the acquired corporation;
     
  ● in the case of an acquisition, difficulty integrating the accounting systems and operations of the acquired corporation; and
     
  ● in the case of an acquisition, retention and integration of employees from the acquired corporation, and preservation of its corporate culture.

  

The Corporation may have limited ability to monitor or control the actions of any third party involved in any such transaction and, to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, the Corporation may also suffer negative publicity or harm to its reputation by virtue of its association with any such third party. Participation in strategic alliances, partnerships or investments or acquisitions may also result in dilutive issuances of equity securities, which could adversely affect the price of the Common Shares, or result in issuances of securities with superior rights and preferences to the Common Shares or the incurrence of debt with restrictive covenants that limit the Corporation’s future uses of capital in pursuit of business opportunities. The Corporation may also not be able to identify opportunities for strategic partnerships or arrangements, acquisition or investments that meet its strategic objectives, or to the extent such opportunities are identified, may not be able to negotiate terms with respect to any such opportunity that are acceptable to it. At this time the Corporation has made no commitments or agreements with respect to any such material transactions.

 

Fluctuations in foreign currency exchange rates could result in declines in reported sales and net earnings.

  

The Corporation reports its financial results in United States dollars; however; some of its sales and operating costs are realized in Canadian dollars. The Corporation is also exposed to other currencies such as the Euro, and may in the future be exposed to other currencies. Although these risks may sometimes be naturally hedged by a match in sales and operating costs denominated in the same currency, fluctuations in foreign currency exchange rates, particularly the U.S.-Canadian dollar exchange rate, could create discrepancies between the Corporation’s sales and operating costs in a given currency that could have a material adverse effect on its business, results of operations or financial condition. Fluctuations in foreign currency exchange rates could also have a material adverse effect on the relative competitive position of the Corporation’s products in markets where it faces competition from manufacturers who are less affected by such fluctuations in exchange rates, especially in the U.S. market.

 

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While the Corporation manages its exposure to foreign-exchange rate fluctuations and may enter into hedging contracts from time to time, such contracts hedge foreign-currency denominated transactions and any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged. Furthermore, the Corporation does not have foreign-exchange hedging contracts in place with respect to currencies in which it does business. As a result, there can be no assurance that the Corporation’s approach to managing its exposure to foreign-exchange rate fluctuations will be effective in the future or that the Corporation will be able to enter into foreign-exchange hedging contracts as deemed necessary on satisfactory terms.

  

The Corporation’s growth will depend on its ability to successfully attract new customers and secure firm purchase orders from them and to retain existing customers and engage them into additional deployments in the future. Failure to increase sales to both new and existing customers could have a material adverse effect on the Corporation’s business, results of operations or financial condition.

 

The Corporation’s success, and its ability to increase revenue and operate profitably, depends in part on its ability to identify new customers and secure firm orders from them, its ability to retain existing customers and engage them into additional deployments in the future, and its ability to meet current and new customers’ business needs. Failure to achieve any of the foregoing could materially and adversely affect the Corporation’s business, results of operations or financial condition. The Corporation may fail to attract new customers or retain existing customers, retain revenue from existing customers or increase sales to both new and existing customers as a result of a number of other factors, including:

 

  ● reductions in the Corporation’s existing or potential customers’ spending levels;
     
  ● competitive factors affecting the battery electric vehicles industry, including the introduction of other alternative fuel vehicles or other technologies;
     
  ● discount, pricing and other strategies that may be implemented by its competitors;
     
  ● its ability to execute on its growth strategy;
     
  ● a decline in its customers’ level of satisfaction with its vehicles and services;
     
  ● changes in its relationships with third parties, including its suppliers and other partners;
     
  ● the timeliness and success of new products it may offer in the future; and
     
  ● its focus on long-term value over short-term results, meaning that the Corporation may make strategic decisions that may not maximize its short-term revenue or profitability if it believes that the decisions are consistent with its vision and will improve its financial performance over the long-term.

  

The Corporation has limited experience servicing its electric bus, the Vicinity Lightning. Failure to address the servicing requirements of its customers could harm the Corporation’s reputation or materially adversely affect its business, results of operations or financial condition.

 

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The Corporation has limited experience in servicing its electric bus, the Vicinity Lightning, and it expects to be required to increase its servicing capabilities as it scales its operations and continues to grow. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques. Although the Corporation believes the experience it has gained servicing its traditional buses positions it well to service its electric buses and future products, the Corporation has no after-sale experience of maintaining and servicing electric buses for its customers, and there is no guarantee the Corporation will be able to do so. Failure to address the servicing requirements of its customers could harm the Corporation’s reputation or materially adversely affect its business, results of operations or financial condition.

  

The Corporation’s customers will also depend on the Corporation’s customer support team to resolve technical and operational issues relating to the software integrated in its vehicles. The Corporation’s ability to provide effective customer support is largely dependent on its ability to attract, train and retain qualified personnel with experience in supporting customers on platforms such as the Corporation’s platform. As it continues to grow, additional pressure may be placed on the Corporation’s customer support team, and the Corporation may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support. The Corporation may also be unable to modify the future scope and delivery of its technical support to compete with changes in the technical support provided by its competitors. Increased customer demand for support, without corresponding revenue, could increase costs and negatively affect the Corporation’s results of operation. If the Corporation is unable to successfully address the servicing requirements of its customers or establish a market perception that it maintains high-quality support, it may be subject to claims from its customers, including for loss of revenue or damages, and its business, results of operations or financial condition may be materially and adversely affected.

  

The Corporation’s future growth is dependent upon the busing industries’ and the Corporation’s other customers’ willingness to adopt battery electric vehicles and specifically the Corporation’s vehicles.

  

The Corporation’s future growth is highly dependent upon the adoption by the commercial busing industries and the Corporation’s other target consumers of, and the Corporation is subject to an elevated risk of any reduced demand for, alternative fuel vehicles in general and electric vehicles in particular. If the market for electric vehicles does not develop at the rate or in the manner or to the extent that the Corporation expects, or if critical assumptions the Corporation has made regarding the efficiency of its vehicles are incorrect or incomplete, the Corporation’s business, results of operations or financial condition may be adversely materially affected. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include:

 

  ● perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost;
     
  ● perceptions about vehicle safety in general, including the use of advanced technology, such as vehicle electronics, alternative fuel and regenerative braking systems;
     
  ● the limited range over which electric vehicles may be driven on a single battery charge;
     
  ● the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge or short term declines resulting from adverse weather conditions;
     
  ● the availability of service and charging stations for electric vehicles;

 

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  ● concerns about electric grid capacity and reliability, which could derail past, present and future efforts to promote electric vehicles as a practical solution to vehicles which require gasoline;
     
  ● the availability of alternative fuel vehicles;
     
  ● improvements in the fuel economy of the internal combustion engine;
     
  ● the environmental consciousness of the busing industries and the Corporation’s other target customers;
     
  ● volatility in the cost of oil and gasoline;
     
  ● government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
     
  ● the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation;
     
  ● perceptions about and the actual cost of alternative fuel, as well as hybrid and electric vehicles; and
     
  ● macroeconomic factors.

 

For example, it is unknown to what extent any decreases in the cost of diesel fuel may impact the market for electric vehicles. Even if the busing industries and the Corporation’s other target customers adopt battery electric vehicles, the Corporation may be unable to establish and maintain confidence in its long-term business prospects among consumers, analysts and within the industry, and may be subject to negative publicity. The influence of any of the factors described above may cause current or potential customers not to purchase the Corporation’s vehicles and may otherwise materially adversely affect the Corporation’s business, results of operations or financial condition.

  

Inadequate access to charging stations could impact the demand for all-electric vehicles, and failure by the Corporation to meet user expectations related to, or other difficulties in providing, charging solutions could harm the Corporation’s reputation or materially adversely affect its business, results of operations or financial condition.

 

Demand for the Corporation’s vehicles will depend in part upon the availability of a charging infrastructure. While the prevalence of charging stations generally has been increasing, charging station locations are significantly less widespread than gas stations. Some potential customers may choose not to purchase the Corporation’s vehicles because of the lack of a more widespread charging infrastructure. Further, to provide its customers with access to sufficient charging infrastructure, the Corporation will rely on the availability of, and successful integration of its vehicles with, third-party charging networks. Any failure of third-party charging networks to meet customer expectations or needs, including quality of experience, could impact the demand for all-electric vehicles, including the Corporation’s. To the extent the Corporation is unable to meet user expectations or experience difficulties in its users accessing charging solutions, its reputation could be harmed, and its business, results of operations or financial condition could be materially adversely affected.

 

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The Corporation’s inability to leverage vehicle and customer data could impact the servicing of its products, its software algorithms and impact research and development operations.

  

The Corporation relies on data collected from the use of its fleet of vehicles, including vehicle data and data related to battery usage statistics. The Corporation uses this data in connection with the servicing and normal course software updates of its products, its software algorithms and the research, development and analysis of its vehicles. The Corporation’s inability to obtain this data or the necessary rights to use this data or the Corporation’s inability to properly analyze or use this data could result in the Corporation’s inability to adequately service its vehicles or delay or otherwise negatively impact its research and development efforts. Any of the foregoing could materially adversely affect the Corporation’s business, results of operations or financial condition.

  

The bus industry and the electric vehicle industry are highly competitive and the Corporation is likely to face competition from a number of sources. The Corporation may not be successful in competing in these industries, which may materially adversely affect its business, results of operations or financial condition.

  

The North American medium and heavy-duty bus market is highly competitive today and the Corporation expects it will become even more so in the future. The Corporation’s principal competition for their traditional medium and heavy-duty buses come from manufacturers of buses with internal combustion engines powered by diesel and CNG fuels. This includes New Flyer, Nova, Gillig and Rev Group, and other automotive manufacturers. The Corporation cannot assure that customers will choose its vehicles over those of its competitors’ traditional buses. As of the date hereof, few battery electric buses are being sold in the United States or Canada. However, the Corporation expects that an increasing number of competitors will enter the electric vehicle market within the next several years and as they do so the Corporation expects that it will experience significant competition. A number of private and public companies have announced plans to offer battery electric buses, including companies such as GreenPower, Motiv, and others. Based on publicly available information, a number of these competitors have displayed prototype buses and have announced target availability and production timelines, while others have launched pilot programs in some markets. In addition, the Corporation is aware that competitors, including New Flyer, Proterra, GreenPower, Lion Electric and others, are currently manufacturing and selling battery electric buses.

  

Some of the Corporation’s current and potential competitors may also have greater financial resources, more extensive development, manufacturing, technical, marketing and service capabilities, greater brand, customer and industry recognition, a larger number of managerial and technical personnel or a lower cost of funds than the Corporation does or other competitive advantages relative to the Corporation. Many of the Corporation’s current and potential competitors may also be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products.

  

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The Corporation expects competition in its industry to intensify in the future in light of increased demand for electric and other alternative fuel vehicles and continuing globalization. Factors affecting competition include total cost of ownership, product quality and features, innovation and development time, pricing, availability, reliability, safety, fuel economy, customer service (including breadth of service network) and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect the Corporation’s business, financial condition and results of operation. There can be no assurances that the Corporation will be able to compete successfully in the markets in which it operates. If the Corporation’s competitors introduce new vehicles or services that compete with or surpass the quality, price, performance or availability of the Corporation’s vehicles or services, the Corporation may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow it to generate attractive rates of return on its investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could materially adversely affect the Corporation’s business, results of operations or financial condition.

  

The unavailability, reduction or elimination of government and economic incentives due to policy changes, government regulation or otherwise, could have a material adverse effect on the Corporation’s business, results of operations or financial condition.

  

Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle industry or other reasons may result in the diminished competitiveness of the alternative fuel and electric vehicle industry generally or the Corporation’s vehicles. While certain tax credits and other incentives for alternative energy production, alternative fuel and electric vehicles have been available in the past, there is no guarantee these programs will be available in the future. If current tax incentives are not available in the future, the Corporation’s business, results of operations or financial condition could be materially adversely affected.

  

In particular, demand for the Corporation’s vehicles is influenced by federal, state, provincial and local tax credits, rebates, grants and other government programs and incentives that promote the use of battery electric vehicles. These include various government programs that make grant funds available for the purchase of battery electric vehicles. Additionally, demand for the Corporation’s vehicles may be influenced by laws, rules, regulations and programs that require reductions in carbon emissions, such as the various measures implemented by lawmakers and regulators in California and British Columbia, among others, designed to increase the use of electric and other zero-emission vehicles, including the establishment of firm goals in certain instances for the number of these vehicles operating on state and provincial roads by specified dates and the enactment of various laws and other programs in support of these goals. These programs and regulations, which have the effect of encouraging the use of battery electric vehicles, could expire or be repealed or amended for a variety of reasons. For example, parties with an interest in gasoline and diesel, hydrogen or other alternative vehicles or vehicle fuels, including lawmakers, regulators, policymakers, environmental or advocacy organizations, original equipment manufacturers (“OEMs”), trade groups, suppliers or other groups, may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations and programs that promote the use of battery electric vehicles. Many of these parties have substantially greater resources and influence than the Corporation has. Further, changes in federal, state, provincial or local political, social or economic conditions, including a lack of legislative focus on these programs and regulations, could result in their modification, delayed adoption or repeal. Any failure to adopt, delay in implementation, expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage the use of other alternative fuels or alternative vehicles over battery electric vehicles, would reduce the market for battery electric vehicles and could materially adversely affect the Corporation’s business, results of operations or financial condition.

 

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The Corporation’s inability to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which it may apply could have a material adverse effect on its business, results of operations or financial condition.

  

The Corporation has applied, and expects in the future to apply, for federal, state and provincial grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of battery electric vehicles and related technologies. The Corporation anticipates that in the future there will be new opportunities to apply for grants, loans and other incentives from federal, state, provincial and foreign governments. The Corporation’s ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of the Corporation’s applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive and will cause management to divert time and resources from other aspects of its business. The Corporation cannot assure that it will be successful in obtaining any of these additional grants, loans and other incentives, and the Corporation’s inability to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which it may apply could have a material adverse effect on its business, results of operations or financial condition.

  

Unfavorable changes in U.S. or Canadian laws or regulations and trade policy, including the imposition of tariffs or quotas, or changes in any free-trade arrangements such as the CUSMA could adversely affect the Corporation’s business, results of operations or financial condition.

  

The Corporation expects to increasingly manufacture some of its vehicles in the United States at the Washington Facility. The U.S. market has been and is expected to continue generating sales growth. Several factors, including weakened international economic conditions, the introduction of new trade restrictions, increased protectionism or changes in free-trade arrangements such as the Canada-United States-Mexico Agreement (the “CUSMA”), tariffs, negative geo-political events or an outbreak of infectious disease, a pandemic or a similar public health threat, such as the COVID-19 pandemic, could adversely affect such growth. In particular, the U.S. government has adopted a new approach to trade policy and in some cases has attempted to renegotiate or terminate certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods, including steel and certain commercial vehicle parts, which have resulted in increased costs for goods imported into the United States. There is no guarantee that further tariffs or additional trade restrictions will not be implemented on a broader range of products or raw materials. The resulting environment could have a material adverse effect on the Corporation’s business, results of operations or financial condition.

  

An adverse determination in any significant product liability claim against the Corporation could materially adversely affect its business, results of operations or financial condition.

 

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The development, manufacturing, sale and usage of vehicles expose the Corporation to significant risks associated with product liability claims. The automotive industry in particular experiences significant product liability claims, and the Corporation may face inherent risk of exposure to claims in the event its vehicles do not perform or are claimed to not have performed as expected. If the Corporation’s products are defective, malfunction or are used incorrectly by its customers, it may result in bodily injury, property damage or other injury, including death, which could give rise to product liability claims against the Corporation. Changes to manufacturing processes, including as a result of the establishment of manufacturing operations, and the production of new products and applications could result in product quality issues, thereby increasing the risk of litigation and potential liability. Any losses that the Corporation may suffer from any liability claims and the effect that any product liability litigation may have upon the brand image, reputation and marketability of the Corporation’s products could have a material adverse impact on business, results of operations or financial condition.

 

Although the Corporation maintains insurance with respect to future claims in amounts it believes to be appropriate, no assurance can be given that material product liability claims will not be made in the future against the Corporation, or that claims will not arise in the future in excess or outside the coverage of the Corporation’s indemnities and insurance. When required, the Corporation’s records provisions for known potential liabilities, but there is the possibility that actual losses may exceed these provisions and therefore negatively impact earnings. Also, the Corporation may not be able in the future to obtain adequate product liability insurance or the cost of doing so may be prohibitive. Adverse determinations of material product liability claims made against the Corporation could also harm its reputation and cause it to lose customers and could have a material adverse effect on its business, results of operations or financial condition.

 

Significant product repair and/or replacement due to product warranty claims or product recalls could have a material adverse impact on the Corporation’s business, results of operations or financial condition.

  

The Corporation generally provides a limited warranty against defects for all of its products. In addition, the Corporation may in the future be required to make product recalls or could be held liable in the event that some of its products do not meet safety standards or statutory requirements on product safety, even if the defects related to any such recall or liability are not covered by the Corporation’s limited warranty. Although the Corporation employs quality control procedures, products manufactured by it will need repair or replacement or may be recalled. The Corporation’s standard warranties generally require it to repair or replace defective products during such warranty periods at no cost to the consumer. The Corporation records provisions based on an estimate of product warranty claims, but there is the possibility that actual claims may exceed these provisions and therefore negatively impact the Corporation’s results of operations of financial condition. Although the Corporation has not to this date made any major product recall, it could in the future be required to make major product recalls or could be held liable in the event that some of its products do not meet safety standards or statutory requirements on product safety. In addition, the risks associated with product recalls may be aggravated if production volumes increase significantly, supplied goods do not meet the Corporation’s standards, the Corporation fails to perform its risk analysis systematically or product-related decisions are not fully documented. The repair and replacement costs that the Corporation could incur in connection with a recall could have a material adverse effect on its business, results of operations or financial condition. Product recalls could also harm the Corporation’s reputation and cause it to lose customers, particularly if recalls cause consumers to question the safety or reliability of its products, which could have a material adverse effect on its business, results of operations or financial condition.

 

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In addition, purchase agreements with the Corporation’s customers may from time to time contain, in addition to the Corporation’s limited warranty, undertakings related to certain specific levels of performance and availability for the vehicles sold thereunder. Failure by the Corporation to provide the required levels of performance and availability, even if such failure is the result of factors outside of the Corporation’s control, could result in the Corporation being liable under such contractual arrangements or allow customers to terminate their arrangements with the Corporation.

  

The Corporation is subject to information technology and cybersecurity risks to operational systems, security systems, infrastructure, integrated software in its vehicles and solutions and customer data processed by it, third-party vendors or suppliers, and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent the Corporation from effectively operating its business, harm its reputation or materially adversely affect its business, results of operations or financial condition.

  

The Corporation is at risk for interruptions, outages and breaches of: (i) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by it or its third-party vendors or suppliers; (ii) facility security systems, owned by it or its third-party vendors or suppliers; (iii) transmission control modules or other in-product technology, owned by it or its third-party vendors or suppliers; (iv) the integrated software in the Corporation’s vehicles; or (v) customer or driver data that the Corporation processes or the Corporation’s third-party vendors or suppliers process on its behalf. Such cyber incidents could materially disrupt operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers, drivers or others; jeopardize the security of the Corporation’s facilities; or affect the performance of transmission control modules or other in-product technology and the integrated software in the Corporation’s vehicles. A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. The techniques used by cyber attackers change frequently and may be difficult to detect for long periods of time.

  

Although the Corporation maintains information technology measures designed to protect it against intellectual property theft, data breaches and other cyber incidents, such measures will require updates and improvements, and there is no guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents. Any implementation, maintenance, segregation and improvement of the Corporation’s systems may require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving, expanding and updating current systems, including the disruption of the Corporation’s data management, procurement, production execution, finance, supply chain and sales and service processes. These risks may affect the Corporation’s ability to manage its data and inventory, procure parts or supplies or produce, sell, deliver and service its vehicles, adequately protect its intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. The Corporation cannot be sure that these systems upon which it relies, including those of its third-party vendors or suppliers, will be effectively implemented, maintained or expanded as planned. If the Corporation does not successfully implement, maintain or expand these systems as planned, its operations may be disrupted, the Corporation’s ability to accurately and timely report its financial results could be impaired, and deficiencies may arise in the Corporation’s internal control over financial reporting, which may impact the Corporation’s ability to certify its financial results. Moreover, the Corporation’s proprietary information or intellectual property could be compromised or misappropriated, and its reputation may be adversely affected. If these systems do not operate as expected, the Corporation may be required to expend significant resources to make corrections or find alternative sources for performing these functions.

 

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A significant cyber incident could impact the Corporation’s manufacturing capacity or production capability, harm its reputation, cause the Corporation to breach its contractual arrangements with other parties or subject the Corporation to regulatory actions or litigation, any of which could materially affect its business, prospects, results of operations or financial condition. In addition, the Corporation’s insurance coverage for cyberattacks may not be sufficient to cover all the losses it may experience as a result of a cyber incident.

  

The Corporation also collects, uses, discloses, stores, transmits and otherwise processes customer, driver and employee and others’ data as part of its business and operations, which may include personal data or confidential or proprietary information. The Corporation also works with partners and third-party service providers or vendors that may in the course of their business relationship with the Corporation collect, store and process such data on the Corporation’s behalf and in connection with the Corporation’s products and services. There can be no assurance that any security measures that the Corporation or its third-party service providers, vendors, or suppliers have implemented will be effective against current or future security threats. While the Corporation has developed systems and processes designed to protect the availability, integrity, confidentiality and security of the Corporation’s, the Corporation’s customers’, drivers’, employees’ and others’ data, such security measures or those of its third-party service providers, vendors or suppliers could fail and result in unauthorized access to or disclosure, acquisition, encryption, modification, misuse, loss, destruction or other compromise of such data. If a compromise of such data were to occur, the Corporation may become liable under its contracts with other parties and under applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such an incident. Laws in all 50 states of the United States and Canada require the Corporation to provide notice to individuals, customers, regulators, credit reporting agencies and others when certain sensitive information has been compromised as a result of a security breach or where a security breach creates a real risk of significant harm to an individual. Such laws are inconsistent and compliance in the event of a widespread data breach could be costly. Depending on the facts and circumstances of such an incident, these damages, penalties, fines and costs could be significant. Any such event could harm the Corporation’s reputation and result in litigation against it, or otherwise materially adversely affect its business, prospects, results of operations or financial condition.

  

Any unauthorized control or manipulation of the information technology systems in the Corporation’s vehicles could result in loss of confidence in the Corporation and its vehicles and harm its reputation, which could materially adversely affect its business, results of operations or financial condition.

  

The Corporation’s vehicles contain complex information technology systems and built-in data connectivity to accept and install periodic remote updates to improve or update functionality. The Corporation has designed, implemented and tested security measures intended to prevent unauthorized access to its information technology networks and its vehicles and related systems. However, hackers may attempt to gain unauthorized access to modify, alter and use such networks, vehicles and systems to gain control of or to change the Corporation’s solutions’ functionality, user interface and performance characteristics, or to gain access to data stored in or generated by the vehicles. Future vulnerabilities could be identified and the Corporation’s efforts to remediate such vulnerabilities may not be successful. Any unauthorized access to or control of the Corporation’s vehicles, or any loss of customer data, could result in legal claims or proceedings and remediation of such problems could result in significant, unplanned capital expenditures. In addition, regardless of their veracity, reports of unauthorized access to its technology systems or data, as well as other factors that may result in the perception that the Corporation’s vehicles, technology systems or data are capable of being “hacked,” could materially negatively affect the Corporation’s brand and harm the Corporation’s business, prospects, results of operations or financial condition.

  

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The Corporation’s vehicles, as well as the maintenance and repair services it offers to its customers, rely on software and hardware that is highly technical, and if these systems contain errors, bugs or vulnerabilities, or if the Corporation is unsuccessful in addressing or mitigating technical limitations in its systems, the Corporation’s business, results of operations or financial condition could be materially adversely affected.

  

The Corporation’s vehicles rely on software and hardware, including software and hardware developed or maintained by third parties, that is highly technical and complex and will require modification and updates over the life of the vehicle. In addition, the performance of the software solutions included in the Corporation’s vehicles depends on the ability of such software and hardware to store, retrieve, process and manage immense amounts of data. The Corporation’s software and hardware may contain errors, bugs or vulnerabilities, and its systems are subject to certain technical limitations that may compromise the Corporation’s ability to meet its objectives. Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Errors, bugs, vulnerabilities, design defects or technical limitations may be found within the Corporation’s software and hardware. Although the Corporation attempts to remedy any issues it observes in its vehicles and software as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of the Corporation’s customers. Additionally, if the Corporation is able to deploy updates to the software addressing any issues, but such updates cannot or are not installed by its customers, such customers’ software will be subject to these vulnerabilities until they install such updates. If the Corporation is unable to prevent or effectively remedy errors, bugs, vulnerabilities or defects in its software and hardware, the Corporation may suffer damage to its reputation, loss of customers, loss of revenue or liability for damages, any of which could materially adversely affect the Corporation’s business, results of operations or financial condition.

 

Interruption or failure of the Corporation’s information technology and communications systems could impact the Corporation’s ability to effectively provide the Corporation’s services.

  

The availability and effectiveness of the Corporation’s goods and services depend on the continued operation of information technology and communications systems. The Corporation’s systems will be vulnerable to damage or interruption from, among others, physical theft, fire, terrorist attacks, natural disasters, power loss, war, telecommunications failures, viruses, denial or degradation of service attacks, ransomware, social engineering schemes, insider theft or misuse or other attempts to harm the Corporation’s systems. The Corporation utilizes reputable third-party service providers or vendors for the Corporation’s data, and these providers could also be vulnerable to harms similar to those that could damage the Corporation systems, including sabotage and intentional acts of vandalism causing potential disruptions. Some of the Corporation’s systems may not be redundant, and the Corporation’s disaster recovery planning cannot account for all eventualities. Any problems with the Corporation’s third-party cloud hosting providers could result in lengthy interruptions in the Corporation’s business. In addition, the Corporation’s products utilize technical and complex technology which may contain errors or vulnerabilities that could result in interruptions in the Corporation’s business or the failure of the Corporation’s systems.

 

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The Corporation is subject to evolving laws, regulations, standards and contractual obligations related to data privacy and security, and the Corporation’s actual or perceived failure to comply with such obligations could harm its reputation, subject it to significant fines and liability or adversely affect its business.

  

Collection, use, disclosure, storage, transmission or other processing of the Corporation’s customers’, employees’ and others’ information in conducting the Corporation’s business may subject it to various legislative and regulatory burdens related to data privacy and security that could require notification of data breaches, restrict or impose burdensome conditions on the Corporation’s use of such information and hinder the Corporation’s ability to acquire new customers or market to existing customers. The regulatory framework for data privacy and security is rapidly evolving, and the Corporation may not be able to monitor and react to all developments in a timely manner. For example, California requires connected devices to maintain minimum information security requirements. As legislation continues to develop, the Corporation will likely be required to expend significant additional resources to continue to modify or enhance the Corporation’s protective measures and internal processes to comply with such legislation. In addition, non-compliance with these laws or a significant breach of the Corporation’s third-party service providers’ or vendors’ or the Corporation’s own network security and systems could have serious negative consequences for its business and future prospects, including possible fines, penalties and damages, reduced customer demand for its vehicles and harm to its reputation and brand. Customers may also object to the Corporation’s or its third party service providers’ or vendors’ collection or processing of certain information, including personal data, which could materially adversely affect the Corporation’s business, results of operations or financial condition.

  

The performance characteristics of the Corporation’s vehicles, including battery life and range, may vary or decline over time, including due to factors outside of the Corporation’s control. Any such variation or decline may negatively influence potential or existing customers’ decisions whether to purchase the Corporation’s vehicles or affect the Corporation’s reputation, or could materially adversely affect its business, results of operations or financial condition.

  

The performance characteristics of the Corporation’s vehicles, including battery life and range, may vary or decline over time, including due to factors outside of the Corporation’s control. Factors such as driver behavior, usage, speed, terrain, time and stress patterns may also impact the battery’s ability to hold a charge, which would decrease the Corporation’s vehicles’ range before needing to recharge. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions. In addition, the Corporation cannot guarantee that battery life and range deterioration will not be greater than what is currently anticipated. Any deterioration above the expected level could affect the Corporation’s reputation or could materially adversely affect its business, results of operations or financial condition.

  

The Corporation relies on unpatented proprietary know-how, trade secrets and contractual restrictions, and not patents, to protect its intellectual and other proprietary rights. Failure to adequately protect, enforce or otherwise manage the Corporation’s intellectual and other proprietary rights may undermine its competitive position and could materially adversely affect its business, prospects, results of operations or financial condition.

 

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Protection of proprietary technology, processes, methods and other intellectual property related to the Corporation is critical to its business. The Corporation relies on unpatented proprietary know-how, trade secrets, trademarks, copyrights and contractual restrictions to protect its intellectual property and other proprietary rights and the Corporation does not hold any patents related to its business. As a matter of course, the Corporation employs numerous measures to protect its intellectual property and other confidential information, including technical data. For instance, the Corporation has implemented procedures designed to make the proprietary technology incorporated in its vehicle systems very difficult to access and/or retrieve and imposes consequences for users that seek to obtain unauthorized access to such technology. In addition, the Corporation enters into confidentiality agreements with suppliers, vendors, service providers, customers and other third parties with whom it may share information about its business and operations, and the Corporation also requires all of its employees, consultants and other persons who work for it to enter into confidentiality and assignment of intellectual property agreements. However, failure to adequately protect the Corporation’s intellectual property rights could result in the Corporation’s competitors offering similar products, potentially resulting in the loss of some of the Corporation’s competitive advantage and a decrease in revenue which would adversely affect the Corporation’s business, prospects, financial condition and operating results.

  

As well, there can be no assurance that competitors and other third parties will not independently develop the know-how and trade secrets related to the Corporation’s proprietary technology, in which case the Corporation would not be able to prevent such third parties from using such know-how and trade secrets, or develop better products or manufacturing methods or processes than it.

  

Further, the Corporation may not be able to deter current and former employees, consultants, suppliers and customers as well as other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use the Corporation’s information and proprietary technology without authorization or otherwise infringe on the Corporation’s intellectual property and other proprietary rights. The Corporation may in the future need to rely on litigation to enforce its intellectual property rights and contractual rights, and, if not successful, may not be able to protect the value of its intellectual property. Any litigation could be protracted and costly and have a material adverse effect on the Corporation’s business, prospects, results of operations or financial condition regardless of the outcome. As well, in some cases the costs associated with such litigation could make enforcement impracticable. Further, intellectual property and contract laws vary throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States and Canada. Policing the unauthorized use of the Corporation’s intellectual property in foreign jurisdictions may be difficult. Therefore, the Corporation’s intellectual property rights may not be as strong or as easily enforced outside of the United States and Canada. Failure to adequately enforce the Corporation’s intellectual property rights could result in its competitors offering similar products, potentially resulting in the loss of some of the Corporation’s competitive advantage and a decrease in its revenue, which would adversely affect its business, prospects, financial condition and operating results.

  

The Corporation has a long sales, production, and technology development cycle for new public transit customers, which may create fluctuations in whether and when revenue is recognized, and may have an adverse effect on the Corporation’s business.

 

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The vast majority of the Corporation’s current and historical sales are to transit agencies that do not procure transit buses every year. The complexity, expense and nature of government procurement processes result in a lengthy customer acquisition and sales process. It can take the Corporation years to attract, obtain an award of contract from, contract with, and recognize revenue from the sale of a vehicle to a new customer, if the Corporation is successful at all. Before awarding an order for transit buses, transit agencies generally conduct a comprehensive and competitive proposal process based on a variety of criteria, including technical requirements, reliability, reputation and price. Even if the Corporation is awarded an order, the actual realization and timing of revenue is subject to various contingencies, many of which are beyond the Corporation’s control, including the customer’s interpretation of technical or performance requirements for acceptance, timing and conditions of customer acceptance, and the customer’s reduction, modification or termination of an order. A customer is not obligated to purchase the transit buses and may cancel or modify an award prior to entering into a contract or purchase order with the Corporation. The Corporation may experience customer cancellations or modifications of awards. Prior to entering into a contract or purchase order with the Corporation, a customer can cancel or modify an award for a variety of reasons, including as a result of improvements in the Corporation’s technology or the technology of the Corporation’s competitors between the dates of award and signed contract, or as the result of a successful bid protest.

  

The Corporation’s sales and production cycle for a transit customer can be a long and time-consuming process. The initial sales process from first engagement to award typically ranges from 6 to 18 months. The award of a proposal is typically followed by a pre-production process where the design and specifications of the customized buses are mutually agreed and the Corporation negotiates a final contract and purchase order with the customer. Procurement of parts and production typically follow this final agreement between the Corporation and the customer. Once a bus is fully manufactured, the customer performs a final inspection and determines whether to accept delivery of the bus, at which time the Corporation recognizes revenue on the sale. The length of time between a customer award and vehicle acceptance typically varies between 9 and 24 months, depending on product availability, production capacity and the pre-delivery and post-delivery inspection process by the customer which often results in additional changes to the transit bus after manufacturing completion, re-works, further product validation and acceptance periods and additional costs to the Corporation that the Corporation may not be able to recover. Consequently, the Corporation may invest significant resources and incur substantial expenses before a customer accepts a bus order and these expenses may not be recovered at all if a customer does not accept the completed bus, the bus requires costly modifications or the Corporation extends additional warranties. For instance, the Corporation creates a bill of materials and obtains the appropriate parts for each customized bus for a customer, which can result in excessive inventory risk if a customer changes or cancels the order. In addition, the Corporation may devote significant management effort to develop potential relationships that do not result in bus orders, acceptance of the bus as delivered, and the corresponding recognition of revenue, and the diversion of that effort may prevent the Corporation from pursuing other opportunities. As a result, the Corporation’s long sales and development cycle may subject the Corporation to significant risks that could have an adverse effect on the Corporation’s business, prospects, financial condition and operating results.

  

The Corporation’s business could be adversely affected from an accident or safety incident involving the Corporation’s transit buses.

  

An accident or safety incident involving one of the Corporation’s transit buses could expose the Corporation to significant liability and a public perception that the Corporation’s transit buses and products are unsafe or unreliable. The Corporation’s agreements with customers contain broad indemnification provisions, and in the event of a major accident, the Corporation could be subject to significant personal injury and property claims that could subject the Corporation to substantial liability. While the Corporation maintains liability insurance in amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate to cover fully all claims, and the Corporation may be forced to bear substantial losses from an accident or safety incident. In addition, any accident or safety incident involving one of the Corporation’s buses, even if fully insured,

 

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could harm the Corporation’s reputation and result in a loss of future customer demand if it creates a public perception that the Corporation’s transit buses are unsafe or unreliable as compared to those offered by other transit bus manufacturers or other means of transportation. While the Corporation has not experienced significant accident or safety incidents involving its transit buses, the Corporation has experienced malfunctions, such as thermal events and a bus fire related to low voltage wiring. Also, any accident or safety incident involving the buses of the Corporation’s competitors could result in reduced customer demand if it creates a public perception that bus transit in general is unsafe or unreliable. There are also risks particular to the operation of electric transit buses, and the Corporation’s business could be adversely affected by an accident or safety incident involving the Corporation’s battery systems, electrification and charging solutions, fleet and energy management systems or electric transit buses. Such an incident could expose the Corporation to significant liability and a public perception that the Corporation’s electric transit buses are unsafe or unreliable. As a result, any accident or safety incident involving the Corporation’s buses, or the buses of the Corporation’s competitors, could materially and adversely affect the Corporation’s business, prospects, financial condition and operating results.

  

The Corporation’s work with government customers exposes it to unique risks inherent in government contracting.

 

The Corporation must comply with and is affected by laws and regulations relating to the award, administration and performance of government contracts. Government contract laws and regulations affect how the Corporation does business with its customers and impose certain risks and costs on its business. A violation of specific laws and regulations by the Corporation, its employees, or others working on its behalf could harm its reputation and result in the imposition of fines and penalties, the termination of the Corporation’s contracts, suspension or debarment from bidding on or being awarded contracts and civil or criminal investigations or proceedings.

 

The Corporation’s performance under its contracts with government entities and its compliance with the terms of those contracts and applicable laws and regulations are subject to periodic audit, review and investigation by various agencies of the government. If such an audit, review or investigation uncovers a violation of a law or regulation or improper or illegal activities relating to the Corporation’s government contracts, the Corporation may be subject to civil or criminal penalties or administrative sanctions, including the termination of contracts, forfeiture of profits, the triggering of price reduction clauses, withholding of payments, suspension of payments, fines and suspension or debarment from contracting with government agencies. There is inherent uncertainty as to the outcome of any audit, review or investigation. If the Corporation incurs a material penalty or administrative sanction or otherwise suffers harm to its reputation, its business, prospects, financial condition or operating results could be adversely affected.

  

Further, if a government regulatory authority were to initiate suspension or debarment proceedings against the Corporation as a result of a conviction or indictment for illegal activities, the Corporation may lose its ability to be awarded contracts in the future or receive renewals of existing contracts for a period of time. The Corporation could also suffer harm to its reputation if allegations of impropriety were made against the Corporation, which would impair the Corporation’s ability to win awards of contracts in the future or receive renewals of existing contracts. Inability to be awarded contracts in the future or receive renewal of existing contacts could have an adverse effect on the Corporation’s business, prospects, financial condition and operating results.

 

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If the Corporation is unable to obtain bid bonds, performance bonds or letters of credit required by public transit agencies or other customers, the Corporation’s ability to obtain future projects could be negatively affected.

  

The Corporation has in the past been, and may in the future be, required to provide bid bonds or performance bonds to secure its performance under customer contracts or, in some cases, as a prerequisite to submitting a bid on a potential project. The Corporation’s continued ability to obtain these bonds will depend primarily upon its capitalization, working capital, past performance, management expertise, reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider these factors in relation to the amount of the Corporation’s awards and their underwriting standards, which may change from time to time. Surety companies also require that the Corporation collateralize a percentage of the bond with cash or other form of credit enhancement. With a decreasing number of insurance providers in that market, it may be difficult to find sureties who will continue to provide contract-required bonding on acceptable terms and conditions, or at all. Furthermore, events that affect surety markets generally may result in bonding becoming more difficult to obtain in the future or being available only at a significantly greater cost.

 

In addition, some of the Corporation’s customers also require collateral guarantees in the form of letters of credit to secure performance or to fund possible damages in the event of default under the Corporation’s contracts with them. If the Corporation enters into agreements that require the issuance of letters of credit, the Corporation’s liquidity could be negatively impacted. The Corporation’s inability to obtain adequate bonding or letters of credit and, as a result, to bid or enter into agreements, could have an adverse effect on the Corporation’s business, prospects, financial condition and operating results.

  

The Corporation’s business relies heavily on its specialized sales personnel and technical sales support to market and sell its products, in addition to its key personnel. If the Corporation is unable to effectively hire, train, manage and retain the relevant personnel, its business may be adversely impacted.

  

The success of the Corporation’s businesses largely depends on the Corporation’s ability to hire, train and manage its sales personnel who have experience with and connections to the public and other transit agencies and commercial vehicle OEMs that are the Corporation’s current and potential customers. Because the Corporation employs a small and specialized sales force, the loss of any member of the Corporation’s sales team or technical sales support professionals could weaken its sales expertise and its customer reach, and adversely affect the Corporation’s business, and the Corporation may not be able to find adequate replacements on a timely basis, or at all. Moreover, there are no assurances that the Corporation will be able to maintain a sufficient level of sales personnel to effectively meet its needs as its business continues to grow.

  

Competition for sales personnel who are familiar with and trained to sell the Corporation’s products and services continues to be strong. The Corporation trains its sales personnel to better understand its existing and new product technologies and how they can be positioned against the Corporation’s competitors’ products. The Corporation also trains its sales personnel to be adept at working with long sales cycles characteristic of public agency customers and commercial vehicle manufacturers, as well as the special requirements attendant to each.

 

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These initiatives are intended to improve the productivity of the Corporation’s sales personnel and the Corporation’s revenue and profitability. It takes time for the sales professionals to become productive following their hiring and training and there can be no assurance that sales representatives will reach adequate levels of productivity, or that the Corporation will not experience significant levels of attrition in the future. Measures the Corporation implements to improve productivity may not be successful and may instead contribute to instability in the Corporation’s operations, departures from the Corporation’s sales and technical support organizations, or reduce the Corporation’s revenue or profitability, and harm its business.

 

Further, the Corporation is highly dependent on the services of management and skilled mechanical engineering technicians. The unexpected loss of or failure to retain one or more of the Corporation’s key employees could adversely affect the business, results of operations or financial condition. The Corporation does not currently maintain key man life insurance policies for any director, officer or employee.

 

Experienced and highly skilled employees are in high demand and competition for these employees can be intense. The Corporation’s ability to hire, attract and retain them depends on its ability to provide competitive compensation. The Corporation may not be able to attract, assimilate, develop or retain qualified personnel in the future, and the Corporation’s failure to do so could materially adversely affect its business, results of operations or financial condition. In addition, global labor shortages have exacerbated and may continue to exacerbate in the future the Corporation’s exposure to such risk.

 

Regulations related to “conflict minerals” may force the Corporation to incur additional expenses, may make the Corporation’s supply chain more complex and may result in damage to the Corporation’s reputation with customers.

 

Pursuant to the Dodd-Frank Act, the SEC has adopted requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether these products are manufactured by third parties. These requirements require companies to perform due diligence, disclose and report whether such minerals originate from the Democratic Republic of Congo and adjoining countries, or come from recycled or scrap sources. These requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of heavy-duty electric vehicles, including the Corporation’s products. While these requirements continue to be subject to administrative uncertainty, the Corporation will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in the Corporation’s products. Since the Corporation’s supply chain is complex, the Corporation may not be able to sufficiently verify the origins for these minerals and metals used in the Corporation’s products through the due diligence procedures that the Corporation implements, which may harm its reputation. In such event, the Corporation may also face difficulties in satisfying customers who require that all of the components of the Corporation’s products are certified as conflict mineral free.

  

Failure to comply with anti-corruption, anti-money laundering and sanction laws, including the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (“FCPA”) and similar laws associated with the Corporation’s activities outside of the United States, could subject the Corporation to penalties and other adverse consequences.

 

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The Corporation is subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the UK Bribery Act of 2010, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), U.S. and foreign laws relating to economic sanctions, including the laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control and may be subject to other anti-bribery, anti-money laundering and sanctions laws in countries in which the Corporation conducts activities. The Corporation faces significant risks if the Corporation fails to comply with the FCPA and other anti-corruption laws that prohibit companies and their employees and third-party intermediaries from promising, authorizing, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties and private sector recipients for the purpose of obtaining or retaining business, directing business to any person or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. The Corporation may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and the Corporation can be held liable for the corrupt or other illegal activities of these third- party intermediaries, the Corporation’s employees, representatives, contractors, partners and agents, even if the Corporation does not explicitly authorize such activities. The Corporation has implemented an anti-corruption compliance program but cannot assure you that all of its employees and agents, as well as those companies to which the Corporation outsources certain of its business operations, will not take actions in violation of the Corporation’s policies and applicable law, for which the Corporation may be ultimately held responsible.

  

Any violation of the FCPA, other applicable anti-corruption, anti-money laundering and other applicable laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges or severe criminal or civil sanctions, which could have an adverse effect on the Corporation’s business, prospects, financial condition and operating results. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees.

  

Cancellations, reductions or delays in customer orders or customer breaches of purchase agreements may adversely affect the Corporation’s results of operations.

  

The Corporation provides products to its customers for which the Corporation is customarily not paid in advance. The Corporation relies on the creditworthiness of its customers to collect on its receivables from them in a timely manner after it has billed for products previously provided. While the Corporation generally provides products pursuant to a written contract which determines the terms and conditions of payment to it by its customers, it is possible that customers may dispute an invoice and delay, contest or not pay the Corporation’s receivable. The Corporation’s failure to collect its receivables could adversely affect its cash flows and results of operations and, in certain cases, could cause the Corporation to fail to comply with the financial covenants under its outstanding debt.

  

Fuel shortages, or high prices for fuel, could have a negative effect on sales of the Corporation’s products.

  

Gasoline or diesel fuel is required for the operation of most of the Corporation’s vehicles and there is no assurance that the supply of these petroleum products will continue uninterrupted or that the price of or tax on these petroleum products will not significantly increase. High fuel costs generally drive greater demand for better fuel economy and substantial increases in the price of fuel have had a material adverse effect on the specialty vehicle industry as a whole in the past and could have a material adverse effect on the Corporation’s business in the future. Fluctuations in fuel prices have also historically negatively impacted consumer confidence and increased customer preferences for alternative fuel vehicles, only some of which the Corporation produces. The Russia-Ukraine conflict could increase instability in fuel prices.

 

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Unfavorable global economic conditions and world events may have a material adverse effect on the Corporation’s business, results of operations and financial condition.

 

The Corporation’s business may be affected by global economic markets and levels of consumer comfort and spend, including recessions, slow economic growth, economic and pricing instability (including the current inflationary environment), increase of interest rates and credit market volatility, all of which could impact demand in the worldwide transportation industries or otherwise have a material adverse effect on the Corporation’s business, operating results and financial condition. In addition, unforeseen events such as the global COVID-19 pandemic and geopolitical conflicts, including the current military conflict between Russia and Ukraine, have resulted and may in the future result in widespread disruptions to economic markets, manufacturing operations, supply chains, employment and consumer behavior or governmental spending (as a result of a reduction or different allocation in spending or otherwise). The impact of these and any future unforeseen events on the Corporation’s business, results of operations and financial condition is yet unknown and varied across geographic regions. The Corporation’s ability to accurately project supply and demand, infrastructure requirements and pace of delivery for the Corporation’s vehicles and allocate resources accordingly is critical. If current global market conditions continue or worsen, including further pandemic-related disruptions, geopolitical conflicts, or other unforeseen events, the Corporation’s business, results of operations and financial condition could be materially adversely affected.

 

The Corporation maintains the majority of its cash and cash equivalents in accounts with RBC, a major Canadian bank, and our deposits at these institutions, may at times, exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where the Corporation maintains itsr cash and cash equivalents, there can be no assurance that the Corporation would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

 

The Corporation may sell additional Common Shares or other securities that are convertible or exchangeable into Common Shares in subsequent offerings or may issue additional Common Shares or other securities to finance future acquisitions.

  

The Corporation cannot predict the size or nature of future sales or issuances of securities or the effect, if any, that such future sales and issuances will have on the market price of the Common Shares. Sales or issuances of substantial numbers of Common Shares or other securities that are convertible or exchangeable into Common Shares, or the perception that such sales or issuances could occur, may adversely affect prevailing market prices of the Common Shares. With any additional sale or issuance of Common Shares or other securities that are convertible or exchangeable into Common Shares, investors will suffer dilution to their voting power and economic interest in the Corporation. Furthermore, to the extent holders of the Corporation’s stock options or other convertible securities convert or exercise their securities and sell the Common Shares they receive, the trading price of the Common Shares may decrease due to the additional amount of Common Shares available in the market.

  

The market price for the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Corporation’s control.

 

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The factors which may contribute to market price fluctuations of the Common Shares include the following:

  

  ● actual or anticipated fluctuations in the Corporation’s quarterly results of operations;
     
  ● recommendations by securities research analysts;
     
  ● changes in the economic performance or market valuations of companies in the industry in which the Corporation operates;
     
  ● addition to or departure of the Corporation’s executive officers, directors and other key personnel;
     
  ● release or expiration of transfer restrictions on outstanding Common Shares (including Common Shares subject to lock-up restrictions);
     
  ● sales or perceived sales of additional Common Shares;
     
  ● operating and financial performance that vary from the expectations of management, securities analysts and investors;
     
  ● regulatory changes affecting the Corporation’s industry generally and its business and operations;
  ● announcements of developments and other material events by the Corporation or its competitors;
     
  ● fluctuations to the costs of vital production materials and services;
     
  ● changes in global financial markets and global economies and general market conditions, such as interest rates;
     
  ● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Corporation or its competitors;
     
  ● litigation or regulatory action against us;
     
  ● operating and share price performance of other companies that investors deem comparable to the Corporation or from a lack of arket comparable companies;
     
  ● news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in the Corporation’s industry or target markets; and
     
  ● current and future global economic, political and social conditions.

  

The Corporation has not declared and paid dividends in the past and may not declare and pay dividends in the future.

 

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Any decision to declare and pay dividends in the future will be made at the discretion of the Board of Directors and will depend on, among other things, financial results, cash requirements, contractual restrictions and other factors that the Board of Directors may deem relevant. As a result, investors may not receive any return on an investment in the Common Shares unless they sell their Common Shares for a price greater than that which such investors paid for them.

  

Future sales, or the perception of future sales, of Common Shares by existing shareholders or by us, or future dilutive issuances of Common Shares by us, could adversely affect prevailing market prices for the Common Shares.

  

Subject to compliance with applicable securities laws, sales of a substantial number of Common Shares in the public market could occur at any time. These sales, or the market perception that the holders of a large number of Common Shares or securities convertible into Common Shares intend to sell Common Shares, could reduce the prevailing market price of our Common Shares. We cannot predict the effect, if any, that future public sales of these securities or the availability of these securities for sale will have on the market price of our Common Shares. If the market price of our Common Shares were to drop as a result, this might impede our ability to raise additional capital and might cause remaining shareholders to lose all or part of their investment.

  

In addition, certain holders of options and other share-based awards will have an immediate income inclusion for tax purposes when they exercise their options or when their other awards are share-settled (that is, tax is not deferred until they sell the underlying Common Shares). As a result, these holders may need to sell Common Shares purchased on the exercise of options or issued upon share settlement of share-based awards in the same year that they exercise their options or in which their share-based awards are share-settled. This might result in a greater number of Common Shares being sold in the public market, and reduced long-term holdings of Common Shares by our management and employees.

  

If securities or industry analysts do not publish research or reports about the Corporation’s business, or if they downgrade the Common Shares, the price of the Common Shares could decline.

  

The trading market for our Common Shares depends, in part, on the research and reports that securities or industry analysts publish about the Corporation or its business. The Corporation does not have any control over these analysts. If one or more of the analysts who cover the Corporation downgrade the Corporation’s stock or publish inaccurate or unfavorable research about the Corporation’s business, the price of the Common Shares would likely decline. In addition, if the Corporation’s results of operations fail to meet the forecast of analysts, the price of the Common Shares would likely decline. If one or more of these analysts cease coverage of the Corporation or fail to publish reports on the Corporation regularly, demand for the Common Shares could decrease, which might cause the price and trading volume of the Common Shares to decline.

 

The Corporation incurs increased costs as a result of being a public company in the United States and Canada, and management is required to devote substantial time to public company compliance efforts.

 

As a public company in the United States and Canada, the Corporation incurs additional legal, accounting, reporting and other expenses that the Corporation would not incur if it was private, and incurs increased expenses from being a public company in both jurisdictions. The additional demands associated with being a U.S. public company may disrupt regular operations of our business by diverting the attention of some of the Corporation’s senior management team away from revenue-producing activities to additional management and administrative oversight, adversely affecting the Corporation’s ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing the Corporation’s business. Any of these effects could harm the Corporation’s business, results of operations and financial condition.

 

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If the Corporation’s efforts to comply with new United States laws, regulations and standards differ from the activities intended by regulatory or governing bodies, such regulatory bodies or third parties may initiate legal proceedings against the Corporation and its business may be adversely affected. As a public company in the United States, it is more expensive for the Corporation to obtain director and officer liability insurance, and the Corporation will be required to accept reduced coverage or incur substantially higher costs to continue its coverage. These factors could also make it more difficult for the Corporation to attract and retain qualified directors.

 

The U.S. Sarbanes-Oxley Act 2002, as amended (the “U.S. Sarbanes-Oxley Act”), requires that the Corporation maintain effective disclosure controls and procedures and internal control over financial reporting. Pursuant to Section 404 of the U.S. Sarbanes-Oxley Act (“Section 404”), the Corporation is required to furnish a report by our management on its internal control over financial reporting (“ICFR”), which, if or when the Corporation is no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by its independent registered public accounting firm.

 

To achieve compliance with Section 404 within the prescribed period, the Corporation will document and evaluate its ICFR, which is both costly and challenging. In this regard, the Corporation needs to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of its ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite the Corporation’s efforts, there is a risk that neither the Corporation nor its independent registered public accounting firm will be able to conclude within the prescribed timeframe that the Corporation’s ICFR is effective as required by Section 404. This could result in a determination that there are one or more material weaknesses in the Corporation’s ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Corporation’s consolidated financial statements. In addition, in the event that the Corporation is not able to demonstrate compliance with the Sarbanes-Oxley Act, that its internal control over financial reporting is perceived as inadequate, or that it is unable to produce timely or accurate financial statements, investors may lose confidence in its operating results and the price of the Common Shares may decline. In addition, if the Corporation is unable to continue to meet these requirements, it may not be able to remain listed on Nasdaq.

  

Inability to meet NASDAQ listing standards

 

The Corporation received a letter from the Listings Qualifications Department of NASDAQ on February 28, 2023 notifying the Corporation that it was not in compliance with Listing Rule 5550 (a)(2), which requires the listed securities of the Corporation to maintain a minimum bid price of US$1 per share. The Corporation had not met the requirement for a period of 30 consecutive business days prior to receipt of the NASDAQ letter. The Corporation has a compliance period of 180 calendar days or until August 28, 2023, to regain compliance with NASDAQ’s minimum bid price requirement. If at any time during the compliance period the Corporation’s closing bid price is at least US$1 for a minimum of 10 consecutive business days, NASDAQ will provide the Corporation with a written confirmation of compliance and the matter will be closed. As of the date of this AIF, the Common Share per share closing bid price remains below US$1. In the event the Corporation does not regain compliance by August 28, 2023, the Corporation may be eligible for an additional 180 calendar day compliance period. To qualify, the Corporation would need to, among other things,

 

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meet the continued listing requirement for the market value of publicly held shares and all other initial listing standards for NASDAQ, with the exception of the minimum bid price requirement, and provide written notice to NASDAQ that it intends to cure the deficiency during the second compliance period. There is no guarantee that the Corporation will regain compliance with the minimum bid price requirement, that the Corporation will maintain compliance with other NASDAQ listing standards, or that the Corporation will be eligible for a second compliance period. If NASDAQ concludes that the Corporation will not be able to cure the deficiency during the second compliance period, or the Corporation does not make the required representations, then NASDAQ will give notice that the Common Shares are subject to delisting and the Corporation will be able to appeal that delisting before a Nasdaq hearings panel. The Corporation’s management is reviewing various options available to the Corporation in order to regain compliance and continued listing on NASDAQ. The delisting of the Corporation’s Common Shares from NASDAQ could negatively impact the Corporation because it: (i) could reduce the liquidity, and possibly the market price, of the Common Shares; (ii) could reduce the number of US investors willing to hold or acquire our Common Shares, which could negatively impact the Corporation’s ability to raise equity financing; and (iii) would limit the Corporation’s ability to use certain types of registration statements in the United States to offer and sell freely tradable securities, thereby preventing the Corporation from accessing the US public capital markets.

 

As a foreign private issuer, the Corporation is subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to its shareholders.

  

The Corporation is a “foreign private issuer” as such term is defined in Rule 405 under the U.S. Securities Act, and is permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare its disclosure documents filed under the Exchange Act in accordance with Canadian disclosure requirements. Under the Exchange Act, the Corporation is subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, the Corporation will not file the same reports that a U.S. domestic issuer would file with the SEC, although it will be required to file or furnish to the SEC the continuous disclosure documents that it is required to file in Canada under Canadian securities laws. In addition, the Corporation’s officers, directors and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, the Corporation’s shareholders may not know on as timely a basis when its officers, directors and principal shareholders purchase or sell shares, as the reporting deadlines under the corresponding Canadian insider reporting requirements are longer.

  

As a foreign private issuer, the Corporation is exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. The Corporation is also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While the Corporation expects to comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive in every case the same information at the same time as such information is provided by U.S. domestic companies.

  

46

 

 

In addition, as a foreign private issuer, the Corporation has the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that it discloses the requirements it is not following and describe the Canadian practices it follows instead. For example, the Corporation intends to utilize exemptions under Nasdaq listing standards from the requirement to have fully independent compensation and nominating and corporate governance committees, as defined under Nasdaq rules. In addition, the Corporation does not intend to follow the minimum quorum requirements for shareholder meetings as well as certain shareholder approval requirements prior to the issuance of securities under Nasdaq listing standards, as permitted for foreign private issuers. As a result, the Corporation’s shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all U.S. corporate governance requirements.

  

If the Corporation ceases to qualify as a foreign private issuer, it will be subject to the same reporting requirements and corporate governance requirements as a U.S. domestic issuer which will likely increase its costs of being a public corporation in the United States.

  

The Corporation is an emerging growth company and intends to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make the Common Shares less attractive to investors.

  

The Corporation is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. The Corporation will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which it has total annual gross revenue of US$1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of Common Shares pursuant to the Registration Statement; (iii) the date on which it has issued more than US$1.0 billion in non-convertible debt securities during the prior three-year period; or (iv) the date it qualifies as a “large accelerated filer” under the rules of the SEC, which means the market value of the Common Shares held by non-affiliates exceeds US$700 million as of the last business day of its most recently completed second fiscal quarter after it has been a reporting company in the United States for at least 12 months. For so long as the Corporation remains an emerging growth company, it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

  

The Corporation may take advantage of some, but not all, of the available exemptions available to emerging growth companies. The Corporation cannot predict whether investors will find the Common Shares less attractive if it relies on these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and the price of the Common Shares may be more volatile.

  

The Corporation is governed by the corporate and securities laws of Canada which in some cases have a different effect on shareholders than the corporate laws of Delaware, U.S. and U.S. securities laws.

  

The Corporation is governed by the BCBCA and other relevant laws, which may affect the rights of shareholders differently than those of a Corporation governed by the laws of a U.S. jurisdiction, and may, together with the Corporation’s constating documents, have the effect of delaying, deferring or discouraging another party from acquiring control of the Corporation 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 BCBCA and Delaware General Corporation Law (“DGCL”) that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to the Corporation’s articles) the BCBCA generally requires a two-thirds majority vote by shareholders, whereas DGCL generally requires only a majority vote; and (ii) under the BCBCA, holders of 5% or more of the Corporation’s shares that carry the right to vote at a meeting of shareholders can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL.

 

47

 

 

As the Corporation is a Canadian corporation and most of its directors and officers reside or are organized in Canada, it may be difficult for United States shareholders to effect service on the Corporation, and it may be difficult for Canadian investors to enforce civil liabilities against our directors and officers residing outside of Canada.

  

The Corporation is governed by the BCBCA with its principal place of business in Canada, most of its directors and officers reside or are organized in Canada or the provinces thereof and the majority of the Corporation’s assets and all or a substantial portion of the assets of these persons may be located outside the United States. Consequently, it may be difficult for investors who reside in the United States to effect service of process in the United States upon the Corporation or upon such persons who are not residents of the United States, or to realize upon judgments of courts of the United States predicated upon the civil liability provisions of the U.S. federal securities laws. A judgment of a U.S. court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. Investors should not assume that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against the Corporation 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 the Corporation or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws. Similarly, some of the Corporation’s 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 persons. In addition, it may not be possible for Canadian investors to collect from these persons 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 Canadian securities laws.

  

If a United States person is treated as owning at least 10% of the Common Shares, such holder may be subject to adverse U.S. federal income tax consequences.

  

If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of the Common Shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group. Because the Corporation’s group includes one or more non-U.S. subsidiaries, the Corporations expects that certain of its non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether or not it is treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether it makes any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. The Corporation cannot provide any assurances that it will assist investors in determining whether any of its non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its advisors regarding the potential application of these rules to an investment in the Common Shares.

 

48

 

 

DIVIDENDS AND DISTRIBUTIONS

 

The Corporation has not declared or paid dividends since incorporation and has no present intention to declare or pay any dividends in the foreseeable future. Dividends paid by the Corporation would be subject to tax and, potentially, withholdings. Any decision to declare or pay dividends will be made by the Corporation’s Board of Directors based upon the Corporation’s earnings, financial requirements and other conditions existing at such future time.

 

DESCRIPTION OF CAPITAL STRUCTURE

 

Common Shares

 

As at the date hereof, the Corporation’s authorized capital consists of an unlimited number of Common Shares of which 45,667,706 Common Shares are issued and outstanding.

 

The holders of common shares of the Corporation are entitled to dividends, if, as and when declared by the Board of Directors of each respective Corporation, to receive notice of and attend all meetings of shareholders of each respective Corporation, to one vote per common share at such meetings and, upon liquidation, to ratably receive such assets of each respective Corporation as are distributable to the holders of the common shares. There are no conversion or exchange rights attaching to the Common Shares, nor are there any sinking or purchase fund provisions, provisions permitting or restricting the issuance of additional securities or any other material restrictions, nor are there any provisions requiring a shareholder to contribute additional capital. All issued and outstanding common shares of the Corporation are fully paid and non-assessable.

 

Omnibus Equity Incentive Plan

 

On November 7, 2022, upon a recommendation of the Compensation Committee, the Board passed a resolution to adopt the Omnibus Equity Incentive Plan (the “Omnibus Plan”), subject to, and effective upon, receiving shareholder approval which was obtained on December 22, 2022. The Omnibus Plan provides flexibility to the Corporation to grant equity-based incentive awards in the form of options (“Options”), restricted share units (“RSUs”), preferred shared units (“PSUs”) and deferred share units (“DSUs”), as described in further detail below.

 

The objectives of the Omnibus Plan are to, among other things, to promote a significant alignment between Directors, officers, employees and consultants of the Corporation (collectively “Participants”) and the long term growth objectives of the Corporation; to associate a portion of participants’ compensation with the performance of the Corporation over the long term; and to attract, motivate and retain the key participants to drive the business success of the Corporation and its subsidiaries.

 

49

 

 

The maximum number of common shares available for issuance pursuant to the Omnibus Plan and any other security-based compensation arrangement of the Corporation shall not exceed 10% of the issued and outstanding common shares from time to time. A copy of the Omnibus Plan is included as a schedule to the Information Circular filed on SEDAR at www.sedar.com on November 16, 2022.

 

As at the date of this Annual Information Form, the Corporation has 1,580,826 Options outstanding and 623,802 DSUs outstanding.

 

Warrants

 

The Corporation may issue Warrants from time to time entitling the holder thereof to purchase Warrant Shares. As at the date of this Annual Information Form, the Corporation has 7,573,083 Warrants outstanding.

 

MARKET FOR SECURITIES

 

Trading Price and Volume

 

The Common Shares are listed on the TSXV under the symbol “VMC”, on the NASDAQ under the symbol “VEV” and on the FSE under the symbol “6LGA”. On March 29, 2023, the last trading day before the date of this AIF, the closing price of the Common Shares on the TSX-V was C$1.13. The following tables sets forth the high and low market prices and volume of the Common Shares traded on the TSXV and NASDAQ for the fiscal year ended December 31, 2022 and as of the date of this AIF:

  

TSXV Price Range (in C$)
Month  High  Low  Total Volume
March 1 to 29, 2023   1.35    1.05    2,458,080 
February 2023   1.35    1.12    777,263 
January 2023   1.42    1.17    865,702 
December 2022   1.38    1.07    1,367,267 
November 2022   1.83    1.21    2,161,653 
October 2022   2.01    1.07    3,247,314 
September 2022   1.67    1.34    653,044 
August 2022   1.62    1.54    540,461 
July 2022   1.80    1.54    538,738 
June 2022   2.06    1.70    707,263 
May 2022   2.37    1.92    969,291 
April 2022   3.03    2.33    1,439,984 
March 2022   4.60    2.75    2,627,138 
February 2022   5.45    3.95    1,336,974 
January 2022   4.97    3.59    1,467,958 

  

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The following table sets forth information relating to the trading of the Common Shares on NASDAQ for the fiscal year ended December 31, 2022 and as of the date of this AIF:

 

   Nasdaq Price Range (in US$)   
Month  High  Low  Total Volume
 March 1 to March 29, 2023    0.94    0.76    788,204 
 February 2023    0.98    0.84    2,039,994 
 January, 2023    1.04    0.87    1,663,511 
 December 2022    1.01    0.75    2,440,310 
 November, 2022    1.35    0.88    3,096,885 
 October 2022    1.49    0.75    53,589,445 
 September 2022    1.38    0.99    1,028,002 
 August 2022    1.67    1.07    819,373 
 July 2022    1.39    1.18    500,462 
 June 2022    1.65    1.30    403,876 
 May 2022    1.88    1.50    789,739 
 April 2022    2.45    1.81    1,984,954 
 March 2022    3.78    2.14    7,192,448 
 February 2022    4.29    3.12    1,634,319 
 January 2022    3.92    2.84    1,301,466 

 

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Prior Sales

 

The following table summarizes details of the Common Shares and securities that are convertible or exchangeable into Common Shares issued by the Corporation during the financial year ended December 31, 2022, and to the date of this AIF.

 

Issue Date  Number of Securities  Type of
Security		  Issue Price
per Security		  Aggregate
Issue Price		  Nature of consideration
March 27, 2023 

4,000

  Convertible Debentures  C$  1,000 

4,000,000

  Private Placement
February 9, 2023   86,924   Common Shares   US$    0.8869    77,093   ATM Offering
February 8, 2023   34,301   Common Shares   US$    0.8814    30,233   ATM Offering
February 7, 2023   8,738   Common Shares   US$    0.8748    7,644   ATM Offering
February 6, 2023   52,549   Common Shares   US$    0.8756    46,012   ATM Offering
February 3, 2023   16,910   Common Shares   US$    0.9168    15,503   ATM Offering
February 2, 2023   115,208   Common Shares   US$    0.9260    106,683   ATM Offering
February 1, 2023   53,893   Common Shares   US$    0.8926    48,105   ATM Offering
January 31, 2023   25,404   Common Shares   US$    0.8891    22,587   ATM Offering
January 30, 2023   24,153   Common Shares   US$    0.8904    21,506   ATM Offering
January 27, 2023   34,243   Common Shares   US$    0.9025    30,904   ATM Offering
January 26, 2023   17,006   Common Shares   US$    0.9101    15,477   ATM Offering
January 25, 2023   24,700   Common Shares   US$    0.9062    22,383   ATM Offering
January 24, 2023   16,982   Common Shares   US$    0.9179    15,588   ATM Offering
January 23, 2023   50,601   Common Shares   US$    0.9176    46,431   ATM Offering
January 20, 2023   31,109   Common Shares   US$    0.9361    29,121   ATM Offering
January 19, 2023   4,494   Common Shares   US$    0.9389    4,219   ATM Offering
January 18, 2023   26,314   Common Shares   US$    0.9688    25,493   ATM Offering
January 17, 2023   9,150   Common Shares   US$    0.9526    8,716   ATM Offering
January 13, 2023   14,959   Common Shares   US$    0.9903    14,814   ATM Offering
January 12, 2023   28,598   Common Shares   US$    0.9984    28,552   ATM Offering
January 11, 2023   16,822   Common Shares   US$    1.0017    16,851   ATM Offering
January 10, 2023   11,599   Common Shares   US$    1.0005    11,539   ATM Offering
January 9, 2023   19,642   Common Shares   US$    1.00    19,642   ATM Offering
January 6, 2023   28,334   Common Shares   US$    0.9967    28,240   ATM Offering
January 5, 2023   51,767   Common Shares   US$    0.9952    51,519   ATM Offering
January 4, 2023   121,267   Common Shares   US$    1.0059    121,982   ATM Offering
December 31, 2022   148,437   DSUs(1)        n/a     n/a   DSU Award
December 22, 2022   36,885   Common Shares   US$    0.8610    31,758   ATM Offering
December 21, 2022   130,349   Common Shares   US$    0.8236    107,355   ATM Offering
December 20, 2022   20,317   Common Shares   US$    0.8182    16,623   ATM Offering
December 19, 2022   8,487   Common Shares   US$    0.7863    6,673   ATM Offering
December 16, 2022   13,730   Common Shares   US$    0.8060    11,066   ATM Offering
December 15,2022   41,750   Common Shares   US$    0.8040    33,567   ATM Offering
December 14, 2022   8,965   Common Shares   US$    0.8225    7,374   ATM Offering
December 13, 2022   38,753   Common Shares   US$    0.8121    31,471   ATM Offering
December 12, 2022   12,300   Common Shares   US$    0.8253    10,151   ATM Offering
December 9, 2022   8,040   Common Shares   US$    0.8463    6,804   ATM Offering
December 8, 2022   9,067   Common Shares   US$    0.8348    7,569   ATM Offering
December 7, 2022   17,772   Common Shares   US$    0.8549    15,139   ATM Offering
December 6, 2022   54,674   Common Shares   US$    0.8571    46,861   ATM Offering
December 5, 2022   8,200   Common Shares   US$    0.8311    6,815   ATM Offering
December 2, 2022   31,827   Common Shares   US$    0.8572    27,282   ATM Offering
December 1, 2022   23,006   Common Shares   US$    0.8914    20,508   ATM Offering
November 30, 2022   18,200   Common Shares   US$    0.9045    16,462   ATM Offering
November 29, 2022   12,046   Common Shares   US$    0.9200    11,082   ATM Offering
November 28, 2022   9,500   Common Shares   US$    0.9521    9,045   ATM Offering
November 25, 2022   12,784   Common Shares   US$    0.9537    12,192   ATM Offering
November 25, 2022   97,500   Options(2)        n/a     n/a   Option Award
November 23, 2022   17,137   Common Shares   US$    0.9593    16,440   ATM Offering
November 22, 2022   8,829   Common Shares   US$    0.9680    8,546   ATM Offering
November 17, 2022   166,000   Common Shares   C$    1.31    217,460   Exercise of RSUs
October 17, 2022   1,926,776   Common Shares   US$    1.1481    2,212,132   ATM Offering
October 6, 2022   1,700   Common Shares   US$    1.1050    1,879   ATM Offering
October 5, 2022   2,344,905   Common Shares   US$    1.1880    2,785,747   ATM Offering
September 30, 2022   141,086   DSUs(1)        n/a     n/a   DSU Award
September 22, 2022   250,000   Options(3)        n/a     n/a   Option Award
June 30, 2022   104,012   DSUs(1)        n/a     n/a   DSU Award
                           
March 31, 2022   59,375   DSUs(1)        n/a     n/a   DSU Award
March 31, 2022   40,000   Option(4)        n/a     n/a   Option Award
March 29, 2022   27,775   Common Shares   C$    1.68   C$46,662   Option Exercise
March 29, 2022   38,886   Common Shares   C$    1.20   C$46,663   Option Exercise
March 28, 2022   4,444,445   Common Shares   US$    2.70    12,000,001   Prospectus Offering
March 28, 2022   4,444,445   Warrants        n/a     n/a   Prospectus Offering
March 28, 2022   133,333   Agent Warrants        n/a     n/a   Agent Compensation
January 21, 2022   34,721   Common Shares   US$    3.0668    106,482   ATM Offering
January 20, 2022   12,050   Common Shares   US$    3.1676    36,170   ATM Offering
January 19, 2022   29,020   Common Shares   US$    3.2252    93,595   ATM Offering
January 18, 2022   38,001   Common Shares   US$    3.1967    121,478   ATM Offering
January 14, 2022   29,694   Common Shares   US$    3.3208    98,608   ATM Offering
January 13, 2022   46,323   Common Shares   US$    3.4023    157,605   ATM Offering
January 12, 2022   10,000   Common Shares   US$    3.4767    34,767   ATM Offering
January 11, 2022   12,467   Common Shares   US$    3.5003    43,638   ATM Offering
January 10, 2022   3,106   Common Shares   US$    3.5477    11,019   ATM Offering
January 7, 2022   10,316   Common Shares   US$    3.6586    37,742   ATM Offering
January 6, 2022   6,632   Common Shares   US$    3.7502    24,871   ATM Offering
January 5, 2022   43,721   Common Shares   US$    3.7864    165,545   ATM Offering
January 4, 2022   20,057   Common Shares   US$    3.4097    68,388   ATM Offering
January 3, 2022   6,447   Common Shares   US$    3.4820    22,448   ATM Offering

 

(1) Each DSU will convert into Common Shares upon the separation with the Corporation.
(2) Each five year option is exercisable at a price of C$1.30 per Common Share. 1/4 of these options will vest every six months over two years.
(3) Each three year option is exercisable at a price of C$1.50 per Common Share. These options vest on September 21, 2023 providing certain individual performance milestones have been met.
(4) Each five year option is exercisable at a price of C$2.98 per Common Share. 1/6 of these options will vest every six months over three years.

 

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ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER

 

As at the date hereof, none of the Corporation’s securities are subject to escrow or subject to contractual restrictions on transfer.

 

DIRECTORS AND OFFICERS

 

Name, Occupation and Security Holding

 

The following table sets out, as at the date hereof, for each of the directors and executive officers of the Corporation, the person’s name, province and country of residence, their respective positions and offices held, the date on which the person became a director, his or her principal occupation and previously held positions for the last five years, and the number and percentage of Common Shares beneficially owned, controlled or directed, directly or indirectly. Our directors are expected to hold office until our next annual meeting of shareholders. Our directors are elected annually and, unless re-elected, retire from office at the end of the next annual general meeting of shareholders.

 

Name and
Municipality of
Residence		 Principal Occupations for
the Last Five Years		 Period(s) during which each director has served as a director of the Corporation Number and
Percent of Voting Securities(3)

William Trainer
Langley, BC, Canada

 

Chief Executive Officer, President and Director

 Chief Executive Officer of the Corporation December 4, 2012 to present 1,597,541(4) 3.49%

Joseph Miller(1)(2)
Surrey, BC, Canada

 

Chairman and Director

 Commercial Real Estate Developer December 4, 2012 to present 1,908,819(5) 4.18%

John LaGourgue
Surrey, BC, Canada

 

VP Corporate Development and Director

 VP Corporate Development and Director of the Corporation June 21, 2016 to present 257,374(6) 0.56%

Andrew Imanse
Orange County, CA, USA

 

Director

 Independent Corporate Advisor October 13, 2015 to present 91,133(7) 0.20%

Christopher Strong (1)(2)
Fort Worth, TX, USA

 

Director

 Independent Corporate Advisor May 29, 2018 to present Nil(8) N/A

James White(1)
Toronto, ON, Canada

 

Director

 Managing Partner, Baynes & White, Toronto, ON September 23, 2019 to present 620,271(9) 1.36%

Danial Buckle
Vancouver, BC, Canada

 

Chief Financial Officer

Chief Financial Officer of the Corporation (2018- 2021)

 

Finance Director and Corporate Secretary of Fortress Paper Ltd. (2009 – 2017)

 December 4, 2020 to present 99,300(10) 0.22%

 

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Notes:

 

(1)Denotes a member of the Audit Committee.
(2)Denotes a member of the Compensation Committee.
(3)Based on 45,667,706 Common Shares issued and outstanding as of the date of this AIF.
(4)In addition, Mr. Trainer holds 283,333 Options and 16,666 Warrants.
(5)In addition, Mr. Miller holds 198,254 DSUs and 83,333 Options.
(6)In addition, Mr. LaGourgue holds 9,778 DSUs and 66,666 Options.
(7)In addition, Mr. Imanse holds 109,956 DSUs and 16,666 Options.
(8)In addition, Mr. Strong holds 173,108 DSUs and 99,999 Options
(9)In addition, Mr. White holds 132,606 DSUs, 33,332 Options and 35,000 Warrants.
(10)In addition, Mr. Buckle holds 149,999 Options.

 

Cease Trade Orders and Bankruptcies

 

None of our directors or executive officers is, as at the date of this AIF, or has been within 10 years before the date of this AIF, a director, chief executive officer or chief financial officer of any Corporation (including us) that, while that person was acting in that capacity, or after that person ceased to act in such capacity but resulting from an event that occurred while that person was acting in such capacity, was the subject of a cease trade order, an order similar to a cease trade order, or an order that denied the Corporation access to any exemption under securities legislation in each case for a period of more than 30 consecutive days.

 

Except as disclosed herein, none of our directors, or executive officers, or to our knowledge, our shareholders holding a sufficient number of securities to affect materially the control of our Corporation (i) is as at the date of this AIF, or has been within 10 years before the date of this AIF, a director or executive officer of any Corporation (including us) that, while that person was acting in that capacity, or within a year of that person ceasing to act in such capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (ii) has, within 10 years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of such director, executive officer or shareholder.

 

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Mr. Strong, a director of the Corporation, was a director of Geokinetics Inc. (“Geokinetics”), a publicly traded corporation on the AMEX headquartered in Houston, Texas. In March 2013, Geokinetics filed a prepackaged reorganization. Geokinetics is in the seismic business, which is heavily exposed to oil and gas prices. Due in part to a downturn in commodity prices, budget cuts for seismic data acquisition to develop new prospects and equipment which formed a substantial portion of the Geokinetics’ assets becoming obsolete, causing its value to be impaired when wireless networks began being used in the field for data collection, the Corporation became insolvent and was not believed to be financeable. Mr. Strong resigned as director of Geokinetics in April 2013.

 

Penalties or Sanctions

 

None of our directors or executive officers, or to our knowledge, our shareholders holding a sufficient number of securities to affect materially the control of our Corporation, has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

Conflicts of Interest

 

To the best of our knowledge, there are no known existing or potential conflicts of interest between us and our directors, executive officers or other members of management as a result of their outside business interests as at the date of this AIF. However, as certain of our directors and officers also serve as directors and officers of other companies, it is possible that a conflict of interest may arise between their duties to us and their duties to such other companies. See “Directors and Officers” and “Interest of Management and Others in Material Transactions”.

 

PROMOTERS

 

No person will be, or has been within the two most recently completed financial years or during the current financial year, a promoter of the Corporation.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

Other than as disclosed below, the Corporation is not party to any legal proceedings or regulatory actions and no such proceedings are known to the Corporation to be contemplated as at the date of this AIF.

 

During the year ended December 31, 2022, the Corporation terminated the Sales and Marketing Agreement with Optimal Electric Vehicles LLC (“Optimal EV”). Subsequent to year end, the Corporation initiated arbitration proceedings regarding a business dispute with Optimal EV. The recoverable amount upon termination pursuant to the Sales and Marketing Agreement is $12,000,000. The Corporation is seeking additional damages from Optimal EV above this amount. The status of the arbitration is currently pending.

 

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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

Other than as disclosed herein, none of (i) the directors or executive officers of the Corporation, (ii) the shareholders who beneficially own, control or direct, directly or indirectly, more than 10% of the voting securities of the Corporation, or (iii) any associate or affiliate of the persons referred to in (i) and (ii), has or has had any material interest, direct or indirect, in any transaction within the three years before the date of this AIF or in any proposed transaction that has materially affected or is reasonably expected to materially affect the Corporation or any of its subsidiaries.

 

Related Party Transactions

 

The Corporation has not engaged in any related party transactions, other than those set out in the Financial Statements. The Corporation paid lease payments to a company owned by a director as set out in the Financial Statements.

 

AUDITOR AND REGISTRAR AND TRANSFER AGENT

 

The external auditors of the Corporation are PricewaterhouseCoopers LLP, located at 1400 - 250 Howe Street, Vancouver, B.C. V6C 3S7.

 

The registrar and transfer agent for the Common Shares is Computershare Trust Company of Canada at its principal offices in Vancouver, BC and Toronto, Ontario.

 

MATERIAL CONTRACTS

 

In addition to contracts entered into in the ordinary course of business, the following material contracts have been entered into by the Corporation within the most recently completed financial year, or before the most recently completed financial year but are still in effect:

 

●The Amended Loan Agreement with RBC dated February 17, 2023, as described in this AIF

 

●Equity Distribution Agreement, as described in this AIF

 

●Underwriting Agreement, as described in this AIF

 

INTERESTS OF EXPERTS

 

The Corporation’s financial statements for the financial year ended December 31, 2022 has been audited by PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP is the independent registered public accounting firm of the Corporation and is independent within the meaning of the Chartered Professional Accountants of British Columbia Code of Professional Conduct and in compliance with Public Company Accounting Oversight Board Rule 3250, Auditor Independence.

 

ADDITIONAL INFORMATION

 

Additional information relating to the Corporation can be found on SEDAR at www.sedar.com

 

In addition, additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Corporation’s securities, securities authorized for issuance under equity compensation plans, audit committee charter and corporate governance disclosure can be found in the Corporation’s Information Circular dated November 8, 2022, and filed on SEDAR on November 16, 2022. The Corporation’s audit committee disclosure under NI 52-110F1 is included as Appendix “B” to this AIF.

 

Additional financial information is provided in the Financial Statements and the MD&As and can also be found on SEDAR.

 

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APPENDIX “A” GLOSSARY OF TERMS

 

“AIF” means this annual information form;
“ATM Program” means the sale of Common Shares using “at-the-market” distributions;
“Base Shelf Prospectus” means the Corporation’s Canadian short form base shelf prospectus dated April 19, 2021;
“BCBCA” means the Business Corporations Act (British Columbia);
“Board of Directors” means the board of directors of the Corporation;
“CNG” means compressed natural gas;
“Common Shares” means the common shares in the capital of the Corporation;
“Consolidation” means the consolidation of the share capital of the Corporation on the basis of three pre-consolidation common shares to one post-consolidation common share effective March 29, 2021;
“CUSMA” means the Canada-United States-Mexico Agreement;
“Debenture” and “2021 Debenture” means unsecured convertible debentures of the Corporation;
“Debenture Units” means debenture units (comprised of Debentures or 2021 Debentures and detachable Warrants) issued on a private placement basis;
“DGCL” means the Delaware General Corporation Law;
“DSU” means deferred share unit;
“Eligible Persons” means directors, senior officers, employees, consultant Corporation or management Corporation, employees of the Corporation and its subsidiaries, or an eligible charitable organization;
“FCPA” means the Foreign Corrupt Practices Act of 1977;
“Financial Statements” means the audited consolidated financial statements of the Corporation for the years ended December 31, 2022 and 2021;
“forward-looking statements” means certain statements in this AIF about the Corporation’s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking information and/or forward-looking statements within the meaning of applicable Securities Laws;
“FSE” means the Frankfurt Stock Exchange;
“FTA” means the Federal Transit Administration;
“ICFR” means internal control over financial reporting;
“IFRS”   “Information Circular” means International Financial Reporting Standards;   means the Corporation’s management information circular dated November 8, 2022 sent to shareholders in respect of the Corporation’s most recent annual general meeting of shareholders held on December 22, 2022;

 

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“MD&As” means the management discussion and analysis of the Corporation for the years ended December 31, 2022 and 2021;
“NASDAQ” means Nasdaq Capital Market;
“NATO” means the North Atlantic Treaty organization;
“OEMs” means the original equipment manufacturers;
“Omnibus Plan” means the Corporation’s plan to grant equity-based incentive awards in the form of Options, restricted share units (“RSUs”), preferred shared units (“PSUs”) and DSUs;
“Options” means the incentive stock options of the Corporation;
“Registration Statement” means the Corporation’s U.S. registration statement on Form-10 dated August 17, 2021;
“Section 404” means Section 404 of the U.S. Sarbanes- Oxley Act;
“Securities Laws” means securities legislation, securities regulation and securities rules, as amended, and the policies, notices, instruments and blanket orders in force from time to time that are applicable to an issuer;
“Stock Option Plan” means the stock option plan of the Corporation;
“TSXV” means the TSX Venture Exchange;
“U.S. Sarbanes-Oxley Act” means the U.S. Sarbanes- Oxley Act 2002;
“Unit” means a security of the Corporation comprised of a Common Share and a fraction of a Warrant or whole Warrant (issued with various terms and prices, as described in this AIF);
“Vicinity” or the “Corporation” means Vicinity Motor Corp.;
“Vicinity Buses” means the full suite of transit busses for public and commercial use including electric, CNG, gas and clean diesel buses;
“Vicinity Lightning” means Vicinity Lightning electric bus;
“Vicinity Property” means Vicinity Motor Property LLC;
“VMCBC” means the wholly owned operating subsidiary of the Corporation, Vicinity Motor (Bus) Corp.;
“VMUSA” means the wholly owned operating subsidiary of the Corporation, Vicinity Motor (Bus) USA Corp.;
“Washington Facility” means the manufacturing facility located in Ferndale, Washington;
“Warrants” means share purchase warrants of the Corporation (issued with various exercise terms and conditions, as described in this AIF) to purchase Warrant Shares; and
“Warrant Shares” means the Common Shares issuable on exercise of a Warrant (exercisable at various prices as described in this AIF).

 

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 APPENDIX “B” AUDIT COMMITTEE DISCLOSURE FORM 52-110F1

 

Item 1: Audit Committee Charter

 

A.General Functions, Authority and Role

 

1.The audit committee (the “Committee”) is a committee of the board of directors (the “Board”) of Vicinity Motor Corp. (“Vicinity” or the “Corporation”). The primary purpose of the Committee is to oversee the accounting and financial reporting processes of the Corporation and the audits of the Corporation’s financial statements and to exercise the responsibilities and duties set forth below, including, but not limited to, assisting the Board in fulfilling its responsibilities of monitoring (a) the integrity of the financial statements of the Corporation, (b) compliance by the Corporation with legal and regulatory requirements related to financial reporting, (c) the performance of the Corporation’s independent auditors, (d) the integrity of the Corporation’s internal controls and financial reporting process and (e) the Corporation’s strategy with regard to risk management.

 

2.The Committee has the power to conduct or authorize investigations into any matters within its scope of responsibilities, with full access to all books, records, facilities and personnel of the Corporation, its auditors and its legal advisors. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under this charter, the Committee has the authority to independently retain special legal, accounting, or other consultants to advise it, and may request any of officer or employee of the Corporation, its independent legal counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.

 

3.The Corporation’s independent auditor is accountable to the Board and to the Committee, who, as representatives of the Corporation’s shareholders, have the ultimate authority and responsibility to evaluate the independent auditor, appoint and replace the independent auditor, and to determine appropriate compensation for the independent auditor. In the course of fulfilling its specific responsibilities hereunder, the Committee must maintain free and open communication between the Corporation’s independent auditors, Board and Corporation management. The responsibilities of a member of the Committee are in addition to such member’s duties as a member of the Board.

 

4.The Committee is not responsible for: planning or conducting audits; certifying or determining the completeness or accuracy of the Corporation’s financial statements or that the financial statements are in accordance with generally accepted accounting principles or international financial reporting standards, as applicable; or guaranteeing the report of the Corporation’s external auditor. The fundamental responsibility for the Corporation’s financial statements and disclosure rests with management and the external auditor.

 

B.Composition and Committee Organization

 

5.The Committee shall consist of not less than three members of the Board, the majority of whom shall be free from any relationship that, in the opinion of the Board would interfere with the exercise of his or her independent judgement as a member of the Committee. At the invitation of the Committee, members of the Board, management and others may attend Committee meetings as the Committee considers necessary or desirable.

 

6.The Chair of the Committee (the “Chair”) shall be appointed by the Board from among the members of the Committee by a majority vote.

 

7.The Committee shall comply with all applicable securities laws, instruments, rules and policies and regulatory requirements (collectively “Applicable Securities Laws”), including those relating to independence and financial literacy. Accordingly, the majority of the members of the Committee shall be independent within the meaning of National Instrument 52-110 – Audit Committees, and financially literate within the meaning of Applicable Securities Laws.

 

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8.The Committee shall meet all requirements of the TSX Venture Exchange and the requirements of such other securities exchange, quotation system or regulatory agencies as may from time to time apply to the Corporation.

 

9.Each member of the Committee shall be appointed by the Board on an annual basis at its first meeting following each annual shareholders meeting and shall serve at the pleasure of the Board, or until the earlier of (a) the close of the next annual meeting of the Corporation’s shareholders at which the member’s term of office expires, (b) the death of the member, or (c) the resignation, disqualification or removal of the member from the Committee or from the Board. The Board may fill a vacancy in the membership of the Committee.

 

C.Meetings

 

10.The members of the Committee shall hold meetings as are required to carry out this Charter, and in any case, the Committee shall meet at least quarterly in each financial year of the Corporation. The Committee shall meet otherwise at the discretion of the Chair or a majority of the members of the Committee, or as may be required by Applicable Securities Laws.

 

11.No business may be transacted by the Committee at a meeting unless a quorum of the Committee is present. A majority of the members of the Committee shall constitute a quorum.

 

12.The external auditors and non-Committee board members are entitled to receive notice of and attend and be heard at each Committee meeting. The Chair, any member of the Committee, the external auditors, the Chairman of the Board, the Chief Executive Officer (the “CEO”) or the Chief Financial Officer (the “CFO”) may call a meeting of the Committee by notifying the Corporation’s Corporate Secretary who will notify the members of the Committee.

 

13.The Chair shall chair all Committee meetings that he or she attends, and in the absence of the Chair, the members of the Committee present may appoint a chair from their number at a meeting.

 

14.The Committee shall maintain minutes or other records of meetings and activities of the Committee in sufficient detail to convey the substance of the discussions held and file a copy of the minutes with the Corporate Secretary. The Chair may report orally to the Board on any matter in his or her view requiring the immediate attention of the Board.

 

15.The Committee may invite to a meeting any officers or employees of the Corporation, legal counsel, advisors and other persons whose attendance it considers necessary or desirable in order to carry out its responsibilities.

 

16.The Committee may appoint any individual, who need not be a member, to act as the secretary at any meeting.

 

17.The procedures for calling, holding, conducting and adjourning meetings of the Committee shall be the same as those applicable to meetings of the Board.

 

18.Any matter to be determined by the Committee shall be decided by a majority of the votes cast at a meeting of the Committee called for such purpose. Any action of the Committee may also be taken by an instrument or instruments in writing signed by all of the members of the Committee (including in counterparts, by facsimile or other electronic signature) and any such action shall be as effective as if it had been decided by a majority of the votes cast at a meeting of the Committee called for such purpose.

 

19.The Committee shall report its determinations and recommendations to the Board.

 

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D.Resources and Authority

 

20.The Committee has the authority to:

 

a.engage, at the expense of the Corporation, independent counsel and other experts or advisors as is considered advisable;

 

b.determine and authorize the payment by the Corporation of the compensation for any independent counsel and other experts and advisors retained by the Committee;

 

c.communicate directly with the internal and external auditors of the Corporation;

 

d.conduct any investigation considered appropriate by the Committee; and

 

e.have unrestricted access to the books and records of the Corporation.

 

E.Functions and Responsibilities

 

The Committee shall have the functions and responsibilities set out below as well as any other functions that are specifically delegated to the Committee by the Board and that the Board is authorized to delegate by Applicable Securities Laws and regulations.

 

21.Financial Reports

 

a.General – The Committee is responsible for overseeing the Corporation’s financial statements and financial disclosure. Management is responsible for the preparation, presentation and integrity of the Corporation’s financial statements and financial disclosure and for the appropriateness of the accounting principles and the reporting policies used by the Corporation. The external auditors are responsible for auditing the Corporation’s annual consolidated financial statements.

 

b.Review of Annual Financial Reports – The Committee shall review the annual consolidated audited financial statements of the Corporation, the external auditors’ report thereon, the related management’s discussion and analysis of the Corporation’s financial condition and results of operation (“MD&A”), the financial disclosure in any earnings press release and any other public disclosure documents that are required to be reviewed by the Committee pursuant to Applicable Securities Laws. After completing its review, if advisable, the Committee shall recommend for Board approval the annual financial statements, the related MD&A, and the earnings release.

 

c.Review of Interim Financial Reports – The Committee shall review the interim consolidated financial statements of the Corporation, the related MD&A, the financial disclosure in any earnings press release as well as the release of significant new financial information and any other public disclosure documents that are required to be reviewed by the Committee pursuant to Applicable Securities Laws. After completing its review, if advisable the Committee shall recommend for Board approval the interim financial statements, the related MD&A, and the earnings release.

 

d.Review Considerations – In conducting its review of the annual financial statements or the interim financial statements, the Committee shall:

 

i.meet with management and the external auditors, as applicable, to discuss the financial statements and MD&A;

 

ii.review the disclosures in the financial statements;

 

iii.review the audit report prepared by the external auditors;

 

iv.discuss with management, the external auditors and legal counsel, if so requested, any pending or threatened litigation claims and assessments or other contingency that could have a material effect on the financial statements;

 

v.review critical accounting and other significant estimates and judgments underlying the financial statements as presented by management;

 

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vi.review any material effects of regulatory accounting initiatives or off-balance sheet structures on the financial statements as presented by management;

 

vii.review critical accounting and other significant estimates and judgments underlying the financial statements as presented by management;

 

viii.review the use of any non-GAAP financial measures, including “pro forma” or “adjusted” information;

 

ix.review management’s report on the design and effectiveness of disclosure controls and procedures and internal controls over financial reporting;

 

x.review results of the Corporation’s whistleblower program;

 

xi.meet in private with external auditors, as applicable, and one or more senior executives;

 

xii.review any other matters related to the financial statements that are brought forward by the external auditors and any amendment thereof, or which are required to be communicated to the Committee under accounting policies or auditing standards; and

 

xiii.if the Corporation lists its securities on a stock exchange in a jurisdiction other than Canada the Committee should review the equivalent applicable documentation and procedures.

 

e.Approval of Other Financial Disclosures – The Committee shall review and if advisable, approve and recommend for Board approval any financial disclosure contained in a prospectus or other securities offering document, annual report, annual information form, management information circular or proxy circular of the Corporation.

 

22.Auditors

 

a.General – The Committee shall be directly responsible for oversight of the work of the external auditors, including the external auditors’ work in preparing or issuing an audit report, performing other audit review, or attest services of any other related work. The external auditors shall report directly to the Committee and the Committee shall have authority to communicate directly with the Corporation’s external auditors.

 

b.Appointment – The Committee shall review and recommend to the Board the appointment of the external auditors. The Committee shall review and recommend for Board approval the compensation of the external auditors.

 

c.Resolution of Disagreements – The Committee shall seek to resolve any disagreements between management and the external auditors as to financial reporting matters.

 

d.Discussions with External Auditor – At least annually, the Committee shall discuss with the external auditor such matters as are required by applicable auditing standards to be discussed by the external auditor with the Committee, including any difficulties encountered in the course of the audit work or otherwise, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management; receive from and review with the independent auditor any accounting adjustments that were noted or proposed by the auditor but that were “passed” (as immaterial or otherwise), any “management” or “internal control” letter or schedule of unadjusted differences issued, or proposed to be issued, by the auditor to the Corporation, or any other material written communication provided by the auditor to the Corporation’s management.

 

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e.External Audit Plan – At least annually, the Committee shall review a summary of the external auditors’ annual audit plan. The Committee shall consider and review with the external auditors any material changes to the scope of the plan.

 

f.Independence of External Auditors – At least annually, and before the external auditors issue their report on the annual financial statements, the Committee shall:

 

i.obtain from the external auditors a formal written statement describing all relationships between the external auditors and the Corporation;

 

ii.discuss with the external auditors any disclosed relationships or services that may affect the objectivity and independence of the auditors; and

 

iii.obtain written confirmation from the external auditors that they are objective and independent within the meaning of the applicable Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of chartered professional accountants to which it belongs.

 

g.The Committee shall take appropriate action to ensure the independence of the external auditors.

 

h.Evaluation and Rotation of Lead Partner – At least annually, the Committee shall review the qualifications and performance of the lead partner of the external auditors. The Committee shall obtain a report from the external auditors annually verifying that the lead partner of the external auditors has served in that capacity for no more than five fiscal years of the Corporation and that the engagement team collectively possesses the experience and competence to perform an appropriate audit.

 

i.Hiring of Former Employees of External Auditor – The Committee shall review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Corporation.

 

j.Non-Audit Services – The Committee shall approve in advance any retainer of the external auditors to perform any non-audit service not prohibited by law, including Applicable Securities Laws, for the Corporation. The Committee may delegate preapproval authority to a member of the Committee. The decisions of any member of the Committee to whom this authority has been delegated must be presented to the full Committee at its next scheduled Committee meeting. Approval by the Committee of a non-audit service to be performed by the external auditor of the Corporation shall be disclosed in periodic reports as necessary under reporting requirements. The external auditors are prohibited from providing any of the following services: (a) financial information systems design, implementation or consulting services, (b) appraisal or valuation services, (c) fairness opinions, (d) actuarial services, (e) internal audit outsourcing, (f) investment banking or investment advisory services, (g) legal services, or (h) any management or human resources function.

 

23.Internal Accounting and Disclosure Controls

 

a.General – The Committee shall review the adequacy of the Corporation’s internal accounting and disclosure controls, its management information systems and its financial, auditing and accounting organization and systems.

 

b.Establishment, Review and Approval – the Committee shall require management to implement and maintain appropriate systems of internal control in accordance with Applicable Securities Laws, regulations and guidance, including internal control over maintenance of records, financial reporting and disclosure and to review, evaluate and approve these procedures. At least annually, the Committee shall consider and review with management and the external auditors:

 

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i.the effectiveness of, or weaknesses or deficiencies in: the design or operating effectiveness of the Corporation’s internal controls the overall control environment for management business risks; and accounting, financial and disclosure controls (including without limitation, controls over financial reporting) non-financial controls, and legal and regulatory controls and the impact of any identified weaknesses in internal controls on management’s conclusions;

 

ii.any significant changes in internal control over financial reporting that are disclosed, or considered for disclosure, including those in the Corporation’s periodic regulatory filings;

 

iii.any material issues raised by any inquiry or investigation by the Corporation’s regulators;

 

iv.the Corporation’s fraud prevention and detection program, including deficiencies in internal controls that may impact the integrity of financial information, or that may expose the Corporation to other significant internal or external fraud losses and the extent of those losses and any disciplinary action in respect of fraud taken against management or other employees who have a significant role in financial reporting; and

 

v.any related significant issues and recommendations of the auditors together with management’s responses thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls over financial reporting and disclosure controls.

 

24.The Committee shall receive and review regular reports from the Corporation’s General Counsel, if any, and other management members on: legal or compliance matters that may have a, if any, material impact on the Corporation; the effectiveness of the Corporation’s compliance policies; and any material communications received from regulators. The Committee shall review management’s plans to remediate any deficiencies identified.

 

25.The Committee shall establish or oversee the establishment of procedures for (a) the receipt, retention, and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters, and will, as necessary or appropriate, investigate the matter and will work with management, external auditors, and the General Counsel, if any, or external legal counsel to reach a satisfactory conclusion.

 

26.The Committee shall:

 

a.at least annually, review and assess the adequacy of and, if advisable, approve and recommend for Board approval, any amendments to the Corporation’s Code of Business Conduct;

 

b.review and, if advisable, approve the Corporation’s processes for administering the Code of Business Conduct;

 

c.review actions taken by management to ensure compliance with the Code of Business Conduct, the results of the confirmations and the responses to any violations of the Code of Business Conduct;

 

d.review with management the results of their assessment of the Corporation’s compliance with the Code of Business Conduct and their plans to remediate any deficiencies identified;

 

e.review the policies and procedures instituted to ensure that any departure from the Code of Business Conduct by a director or senior officer which constitutes a “material change” within the meaning of Applicable Securities Laws is appropriately disclosed in accordance with Applicable Securities Laws; and

 

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f.review and, if advisable, approve any waiver from a provision of the Code of Business Conduct requested by a member of the Board or senior management.

 

27.The Committee shall prepare, review and approve any Committee disclosure required in the Corporation’s disclosure documents.

 

28.The Committee may designate a subcommittee to review any matter within this Charter as the Committee deems appropriate.

 

29.The Committee shall annually review and reassess the adequacy of this Charter, recommend any proposed changes to the Board for approval and provide a copy of the Charter to all directors of the Board.

 

30.The Chair shall report to the Board at its request or as deemed necessary by the Committee on matters arising at Committee meetings and, where applicable, shall present the Committee`s recommendation to the Board for its approval. The Committee shall assess and report annually to the Board on the performance of the Committee by comparing the performance of the Committee against this Charter and the Committee’s goals and objectives for the year.

 

F.Financial Instruments, Risk Assessment and Risk Management

 

31.The Committee shall review and monitor the management of the principal financial risks that could materially impact the reporting of the Corporation.

 

32.The Committee shall review and monitor the processes in place for identifying principal financial risks and report them to the Board.

 

33.The Committee shall review policies with respect to the management of capital and financial instrument risk management, including:

 

a.reviewing and periodically approving management’s financial instrument risk philosophy and management policies;

 

b.reviewing management reports demonstrating compliance with risk management policies; and

 

c.discussing with management, at least annually, the Corporation`s major financial risk exposures and the steps management has taken to monitor, control and report such risks.

 

G.Other Responsibilities

 

34.The Committee should:

 

a.request and obtain an annual report from the external auditor regarding the external auditor’s internal quality control procedures including foreign office oversight and the application of such control procedures to the Corporation;

 

b.review and consider any issues raised by the external auditor’s report on its internal quality control procedures and any audit quality concerns raised by any regulators in respect of any review of the external auditor in any applicable jurisdiction; and

 

c.perform any other activities consistent with this Charter and Applicable Securities Laws as the Committee or the Board considers advisable.

 

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Item 2: Composition of the Audit Committee

 

National Instrument 52-110 Audit Committees, (“NI 52-110”) provides that a member of an audit committee is “independent” if the member has no direct or indirect material relationship with the Corporation, which could, in the view of the Corporation’s Board, reasonably interfere with the exercise of the member’s independent judgment.

 

NI 52-110 provides that an individual is “financially literate” if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements. The following sets out the members of the audit committee and their education and experience that is relevant to the performance of his responsibilities as an audit committee member.

 

The current members of the Audit Committee are Christopher Strong (Chair), Joseph Miller and James White, all three of whom are independent and all of whom are financially literate as defined by NI 52-110.

 

Item 3: Relevant Education And Experience

 

The education and experience of each current Audit Committee member that is relevant to the performance of his responsibilities as an Audit Committee member is set out below.

 

Christopher Strong (Chair)

 

Mr. Strong is a senior executive with over thirty years of experience with startups, acquisitions, initial public offerings, turnarounds and sales. In addition to previous roles as Chief Executive Officer, he has also served as audit committee chair, Chief Financial Officer and held numerous other finance-related positions earlier in his career. Mr. Strong is a former U.S. Navy Officer and received his MBA in finance from the Wharton School of Business.

 

Joseph Miller

 

Mr. Miller has been a director of the Corporation since December 4, 2012. Mr. Miller has over 30 years’ experience in the construction field and manages a diverse construction Corporation based in British Columbia that has projects across North America and the South Pacific, through which Mr. Miller has a developed a broad base of skills and experience in management.

 

James White

 

Mr. White has extensive experience as a corporate director for public companies and is currently serving as Managing Partner with Baynes & White, a Toronto, Ontario based benefits and pension actuarial consulting firm.

 

Item 4: Reliance on Certain Exemptions

 

During the most recently completed financial year, the Corporation has not relied on certain exemptions set out in NI 52-110, namely section 2.4 (De Minimus Non-audit Services), section 3.2 (Initial Public Offerings), section 3.4 (Events Outside Control of Member), section 3.5 (Death, Incapacity or Resignation of Audit Committee Member), and any exemption, in whole or in part, in Part 8 (Exemptions).

 

Item 5: Reliance on the Exemption in Subsection 3.3(2) or Section 3.6

 

During the most recently completed financial year, the Corporation has not relied on upon the exemption in subsection 3.3(2) (Controlled Companies). The Corporation did temporarily rely on section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances) until May 2022, when James White was appointed to the Audit Committee in place of John LaGourgue who is not independent.

 

Item 6: Reliance on Section 3.8

 

During the most recently completed financial year, the Corporation has not relied upon section 3.8 (Acquisition of Financial Literacy).

 

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Item 7: Audit Committee Oversight

 

At no time during the Corporation’s most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor (currently, PricewaterhouseCoopers LLP, Chartered Professional Accountants) not adopted by the Board.

 

Item 8: Pre-Approval Policies and Procedures

 

The Audit Committee has not adopted formal policies and procedures for the engagement of non-audit services. Subject to the requirements of the NI 52-110, the engagement of non-audit services is considered by, as applicable, the Board and the Audit Committee, on a case by case basis.

 

Item 9: External Auditor Service Fees (By Category)

 

The following table sets out the aggregate fees charged to the Corporation by the external auditor in each of the last two financial years for the category of fees described.

 

   December 31, 2021  December 31, 2022
Audit Fees(1)  $198,592   $192,970 
Audit-Related Fees(2)   Nil    Nil  
Tax fees(3)   22,821    33,152 
All Other Fees(4)   133,349    23,701 
Total Fees:  $354,762   $249,823 

 

(1)       “Audit fees” include aggregate fees billed by the Corporation’s external auditor in each of the last two fiscal years for audit fees.

 

(2)       “Audited related fees” include the aggregate fees billed in each of the last two fiscal years for assurance and related services by the Corporation’s external auditor that are reasonably related to the performance of the audit or review of the Corporation’s financial statements and are not reported under “Audit fees” above. The services provided include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation.

 

(3)       “Tax fees” include the aggregate fees billed in each of the last two fiscal years for professional services rendered by the Corporation’s external auditor for tax compliance, tax advice and tax planning. The services provided include tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities.

 

(4)       “All other fees” include the aggregate fees billed in each of the last two fiscal years for products and services provided by the Corporation’s external auditor, other than “Audit fees”, “Audit related fees” and “Tax fees” above and relate to work on the Corporation’s prospectuses.

 

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