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AUTOMODULAR CORPORATION
ANNUAL INFORMATION FORM for the fiscal year ended December 31, 2014
Date: March 11, 2015
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AUTOMODULARCORPORATION
TableofContents1. GENERALINFORMATION ........................................................................................................................................- 3 - 1.1 Forward‐LookingInformation ............................................................................................................................- 3 - 1.2 Definitions .............................................................................................................................................................- 3 - 2. CORPORATESTRUCTURE ........................................................................................................................................- 4 - 2.1 Name,AddressandIncorporation ......................................................................................................................- 4 - 2.2 IntercorporateRelationships ..............................................................................................................................- 5 - 3. GENERALDEVELOPMENTOFTHEBUSINESS .......................................................................................................- 5 - 3.1 Three‐YearHistoryofSignificantEvents ............................................................................................................- 5 - 4. NARRATIVEDESCRIPTIONOFTHEBUSINESS ....................................................................................................- 10 - 4.1 GeneralSummary ...............................................................................................................................................- 10 - 4.2 BackgroundtoDevelopmentofPrimaryBusiness ..........................................................................................- 11 - 4.3 NatureofBusiness ..............................................................................................................................................- 12 - 4.4 Sales .....................................................................................................................................................................- 13 - 4.5 PrincipalProperties ............................................................................................................................................- 13 - 4.6 Employees ...........................................................................................................................................................- 14 - 4.7 IndustryConditions ............................................................................................................................................- 14 - 4.8 EconomicDependence .......................................................................................................................................- 15 - 4.9 ChangestoContracts ..........................................................................................................................................- 15 - 4.10 Cyclicality ............................................................................................................................................................- 16 - 4.11 ForeignOperations .............................................................................................................................................- 16 - 4.12 RiskFactors .........................................................................................................................................................- 16 - 4.13 EnvironmentalConsiderations ..........................................................................................................................- 16 - 4.14 Outlook ................................................................................................................................................................- 16 - 5. DIVIDENDSANDDISTRIBUTIONS .......................................................................................................................- 16 - 6. DESCRIPTIONOFCAPITALSTRUCTURE ..............................................................................................................- 17 - 7. MARKETFORSECURITIES .....................................................................................................................................- 17 - 8. SECURITIESSUBJECTTOCONTRACTUALRESTRICTIONONTRANSFER .........................................................- 18 - 9. DIRECTORSANDOFFICERS ...................................................................................................................................- 18 - 9.1 Name,OccupationandGroupSecurityHoldings .............................................................................................- 18 - 9.2 CorporateCeaseTradeOrders,Bankruptcies,PenaltiesorSanctions ...........................................................- 20 - 9.3 ConflictsofInterest ............................................................................................................................................- 21 - 10. LEGALPROCEEDINGSANDREGULATORYACTIONS ......................................................................................- 21 - 11. INTERESTOFMANAGEMENTANDOTHERSINMATERIALTRANSACTIONS ..............................................- 22 - 12. TRANSFERAGENTSANDREGISTRAR ..............................................................................................................- 22 - 13. MATERIALCONTRACTS ....................................................................................................................................- 22 - 14. INTERESTSOFEXPERTS ....................................................................................................................................- 22 - 15. AUDITCOMMITTEEDISCLOSURE .....................................................................................................................- 22 - 15.1 CompositionoftheAuditCommittee ................................................................................................................- 22 - 15.2 IndependenceandRelianceonExemption.......................................................................................................- 23 - 15.3 RelevantEducationandExperience ..................................................................................................................- 23 - 15.4 ExternalAuditorServiceFees(byCategory) ...................................................................................................- 23 - 15.5 Pre‐ApprovalPoliciesandProcedures .............................................................................................................- 23 - 16. ADDITIONALINFORMATION ............................................................................................................................- 24 - ScheduleA .......................................................................................................................................................................- 25 - AUTOMODULARCORPORATION...................................................................................................................................- 25 - CharteroftheAuditCommittee ....................................................................................................................................- 25 -
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1. GENERALINFORMATIONUnlessotherwiseindicated,theinformationcontainedinthisAnnualInformationForm(sometimescalledthe“AIF”)iscurrentasofMarch11,2015.AllcurrencyreferencesaretoCanadiandollarsunlessotherwiseindicated.1.1 Forward‐LookingInformationThisAnnualInformationFormcontainsstatementswhich,totheextentthattheyarenotrecitationsofhistoricalfact,may constitute “forward‐looking statements” within the meaning of applicable Canadian securities laws. Forward‐lookingstatementsmayinclude,butarenotlimitedto,financialandotherprojections,aswellasstatementsregardingour futureplans, objectivesorperformance, or ourunderlyingassumptions.Words suchas “may”, “would”, “could”,“will”, “likely”, “estimate”, “anticipate”, “believe”, “expect”,“intend”,“plan”,“forecast”orothersimilarexpressionsareintended to identify forward‐looking statements. Such forward‐looking statements, or forward‐looking information,reflectmanagement’s beliefs, estimates and opinions regarding Automodular’s future growth, results of operations,performanceandbusinessprospectsandopportunitiesandarenotguaranteesoffutureresults.Specificforward‐lookinginformationinthisdocumentincludes;
bytheendofMarch2015,Automodularanticipatesthatitwillemploylessthantenpersonsintotal,allatitsAjaxheadoffice;
theBoardwillconsideralloptionsavailabletoitincludingpotentiallywindingdowntheCompany; AutomodularexpectsthatitscashonhandissufficienttofundtheoperationalneedsoftheCompanyduring
the2015fiscalyearandtohelpfunddiversification; theCompanyexpectstocloseitsTaylor,MichiganofficeinMarch2015;and withrespecttotheGMlitigation,thediscoveryprocesswillbecompleted,expertreportswillbeexchanged,the
mandatorymediationwillbescheduledandthematterwillbesetdownfortrialbyOctober31,2015,atwhichpointthecourtwillscheduleatrialdate.
By its nature, forward‐looking information involves certain risks, uncertainties and other factors whichmay causeactual future results to differ materially from those expressed or implied in any forward‐looking statements andincludebutarenotlimitedtothefollowingwhicharediscussedingreaterdetailunderthesectionsentitled“IndustryConditions”, “Economic Dependence” and “Cyclicality” in this AIF and under “Risk Factors” in the Corporation’sManagementDiscussionandAnalysisofOperatingResultsandFinancialPosition(“MD&A”)fortheyearendedDecember31, 2014 which is incorporated herein by reference and which is available under the Corporation’s profile on theSEDARwebsiteatwww.sedar.comaswellasontheCorporation’swebsiteatwww.automodular.com:
our ability to secure ongoing operations through diversification, either organically or through acquisition;
our ability to identify, close and integrate acquisitions;
our ability to finance new business requirements; and
our dependence on key personnel.
PersonsreadingthisAnnualInformationFormshouldnotplaceunduerelianceonforward‐lookingstatementsandarecautionedthatforward‐lookingstatementsareonlyestimatesandthatouractualfutureresultsorperformancemaybematerially different due to inherent risks anduncertainties surrounding future expectations, assumptionsnot beingrealized,changesinfactsorotherunforeseencircumstances.Exceptasrequiredbycontinuousdisclosureobligations,wedonot intend,nordoweundertakeanyobligation,toupdateorreviseanyforward‐lookingstatementstoreflectsubsequentinformation,events,results,circumstancesorotherwise.1.2 DefinitionsInthisAnnualInformationForm,thefollowingtermsshallhavethefollowingmeanings:“Amalgamation”hasthemeaningattributedtheretoinSection2.1ofthisAIF;“Automodular”orthe“Corporation”meansAutomodularCorporation,acorporationexistingunderthelawsofOntario;
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“commonshare”or“share”meansacommonshareinthecapitalofAutomodular,unlessthecontextotherwiseindicates;“Company”meansAutomodularanditssubsidiaries,asawhole;“FITProgram”meansthefeed‐intariffprogramoftheOntarioPowerAuthority,anincentiveprogramfortheprocurementofrenewableenergyprojects,suchashydro,solarandwind;“Ford”meansFordMotorCompany;“GMCanada”meansGeneralMotorsofCanadaLimited;“GMUS”meansGeneralMotorsCompany;“GM”meansGMCanadaandGMUS,collectively;“NCIB”meanstheNormalCourseIssuerBidoftheCorporationwhichcommencedAugust8,2012,wasrenewedonAugust19,2013andexpiredonAugust18,2014whereby,intheopenmarketandundertherulesoftheTorontoStockExchange,theCompanypurchaseditsownsharesforcancellation;“OEM”meansanoriginalequipmentmanufacturer,suchasGM,FordorVestas;“Tier1supplier”meansanautomotivesupplierofautomobilepartsand/orservicesdirectlytoanOEM;“Tier2supplier”meansanautomotivesupplierofautomobilepartsand/orservicestoaTier1supplier;“Unifor”meanstheCanadianprivatesectorunionwhichisthesuccessortotheNationalAutomobile,Aerospace,TransportationandGeneralWorkersofCanadaunion(“CAW”)andtheCommunicationsEnergyandPaperworkersunion(“CEP”);“Vestas”meansVestasNacellesA/S,aDanishcorporationandasubsidiaryofVestasWindSystemsA/S,apublicly‐tradedDanishcorporationwhich,togetherwithitsaffiliatesdevelops,manufactures,suppliesandservicesavarietyofwindturbinesandrelatedequipment.2. CORPORATESTRUCTURE2.1 Name,AddressandIncorporationAutomodular Corporation is a corporation under the laws of Ontario pursuant to articles of amalgamation datedJanuary 1, 2008. On such date, Automodular amalgamated (the “Amalgamation”) with its Ontario wholly ownedsubsidiary,AutomodularAssemblies Inc. (“AAI”) and the amalgamated corporation continued thebusiness formerlycarriedonbyAAI.ThearticlesofamalgamationwereinsubstancethearticlesoftheparentcorporationastheyexistedimmediatelypriortotheAmalgamation.Originally,AutomodularwasincorporatedbyletterspatentunderthelawsofOntarioonMay7,1957asAlgonquinBuildingCreditsLimited.ByArticlesofAmendmentdatedDecember3,1976,thenamewaschangedtoAlgonquinMercantileCorporationandbyArticlesofAmendmentdatedJune4,2001,thenamewas changed to Automodular Corporation. Automodular is governed by theBusinessCorporationsAct (Ontario) forcorporatelawpurposesandisareportingissuerineachoftheprovincesandterritoriesofCanadaexceptQuebec.
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AtthedateofthisAnnualInformationForm,theheadandregisteredofficeofAutomodularislocatedinAjax,Ontario.Themailingandelectronicaddresses,facsimileandtelephonenumbersareasfollows:235SalemRoad,Unit6,Ajax,OntarioL1Z0B1telephone: (905)619‐4200fax:(905)619‐9466website: http://www.automodular.come‐mail: [email protected] IntercorporateRelationships
TheCorporationhastwosubsidiaries,bothofwhicharewhollyowned,eitherdirectlyorindirectly,andbothofwhichareorganized in theUnitedStatesofAmerica.Neitherof thesubsidiariescurrentlycarriesonactiveoperations.ThecorporatestructureoftheCompanyisdescribedinthefollowingtable:NAME INCORPORATION/
AMALGAMATIONOWNERSHIP NATUREOFBUSINESS
AutomodularCorporation BusinessCorporationsAct(Ontario)
Publiclyowned Currently,seekingstrategicdiversificationopportunities;noactivemanufacturingorassemblyoperations.UntilDecember23,2014,thesupplyofmodularsub‐assembliesandsequencedcomponentstoFordinOakville,Ontario.In2012,inaddition,theassemblingandwarehousingofwindturbinecomponentsforVestas.
Tec‐MarDistributionServices,Inc.("Tec‐Mar")
Act284,PublicActsof1972(Michigan)
100%ownedbyAutomodular
Currentlynone.UntilJune2007,thesupplyofmodularsub‐assembliesandsequencedcomponentstoGMUSinLansing,Michigan.
AutomodularAssemblies(Ohio)Inc.(“AAI(OH)”)
DelawareGeneralCorporateLaw
DEL.C.Section101‐398(Delaware)
100%ownedbyTec‐Mar
Currentlynone.UntilJune,2010,thesupplyofmodularsub‐assembliesandsequencedcomponentstoGMUSinLordstown,Ohio.
3. GENERALDEVELOPMENTOFTHEBUSINESS3.1 Three‐YearHistoryofSignificantEventsThe following is a summary of significant events which occurred during the preceding three years of the Company,arranged in reverse chronological order by fiscal year beginningwith 2014 and further summarized by fiscal quarterwithineachfiscalyear.SeealsoSection4foranarrativedescriptionofthehistoryandcurrentbusinessoftheCompany.2014DevelopmentsSummaryandOutlookAutomodular’smulti‐prongedfocusin2014wastocomplete,tothehighstandardsithaddemonstratedinthepast,itssoleremainingautomotivepartssub‐assemblycontractwithFord,tocompleteanorderlywind‐downofitsoperationsatitsOakville,Ontariofacilitiesbyyear‐endandtocontinueitseffortstodiversifyitsbusiness.OnMay14,2013,FordhadadvisedAutomodularthat,inthefourthquarterof2014,FordwouldinsourcetheassemblyworkthenperformedbyAutomodular.TheOakvillehourlyandsalariedemployeesdidanoutstandingjobin2013and
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2014inverydifficultcircumstancesandtheircommitmentandsupportwascriticalinensuringthatAutomodularmetFord’s expectations throughout the remainder of the contract. Automodular put in place incentive and retentionprogramsforitsemployeestoencouragesteadyattendanceandtofocusoncontinuingtoprovideadefect‐freemoduletoFordon time, every time. That itwasable to complete its contractwithFordwithaworkforce comprising40%temporaryworkersandwithminimaldefectsandanexcellenthealthandsafetyrecord,wasatestamenttotheskillofthemanagementteamandthecaliberoftheworkforce.With the completionof its contractwithFordeffectiveDecember23,2014,Automodular’sbusinessasa supplierofsub‐assemblyandsequencingservices,primarilytotheautomotiveindustry,hascometoanend.Automodularhasnoautomotivequotescurrentlyoutstanding. Itsworkforcehasbeenreducedtoa fractionof the525employees that itemployed on average throughout 2014. By the end ofMarch 2015, it anticipates that it will employ less than tenpersonsintotal,allatitsheadoffice.Althoughoperationshaveceasedforthetimebeing,atthistimetheCompanyitselfisnotwindingdown.Initiativesonthediversificationfrontcontinuedthrough2014withbothmanagementandtheBoardofDirectors(the“Board”)activelyengaged in findingways to leveragemanagement’sexpertiseandenhanceshareholdervalue. Thefocuswas,andcontinuestobeonthoseopportunitiesinwhichAutomodularcanutilizeitscomplexmanufacturingandprogrammanagementexpertise.Automodularhasexaminedmanydifferentopportunitiestodateandcontinuestobefocusedonfindingtherightopportunityatafairprice.AutomodularhasdiscontinueditsreviewoftheOntario‐basedprivatemanufacturing company referred to in itsMarch6,2015press release. However, it continues toassessandreviewotheropportunitiesonanongoingbasis.Therecanbenoassurancethatanytransactionwillbeconsummated.Automodularwillnotenter intoa transaction for thesakeofmerelycontinuing theCompany. IfAutomodular isnotsuccessful in securing newbusiness in a timely fashion, theBoardwill consider all options available to it includingpotentiallywindingdowntheCompany.For2014,Automodularreportednetearningsof$14.8millionor$0.76pershare–afterachargeof$3.5millionpre‐taxrelatedtoexitcosts.TheCorporationpaidaregulardividendof$0.06pershareineachofthefirstthreefiscalquartersof2014;itelectedtopreservecapitalandnottopayadividendinthefourthfiscalquarter.Automodular’sstatementoffinancialpositionremainsstrong.Atyear‐end,Automodular’scashandcashequivalentsonhandtotaled$54.5million.AutomodularexpectsthatitscashonhandissufficienttofundtheoperationalneedsoftheCompanyduringthe2015fiscalyearandtohelpfunddiversificationinitiativesoncetheyareidentified.See also “2014RecapandOutlook” in the Company’sManagementDiscussionandAnalysis ofOperatingResultsandFinancial Position for the year ended December 31, 2014 which is incorporated herein by reference and which isavailable under the Corporation’s profile on the SEDARwebsite atwww.sedar.com aswell as on the Corporation’swebsiteatwww.automodular.com.FirstQuarterOnJanuary16,2014,theBoardofDirectorsdeclaredaregularquarterlydividendof$0.06percommonsharewhichwaspaidMarch3,2014toshareholdersofrecordasatFebruary3,2014.Operationsremainedstrongbutresultsforthefirstquarterwereslightlybehind2013becauseofreducedproductionvolumes,therecognitionofexitcostsandhigherlegalcostsresultingfromtheGMlitigation.See“LegalProceedingsandRegulatoryActions”.SecondQuarterOnMay8,2014,theBoardofDirectorsdeclaredaregularquarterlydividendof$0.06percommonsharewhichwaspaidJune5,2014toshareholdersofrecordasatMay22,2014.At the Annual and Special Meeting of Shareholders held on May 8, 2014, the shareholders approved the specialresolution reducing the stated capital account maintained for the Company’s common shares by the sum of $19.4million.Thestatedcapitalreductiontookeffectimmediately.ThespecialresolutionwassubmittedtotheshareholdersforapprovalbecausetheBoardofDirectorsbelievedthatthestatedcapitalreductionwouldbenefittheCorporationgoingforwardbyprovidingmoreflexibility inmanagingtheCorporation’scapitalstructureas itconsideredpossibleoptionsfollowingtheannouncedterminationoftheFordcontract.
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Allsalariedemployees,otherthantheexecutivemanagementteam,wereprovidedwithformalterminationnotificationduringthesecondandthirdquartersof2014.Also in thesecondquarter,Automodularprovidedwrittennotice to the landlordsof its twoOakville facilities that itwasexercisingtheearlyterminationoptionscontainedintherespectiveleasesandwouldbeturningthefacilitiesoverto the landlordsonFebruary28,2015. At that time,Automodularpaid lease terminationpaymentspursuant to theearlyterminationclausesineachlease.Financial results in the second quarter were negatively impacted by the recognition of exit costs related to Ford’sannouncement. Secondquarter results also suffered frommaterially lowerdailyoperatingvolumesandproductionshutdowns at theOakville facilities compared to the sameperiod in 2013. The impact of theplant shutdownswasmitigatedtosomeextentbythepaymentofcertainamountsasrequiredunderAutomodular’scontractextensionwithFord.ThirdQuarterOnAugust7,2014,theBoardofDirectorsdeclaredaregularquarterlydividendof$0.06percommonsharewhichwaspaidSeptember4,2014toshareholdersofrecordasatAugust21,2014.During thequarter, formal terminationnoticewasgiventoallnon‐executivecorporatestaffwhosupportedOakvilleoperations.Automodular’s NCIB expired during the third quarter of 2014. Automodular did not purchase any shares forcancellationundertheNCIBduring2014.FourthQuarterInlightofongoingdiversificationefforts,theBoardofDirectorselectednottodeclareadividendinthefourthquarter.Financial results in the fourth quarter benefitted from higher production volumes year over year and improvedefficienciesobtainedthroughtheFordcontractwinddown.TheFordcontractterminatedonDecember23,2014.AutomodularsolditsremainingmanufacturingequipmentandassetsduringthemonthofDecember. Atyear‐end,askeletonstaffofapproximately20wasretainedattheOakvillefacilitiestopreparetobeturnedovertothelandlordsattheendofFebruary2015.2013DevelopmentsSummaryIn 2013, Automodular delivered solid financial performance, continued to pay regular and special dividends andcontinuedtobuildupitscashreserves.Inaddition,tofurtherenhanceshareholdervalueandtomakegooduseoftheCorporation’s excess cash, Automodular repurchased during 2013under itsNCIB an aggregate of 833,945 commonshares.OnMay14,2013,AutomodularreceivednewsfromFordthat,inthefourthquarterof2014,Fordwouldinsourcetheassembly work then performed by Automodular. Despite its decision, Ford acknowledged the outstanding workperformedbyAutomodular sinceproduction started in the fourthquarterof2006.Ford stated that thedecisionontheir part was a strategic one; they viewed the commodities that Automodular sub‐assembled to be “core” to theassemblyofavehicleandtheirgoalwastohaveallcorecommoditiessub‐assembledintheirfinalassemblyplants.Theexisting multi‐year agreement with Ford was scheduled to expire on June 30, 2014 but Ford requested thatAutomodular continue to provide sub‐assembly services up to December 23, 2014. In the fourth quarter of 2013,AutomodularandFordsignedthewrittenagreementextendingtheexpirydatetoDecember23,2014.Oakville operations continued to run well in 2013 and Automodular’s quality performance and health and safetymetrics remained strong. Production volumes in 2013 were nominally up over the prior year and earnings wererelativelyconsistentwiththesameperiodsin2012,excludingtheimpactoftheclosurecosts.Thebusinessgeneratedlevels of earnings and cash flows over the previous three years that significantly outperformed any traditional
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benchmark or financial metric. Since late 2010, Automodular benefitted from strong demand for the vehicles thatFord’sOakvilleAssemblyPlantproduced.Annualproductionvolumesconsistentlyexceededthetraditional two‐shiftvolumeoperatingpattern.AsAutomodularwascompensatedbyFordonafullyvariablebasis,itbenefittedfromtheseincremental units as the grossmargin on the incremental unitswas higher than on the base production units. Thechallenge during 2013was to continue tomaintain operating performance in light of the departure of salaried andhourlystaffastheFordcontractwounddown.For2013,Automodularreportednetearningsof$10.4millionor$0.52pershare–afterachargeof$4.3millionpre‐taxrelatedtoexitcosts.Dividendsof$0.34persharewerepaidouttoshareholdersandtheCompanyendedtheyearwithcashonhandof$35.9million.FirstQuarterOnJanuary23,2013,theBoardofDirectorsdeclareda$0.06percommonshareregularquarterlydividendwhichwaspaidMarch4,2013toshareholdersofrecordasatFebruary6,2013.SecondQuarterOnMay9,2013,theBoardofDirectorsdeclaredaregularquarterlydividendof$0.06percommonsharewhichwaspaidJune6,2013toshareholdersofrecordasatMay23,2013.Asmentionedabove,onMay14,2013,AutomodularreceivednotificationfromFordthattheyintendedtoinsourcetheassemblyworkwhichwasbeingperformedbyAutomodular,attheendofthefourthquarterof2014.During the second quarter, Automodular purchased for cancellation 412,545 common shares pursuant to itsoutstandingNCIB.ManagementcontinueditsdiscussionswithVestas(seeinformationunder“2012Developments”)andotherwind‐basedOEMsregardingopportunitiesinCanadaandoverseas.ThirdQuarterOnAugust6,2013,theBoardofDirectorsdeclareda$0.06percommonshareregularquarterlydividendwhichwaspaidSeptember3,2013toshareholdersofrecordasatAugust20,2013.OnAugust7,2013,AutomodularcompletedtheinitialtermofitsNCIBthroughwhichitpurchasedforcancellationatotalof593,375commonsharesatavolumeweightedaveragepriceof$1.72pershareduringtheprecedingtwelve‐month period. The Board of Directors approved the renewal of the NCIB on August 6th and under the renewal,Automodular could acquire up to 1,552,790 common shares, representing10%of thepublic float ofAutomodular’scommonsharesissuedandoutstandingasofAugust12,2013,asdefinedbythepoliciesoftheTorontoStockExchange.TherenewaltermranfromAugust19,2013untilAugust18,2014.Duringthethirdquarter,Automodularpurchasedforcancellation,pursuanttoitsNCIB,401,400sharesatatotalcostofapproximately$0.8millionatavolumeweightedaveragepriceof$1.97pershare.Automodularenhanced itspresence in the renewableenergy industrybyexhibitingat theCanWEA(CanadianWindEnergyAssociation)AnnualConferenceinToronto,Ontario.FourthquarterParsaKiai,ManagingPartnerandPortfolioManagerofSteamboatCapitalPartners,LLC,(“Steamboat”)basedinNewYork City, was appointed to the Board of Directors in November. Mr. Kiai brought to the Board considerable USinvestmentexperienceandcontacts.SteamboatandanotherUnitedStates‐basedfund,GobiCapital,LLC(“Gobi”), hadacquiredonacombinedbasispriortothedateofMr.Kiai’sappointment1,345,800commonsharesorapproximately6.9% of the then issued and outstanding common shares of Automodular. In connectionwithMr. Kiai joining theBoard,Mr.Kiai,Steamboat,GobiandMr.BoShanofCalifornia,USA,FounderandPortfolioManagerofGobi,enteredinto a standstill agreement with Automodular. The agreement contained customary standstill provisions that willexpireatthecloseoftheCorporation’s2015annualmeetingunlessearlierterminated,includingintheeventthatMr.KiairesignsfromtheBoard.
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AutomodularsignedanextensionagreementwithFordthatextendedAutomodular’sexistingagreementwithFordtoDecember 23, 2014. In conjunction with the signing of this agreement, Automodular announced a one‐year labourextensionagreementforitsOakville‐areaemployeeswithUnifor.During the fourthquarter,Automodularpurchased for cancellation,pursuant to itsNCIB,20,000sharesatavolumeweightedaveragepriceof$2.10pershare.OnNovember7,2013,theBoardofDirectorsdeclaredaregularquarterlydividendof$0.06percommonshareandaspecial dividendof $0.10per common sharewhichwaspaid onDecember5, 2013 to shareholders of record as atNovember21,2013.2012DevelopmentsSummaryAutomodular entered the 2012 year with a strong balance sheet and cash on hand of $14.8 million. Demand andresultantproductionvolumescontinuedtoberobustforthevehiclesproducedbyFordinOakvilleandAutomodularbenefitted fromhigher incremental daily volumes throughout the year. During2012, theCorporation submitted anupdated quotation with respect to a new vehicle program for Ford in Oakville that was scheduled for commercialproduction towards the end of 2014. This new program was to replace the existing program under which theCorporationprovidedsub‐assemblyservicestoFord.Automodular’scontractwithFordwasscheduledtoexpireattheendofJune2014.(See“2013Developments”whichdiscussesFord’sdecisiontosourcein‐housethesub‐assemblyworkforthenewvehicleprogram).Inthesecondquarterof2012,commercialproductionbeganatAutomodular’sBrantfordfacilityforthesub‐assemblyof componentsunder the contractwithVestas.Vestas is a subsidiaryof thepublicly‐tradedDanish companyVestasWindSystemsA/S,agloballeaderinthewindindustryandthiscontractrepresentedAutomodular’sfirstsub‐assemblycontract outside of the automotive industry.Automodular forged an excellentworking relationshipwithVestas andmetorexceededalldeliverablesforitsnewestcustomer.Productionoftheunitsundercontractwascompletedinthefourthquarterof2012andthefacilitywasturnedbacktothelandlordattheendof2012.AutomodularcontinuedtoworkwithVestastoexamineotheropportunitiesinotherjurisdictionsthatcontainsimilarlocalcontentrequirementsas Ontario. Additionally, Automodular gained some additional traction in its discussions with other wind OEMs toprovidesub‐assemblyservices.TheCorporationfocusedonthediversificationofitsexistingoperations.Managementcontinuedtoworkwithoutsideconsultants to uncover opportunities that would reduce the Corporation’s economic dependence on Ford whileleveragingtheskillssetsofitsexistingmanagementteam.Additionalsectorsexaminedincludedbutwerenotlimitedto:agriculturalequipment,modularconstruction,aerospace,consultingandindustrialequipmentfabrication.In2012,Automodularhadnetearningsof$16.8millionor$0.83pershare–thehighestnetearningsachievedinitshistory. Itwasanoutstandingyear frombotha financialandoperatingperspectiveasqualityandhealthandsafetymetricswereamongstthestrongestthattheCompanyhadpreviouslyexperienced.Dividendsof$0.44persharewerepaidouttoshareholdersandtheCompanyendedtheyearwithcashonhandof$25.0million.FirstQuarterOn January 5, 2012, Automodular signed a definitive agreement with Vestas to sub‐assemble certain wind turbinecomponentsforuseinOntariowindprojectsundertheProvinceofOntario’sFITProgram.Automodularbegancommercialsub‐assemblyofcertainwindturbinecomponentsfortherenewableenergyindustryatitsBrantfordfacility.AttheJanuary19,2012meetingoftheBoardofDirectors,ChristopherNutt,thethenPresidentoftheCompany,wasappointedChiefExecutiveOfficer,followingthescheduledresignationofMichaelBlaironDecember31,2011.Following a review of its dividend policy, the Board of Directors of Automodular increased the Company’s regularquarterly dividend to $0.06 per common share per quarter from the previous rate of $0.05 per common share perquarter.
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TheBoardofDirectorsapprovedthepaymentofaregularquarterlydividendof$0.06percommonshareonFebruary23,2012toshareholdersofrecordasatFebruary9,2012.SecondQuarterTheBoardofDirectorsapprovedthepaymentofaregularquarterlydividendof$0.06percommonshareonJune7,2012toshareholdersofrecordasatMay24,2012.OnJune21,2012,AutomodularcelebratedtheofficialopeningofitsleasedBrantfordsub‐assemblyfacilitydedicatedtotherenewableenergy industry.Onhand for theribbon‐cuttingceremonywasMPPDavidLevacaswellasBrantfordMayorChrisFrielandotherBrantfordcouncilors.ThirdQuarterOnJuly11,2012theBoardofDirectorsapprovedaNCIBunderthepoliciesoftheTorontoStockExchange.UnderthetermsoftheNCIB,Automodularcouldacquireupto1,317,000commonshares,whichrepresented10%ofthepublicfloatofAutomodular’scommonsharesissuedandoutstandingasofAugust1,2012,asdefinedbythepoliciesoftheToronto Stock Exchange. The NCIB term ran from August 8, 2012 to August 7, 2013. The NCIB was subsequentlyrenewedonAugust19,2013.OnAugust 8, 2012, recently elected director, JohnBlair, resigned from theBoard ofDirectors.No replacementwasappointedatthattime.Aregularquarterlydividendof$0.06percommonsharewaspaidonSeptember6,2012toshareholdersofrecordasatAugust23,2012.BytheendofQ3,2012,undertheNCIB,Automodularhadpurchasedforcancellationatotalof126,575commonshares.FourthQuarterAutomodular enhanced its presence in the renewable energy industry by exhibiting at both the CanWEA (CanadianWind Energy Association) and APPrO (Association of Power Producers of Ontario) Annual Conferences in Toronto,Ontario.Atotaldividendof$0.26percommonsharescomprisingaregularquarterlydividendof$0.06percommonshareandaspecialdividendof$0.20percommonsharewaspaidonDecember4,2012toshareholdersofrecordasatNovember20,2012.AttheBrantfordfacility,thesub‐assemblyofcertainwindturbinecomponentsfortherenewableenergyindustry,asrequiredbytheVestascontract,wassuccessfullycompleted.TheleaseonthefacilityexpiredinDecember2012andthefacilitywasreturnedtothelandlordasrequiredunderthelease.BytheendofQ42012,undertheNCIB,Automodularhadpurchasedforcancellationatotalof180,830commonshares.4. NARRATIVEDESCRIPTIONOFTHEBUSINESS4.1 GeneralSummaryAsindicatedthroughoutthisAIF,Automodular’sprimarybusinessasasub‐assemblerandsequencerfortheautomotiveindustrycametoanendonDecember23,2014asaresultofFord’sdecisiontobringin‐housethesub‐assemblyserviceswhichhadbeenprovidedtoFordbyAutomodular(see“2013Developments”). Forseveralyears,Automodularhasbeenactively seeking to identify and develop or acquire another business to leverage its core manufacturing and projectmanagementexpertise. Ithasexaminedmanydifferentopportunitiesbutissueshaveariseninconnectionwitheachofthem;Automodularcontinuestobefocusedonfindingtherightopportunityattherightprice.During 2014, Automodular was a supplier of sub‐assembly, sequencing, transportation and logistics services to oneautomotiveOEMplantinOntario,Ford.AtthedateofthisAIF,theCorporationdoesnothaveanyoperatingfacilitiesand
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employsfewerthan15employees.BytheendofMarch,weexpectourstaffcomplementtobereducedtofewerthan10people.Automodular’sprimarybusiness,untiltheendof2014,wasthesequencingandsub‐assemblyofmodulesofautomobilepartsforinstallationinvehiclesbeingassembledbyFordinOakville,Ontario.Sequencingmeantthatthesub‐assembledmodules,suchasaninstrumentpaneloraradiatorsupport,arrivedatthecustomer’sfinalassemblyplantinpreciselythesequenceoftheirfinalinstallationineachvehicleandatpreciselythetimetheyweretobeinstalled.TheFordcontractswereforthesub‐assemblyandsequencingofcomplexmodulesforFord’scrossoverutilityvehicles–theFordEdge,theLincolnMKX,theFordFlexandtheLincolnMKT–builtatFord’sflexiblemanufacturingfacilityinOakville,Ontario.ThecontractwithFordterminatedonDecember23,2014.Inthefirstquarterof2015,theOakvillefacilitieswerereturnedtothelandlords.In 2012, Automodular was also engaged in the sub‐assembly and warehousing in Ontario of certain wind turbinecomponentsfortherenewableenergyindustryspecificallyforVestas.Theone‐yearcontract,whichwassignedinJanuary2012, represented a step forward into a new industry for Automodular. Automodular’s experience in producing highqualityproducts inapromptandreliablemannerwas instrumental inobtainingthiscontract.TheVestascontractwasverysuccessful.Automodular’ssuccessfulentryintothisindustryhasalsostimulatedinterestfromotherwindOEMsastheyarenowrecognizingthatAutomodularhastheskillsetstosub‐assemblewindturbinecomponents.Unfortunately,the sourcing and lead times in the renewable industry can be extremely long. Automodular has concluded that theopportunitiesinthewindenergysector,inandofthemselves,arenotsubstantialenoughtorationalizeapubliccompanystructure.Automodular’s head office inAjax,Ontario, provides corporate services to the Company in the formof administrative,financial,banking,treasuryandinsuranceservicesaswellasstrategicandcorporateplanninganddevelopment.4.2 BackgroundtoDevelopmentofPrimaryBusinessPriorto2005, theCompanyoperatedalmostexclusivelyasaTier1suppliertoGMbut in2005theCorporationwasawardedamajorbusinesscontractbyFord.Between2006and2010, theCompanysuppliedservices tobothGM, inCanadaandintheUS,andtoFordatitsOakvilleplant.In2010,theCompany’sremainingUSoperationservingGMUSanditsremainingoperationsinOshawaservicingGMCanada,wereclosed.Historically,theCompanyhasnotenteredintocontractswithnon‐NorthAmericanautomotiveOEMsfortworeasons.Generally,theywanttobuildthevehicles100%inhouseandthereforetheydonotoutsourcetheassemblyofmodules.Also,thelabourcoststheyincurarenotdissimilartothoseincurredbyAutomodular.GMContracts‐HistoryOnOctober31,1997,theCorporationacquired100%ofAutomodularAssembliesInc.,aprivately‐heldcompanywhichsupplied modular sub‐assemblies to GM Canada’s Oshawa car and truck operations. AAI continued to supply theOshawacarandtruckoperationsofGMCanadauntiltheAmalgamation,afterwhichAutomodulardirectlycarriedontheGMCanadabusiness.Automodular’sOshawa‐areaoperationsforGMCanada’scarandtruckplantsgraduallyceasedpartlyasaresultoftheeliminationofcertaincarplatformsandtheconsolidationoftwocarplantsintooneattheendof2007inadditiontothe elimination in 2009 of GM Canada’s remaining truck production in the Oshawa area. GM’s last contract withAutomodularwas for the sub‐assembly and sequencingof complexmodules forGM’sChevroletCamarobuilt atGMCanada’smanufacturingfacilityinOshawa,Ontario,commencingin2009.ThecontractwasterminatedbyGMin2010.In2011,AutomodularfiledaclaimintheOntariocourtsagainstGMforbreachofcontract.Seesectionsentitled“LegalProceedingsandRegulatoryActions”inthisAIFformoreinformation.USExpansionandWithdrawal(1998‐2010)TheCompanyexpandedintotheUnitedStates inJune1998.TheCompanyincorporatedaDelawaresubsidiarytobethe major sub‐assembler and sequencer for the new Saturn‐L Series vehicle then being produced by GM US at itsBoxwood facility inWilmington,Delaware.Thisbusinesscontinueduntil2004whenGMUSterminatedtheSaturn‐L
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SeriesvehicleproductioninWilmington.InJanuary,2003,AutomodularindirectlyacquiredMichigan‐based,privately‐ownedTec‐MarDistributionServices,Inc.,whichprovidedsequencingservicesfromfourfacilitiestofourGMUSplantsthroughoutMichigan.Thisbusinesswasdiscontinuedin2007. In2004, theCompanywasawardedcontractstosub‐assembleandsequencecomponentsforthenewChevroletCobaltandPontiacPursuitvehiclestobeproducedinGM’sLordstown,Ohio assemblyplant. AAI(OH)was incorporated to carryon theOhiobusinessuntil June2010whenallproductionceased.AAI(OH)andTec‐Marcontinueaslegalentitiesbutdonotcarryonactiveoperations.FordContractsIn2005,theCorporationwasawardedacontractbyFordtoprovidesub‐assemblyservicesforvehiclesassembledatFord’sOakvilleplant.ThiswasthefirstFordcontractintheCompany’shistory.AutomodularchosetotransacttheFordbusinessdirectly,ratherthanthroughasubsidiary,andleaseda260,000squarefootfacilityinOakville,Ontarioforthispurpose.In2007,AutomodularwonadditionalFordcontractsandexpandeditsoperationsinOakville.TheFordcontractsrequiredAutomodulartoexpendapproximately$22millionincapitalandpreproductioncostsin2006and2007.Automodulartookoccupancyof its firstOakvillefacility inthefirstquarterof2006andcommencedproductioninOctober,2006.InordertoaccommodateadditionalFordOakville‐areacontractawards,Automodularenteredintoalong‐termleasefor a second facility in Oakville. The Company took occupancy of this facility in the fourth quarter of 2007 andcommercialproductionbeganinthesecondquarterof2008.OnJune9,2010,Automodularannouncedthesigningofamulti‐yearagreementwithFordforanextensionofservicesatitsOakvilleoperations.TheagreementwastoexpireJune30,2012.Inthesecondquarterof2011,Automodularsignedamulti‐yearagreementwithFordforanextensionofservices inOakvilletoJune2014.Themulti‐yearagreementprovidedcertainpricereductionsinfavourofFordoverthecourseoftheagreementsomeofwhichwereretroactivetoJanuary1,2011.During 2012, the Corporation submitted an updated quotation with respect to a new vehicle program for Ford inOakvillethatwasscheduledforcommercialproductiontowardstheendof2014.ThisnewprogramwastoreplacetheexistingprogramunderwhichtheCorporationprovidedsub‐assemblyservicestoFord.OnMay14,2013,AutomodularreceivednewsfromFordthatAutomodularwouldnotbeawardedanewcontractbutrather, in the fourth quarter of 2014, Ford would commence insourcing the assembly work for the new vehicleprogram. Automodular’s contract with Fordwas scheduled to expire at the end of June 2014. At Ford’s request,AutomodularsignedanextensionagreementwithFordthatextendedAutomodular’sexistingagreementwithFordtoDecember 23, 2014 on commercial terms similar to those in its existing agreement with Ford. As part of thatagreement,FordprovidedcertaincommercialassurancesandagreedtofundAutomodular'sincrementalclosurecostsrelatedtotheextension.FollowingterminationoftheextensionagreementonDecember23rd,AutomodularcloseditsOakvillefacilitiesandreturnedthebuildingstotherespectivelandlords. 4.3 NatureofBusinessAs previously discussed, at the date of this Annual Information Form, the Corporation has no active operations.However,fromthefourthquarterof2006untilDecember23,2014,itprovidedservicesfromitstwoOakvillefacilitiesforthefollowingFordvehicleplatforms: FordEdge LincolnMKX FordFlex LincolnMKTDuring 2012, from leased space in Brantford, Ontario, the Corporation also sub‐assembled certain wind turbinecomponentsforVestasforuseinOntariowindprojectsundertheProvinceofOntario’sFITprogram.
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The Corporation has always strived to meet or exceed its customers’ expectations and to be competitive throughcontinuousimprovement.TheCorporation’sgoalisandalwayshasbeenzerodefects.TheCorporation’scorevaluesreflecteditscommitmentandincludedthefollowing:
highestqualityinallaspectsoftheCorporation’sbusiness; teamwork; commitmenttocustomersatisfaction; respectfortheindividual; continuousimprovement; long‐termgrowthandprofitability;and healthandsafety.
All of the Corporation’s business was by way of an awarded contract. For its automotive work, Automodular wascustomarilyaskedtobidoncontractstosub‐assembleparticularcommoditiesforparticularvehiclesatatimepriortothelaunchofthevehicledesign,byTier1suppliersorbytheOEMdirectly.Contractsweretypicallyforthreetofiveyears but some contractswere for as long as eight years. Theoretically, certain contracts could be terminated by acustomeratanytime(terminationforconvenience)butoncetheCorporationreceivedapurchaseorderforproductsofaparticularvehicleprogramitgenerallycontinuedtosupplythoseproductsuntiltheendofsuchprogram.Purchaseorders issued by a customer typically did not require that the customer purchase a minimum volume or value ofproduct.Forprogramsunderproduction,theCorporationwasgenerallyunabletorequestpricechangeswhentherewas a marked reduction in volumes from production estimates used during the quotation stage. If estimatedproductionvolumeswerenotachieved,thecapitalandpreproductioncostsincurredbytheCorporationmightnotbefullyrecovered. Somecontractsprovided fundsby theOEMtoaddressseverance,closureandresidual facilitycostsrelatingtotheclosure.TheCorporationwasanintegralpartofthesupplychainandfundamentaltothefinalassemblyplantwhichitserved.Itshippedcomponentsforeachvehiclebeingassembledontheassemblylineandreceivedorderseveryfortyseconds.Completedassemblieswereshippedtypicallywithintwohoursofreceivingthoseorders.Becauseofthetighttimeline,theCorporation’s facilitiesweregenerally locatedwithin twentykilometersof theassemblyplant.Automodularwasresponsible fordeliveringmodules thatmet thequalityrequirementsof itscustomers ‐ontime,everytimeandatacostthatmadeitmoreprofitableforAutomodular’scustomerstouseitsservicesthantodothesameworkthemselves.TheCorporation’s contractwithVestaswas for the sub‐assemblyof certain components tobeused inwind turbineunitsandwasexpectedtotakeapproximatelytwelvemonthstocomplete.Thecontractwascompletedontimeandasnegotiated.ThewindturbineunitsweremanufacturedincompliancewiththerulesoftheOntarioGovernment’sFITProgram.Atthepeakofthecontract,theCorporationengagedfortypersonnelattheBrantfordfacility.Withrespecttoitsautomotivesequencingandsub‐assemblybusiness,Automodulardidnottaketitletoanymaterialsincorporated into its assemblies; the Corporation had responsibility for process but not parts design. On the otherhand, pursuant to its contract with Vestas to provide sub‐assembly services in the renewable energy sector,Automodular did purchase and take title tomaterials as directed by Vestas and bore the risk of loss thereof. Suchmaterialswerepurchased froma listofapprovedsuppliersandwere incorporated in thewind turbinecomponentssoldtoVestasortopersonsapprovedbyVestas.4.4 SalesIneachof2014and2013,Automodularhadasingleoperatingsegment–thesequencingandsub‐assemblyofmodulesofautomobilepartsforinstallationinthecrossovervehiclesbeingassembledbyitscustomer,Ford.In2013and2014,allsalesweremadeinCanada.In2014,saleswere$85,761,000comparedtosalesof$84,613,000in2013.4.5 PrincipalPropertiesAsdiscussedabove,theleasesfortheCompany’splantfacilitiesinOakville,Ontario,fromwhichAutomodularprovidedservicestotheFordAssemblyPlantinOakvillewereterminatedearlybyAutomodularandvacatedbyAutomodularat
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the end of February 2015. The only premises which the Company now occupies in Canada is leased office spaceidentifiedbelow:CANADA
BUSINESSUSE
235SalemRoad,Unit6,Ajax,Ontario
HeadOffice
TheCompanyleasedtemporaryofficespaceat12251UniversalDrive,Taylor,MichiganforpreproductionworkforitsFordcontractsandexpectstoclosethatofficeinMarch2015.4.6 EmployeesFollowing Ford’s decision and the signing of the Ford contract extension, Automodular signed a one‐year labourextensionagreementwithUniforforitsOakville‐areaemployees.Thelabourextensionagreementprovidedforcertainimprovementsinseveranceentitlements.InspiteofthechallengingcircumstancescreatedbyFord’sannouncementthatit intendedtoinsourcetheworkthenbeingperformedbyAutomodular,Automodular’srelationswith itsunionandnon‐unionstaffweregood. Inthe19‐monthperiodfollowingFord’sannouncement,approximately40%ofAutomodular’shourlyworkforcegavenoticeandleft theCompany. Of these, approximately100personswerehiredbyFord. Departedemployeeswere replacedbytemporaryworkersandtheoperationscontinuedtorunwell.
Formost of 2014, Automodular employed approximately 525 persons, largely at its Oakville, Ontario facilities. OnJanuary 1, 2015, approximately 30 persons were in the employ of Automodular. By the end of March 2015,Automodularexpectsthatitwillhavefewerthantenemployees‐allatitsAjax,Ontarioheadoffice.4.7 IndustryConditions ThefollowingdescriptionofconditionsintheautomotivesectormayshedsomelightontheFordinsourcingdecisionwhich materially impacted Automodular’s operations. Ford has stated that the decision to insource the servicespreviously supplied by Automodular was a strategic one, that it viewed the commodities that Automodular sub‐assembledtobe“core”totheassemblyofavehicleanditsgoalwastohaveallcorecommoditiessub‐assembledinitsfinalassemblyplants.Fordwasaffordedtheopportunitytomakethisstrategicdecisionduetorecentdevelopmentsintheautomotivesector.SincetheacquisitionofAutomodularAssembliesInc. inthefourthquarterof1997,Automodularhadbeenprovidingcomplexsub‐assemblyandsequencingservicestoNorthAmericanautomotiveOEMs.Itssuccesshashistoricallybeenbasedonitsabilitytodeliverdefect‐freemodulestothefinalassemblyplantoftheOEMontime,everytime,atacostthatmakesitmoreprofitableforcustomerstouseitsservicesratherthandoingtheworkthemselvesorawardingthebusinesstooneofAutomodular’scompetitors.
Automodular’s current situation is the direct result of the changes in the automotive industry since the economicdownturnin2008.Asdemandforvehiclesweakenedin2008,OEMsrespondedbyshuttingdowntheirfacilities.GMUSandChryslerLLC(“Chrysler”)turnedtoboththeAmericanandCanadiangovernmentslookingforbailoutmoney.BothGMUSandChryslerwentthroughChapter11bankruptcyproceedingsintheUnitedStates.Inaddition,GM,ChryslerandFordallturnedtoNorthAmericanorganizedlabouranddemandedsignificantconcessions.Asaresultofalltheseitems,NorthAmericanOEMswereabletosubstantiallyreducetheircoststructures,discardunprofitablebrandsandcreateadditionalcapacityintheirexistingfacilities.Inparticular,concessionsbyorganizedlabourtoallowfortwotierwage agreements created the ability for those OEMs to hire new workers at compensation levels that were notdissimilartowhatAutomodularwaspayingitshourlyworkers.Automodularrecognizedthesituationandmadeeffortstoresetitsinternalcoststructure.Traditionally,labourcostsmakeupthelargestcomponentofAutomodular’scosts.Unfortunatelywewereunsuccessfulinobtainingconcessionsofanyconsequencefromorganizedlabour.From 2010 onwards, Automodular received significantly fewer opportunities to quote on complex sub‐assemblycontractsasOEMswerere‐examiningtheirmakeversusbuydecisions.OEMswerenolongerlookingtooutsourcethe
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work thatwehadhistoricallyperformedanduponcontractexpirationwereseeking tobringoutsourcedworkbackintothefinalassemblyplant.AutomodularwassuccessfulincontinuingitsFordcontractlargelyduetothepopularityofthevehicles.AslongasthedemandremainedhighandinventorylevelswereloweritwasinFord’sbestinteresttoavoid any significant production downtime. Automodular sub‐assembled a significant portion of the vehicle, Fordwouldhavehadtoendureproductiondowntimeandsignificantcapitalandlaunchexpenditurestotransitionourworkbackinhousemid‐contract.Ourcontractexpirationdate,asextendedtoDecember2014,linedupwiththelaunchofthe new models, redesigned for global markets for the 2015 Ford Edge crossover and the Lincoln MKX luxurycrossover.ThisprovidedFordwithanopportunitytomakethetransitionduringatimewhensignificantcapitalandlaunchexpenditureswouldberequiredregardless.Fordwasalsoabletosecuremajorprovincialandfederalfundingtoassistintheretoolingoftheirplant.ItalsoalignedasignificantportionoftheproductiondowntimewithFord’snormalholidayshutdownperiods.Automodular’sBoardofDirectors, executivemanagement teamandseniormanagementhavespentsubstantial timeoverthelastfewyearssearchingforandevaluatingadditionalopportunitiestoleverageourcoreskills.WefulfilledacontractmanufacturingagreementwithVestas,toprovidesub‐assemblyservicesforcertainwindturbinecomponentsfor the renewable energy industry in Ontario. The contract was successfully completed in 2012 and exceeded ouroperating and financial expectations. We continue to have discussions with Vestas and other wind OEMs for theprovisionofservicesinOntarioandotherjurisdictions.Unfortunately,contractswithintherenewableenergyindustryare prone to extremely long sales lead times and significant political risk. In addition, the removal of local contentrequirementsinOntariohasdramaticallyreducedtheopportunitiesfortheCorporationinthisspace.4.8 EconomicDependenceThe Corporation was dependent on a single automotive OEM customer, Ford, at a time when OEM outsourcingopportunities for sub‐assembly work in the automotive industry were decreasing significantly. As a result of thechanges intheautomotive industryoverthe last fewyearsasdescribed inSection4.7,Fordhasbeenabletoreducecosts to the extent that its costs to bring sub‐assembly work in‐house are likely not significantly different thanAutomodular’scosts.Itappearsthatthesub‐assemblynicheintheautomotiveindustryinCanadaisnolongeroneinwhichAutomodularcancompeteprofitably.RenewableenergyhasbeenagrowthindustryinCanadaandwindenergywasthefastestgrowingrenewableenergysource inCanada.Windpowergenerationusesnaturallyoccurringair flowpatternsandvelocity to turnturbines togenerateelectricity.Theoperatingcostsofproducingelectricity throughwind issignificantly lower thanmostothertechnologies,giventheabsenceoffuelcosts,theabilitytoautomateoperationsandtherelativelylowcost,orabsence,ofregulatorypermitsandlandrightsforwindprojects.Automodular’sparticipationintherenewableenergyindustryas a wind turbine component sub‐assembler represented a shift away from exclusive reliance on its automotivecustomers. Automodular may be able to take advantage of other opportunities in the renewable energy industry.However,Automodularhasconcludedthattheopportunitiesinthewindenergysector,inandofthemselves,arenotsubstantialenoughtorationalizeapubliccompanystructure.Automodular’smanagementexpertiseinthesub‐assemblyofcomponentsistransferableandisnotconfinedtoeithertheautomotiveindustryortherenewableenergyindustry.4.9 ChangestoContractsOnJune9,2010,Automodularannouncedthesigningofamulti‐yearagreementwithFord,foranextensionofservicesatitsOakvilleoperations.TheagreementwastoexpireJune30,2012;itwasextendedagainin2011throughtoJune2014.Following notification in May 2013 from Ford that they intended to bring in‐house the work performed byAutomodular, Ford requested Automodular to continue supplying its sub‐assembly services until December 2014.Automodular negotiated an extensionof itsmulti‐year agreementwithForduponmore favourable terms, includingcertaincommercialassurancesandthepaymenttoAutomodularofincrementalclosurecostsrelatedtotheextension.Followingtheterminationof theextensionagreementonDecember23,2014,AutomodularcloseditstworemainingautomotiveoperatingfacilitieslocatedinOakville,Ontario.
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4.10 CyclicalityThe automotive industry is cyclical and impacted by various economic and political factors such as interest rates,energy prices, consumer demand and international conflicts. A reduction in vehicle production volumes byAutomodular’sOEMcustomercouldhaveresultedinunplanneddowntime.Unplanneddowntimecouldhaveadverselyimpacted theprofitabilityof theCorporationas theCorporation’searningswereprimarilybasedonavariablepiecepriceandmanyofitscostsarefixed.Demandforenergyisnotuniformandvariesduetoseasonalanddailyvariations.However,asanassemblerofwindturbine components and supplier to the wind energy industry, Automodular was impacted more by Ontariogovernment policies, initiative and incentives. Ontario embraced the development of renewable power. Under theformerFITProgram,newly‐built,on‐shorewindprojectswereofferedlong‐termpowerpurchaseagreementsatfixedprices.4.11 ForeignOperationsSince2010,Automodulardoesnothaveanyactiveforeignoperations,eitherintheUnitedStatesorelsewhere.4.12 RiskFactorsInadditiontotheforegoing,theCorporationincorporatesbyreferencethedisclosurecontainedinthesectionsentitled“RiskFactors”contained initsManagementDiscussionandAnalysisofOperatingResultsandFinancialPosition fortheyear ended December 31, 2014 which is available under the Corporation’s profile on the SEDAR websitewww.sedar.comaswellasontheCorporation’swebsiteatwww.automodular.com.4.13 EnvironmentalConsiderationsTheCorporationhasnotidentifiedenvironmentalrisksasamaterialrisk.Asaformersub‐assemblerofautomotiveandwind turbine components, itwas not involved in research and development operations and dealt onlywith limitedquantitiesofhazardousmaterials. 4.14 OutlookTheCorporation incorporatesbyreferencethedisclosurecontained inthesectionentitled“2014RecapandOutlook”contained in itsManagementDiscussion andAnalysis ofOperatingResults andFinancialPosition for the year endedDecember31,2014whichisavailableundertheCorporation’sprofileontheSEDARwebsitewww.sedar.comaswellasonAutomodular’swebsiteatwww.automodular.com.5. DIVIDENDSANDDISTRIBUTIONSOnAugust 10, 2011, following a reviewof its dividendpolicy, theBoardofDirectors determined thatAutomodularwould resume the payment of regular quarterly dividends at a rate of $0.05 per common share. The Board alsodeterminedthatAutomodularwouldpayspecialdividendsfromtimetotimeifcashsurplusesgrewbeyondreasonablyforecastedneeds.AtitsJanuary19,2012meeting,theBoardofDirectorsincreasedtheregularquarterlydividendto$0.06percommonshare.The$0.06dividendwasdeclaredandpaidregularlyuntiltheBoardofDirectorsdeterminednottodeclareadividendinthefourthquarterof2014inordertopreservecapital inlightofpossiblediversificationopportunities.ThefollowingtablesummarizestheregularandspecialdividendsdeclaredandpaidbyAutomodularonitscommonsharesduringitsthreemostrecentlycompletedfinancialyears:
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YearendedDecember31
RecordDate PaymentDate RegularorSpecial Amountpershare
2012
February9,2012
February23,2012
Regularquarterly
$0.06
May24,2012
June7,2012
Regularquarterly
$0.06
August23,2012
September6,2012
Regularquarterly
$0.06
November20,2012
December4,2012
Regularquarterly
$0.06
November20,2012
December4,2012
Special
$0.20
2013
February6,2013
March4,2013
Regularquarterly
$0.06
May23,2013
June6,2013
Regularquarterly
$0.06
August20,2013
September3,2013
Regularquarterly
$0.06
November21,2013
December5,2013
Regularquarterly
$0.06
November21,2013
December5.2013
Special
$0.10
2014
February3,2014
March3,2014
Regularquarterly
$0.06
May22,2014
June5,2014
Regularquarterly
$0.06
August21,2014
September4,2014
Regularquarterly
$0.06
6. DESCRIPTIONOFCAPITALSTRUCTURECommonShares:The authorized capital of Automodular consists of an unlimited number of common shareswithout nominal or parvalue.593,375shareswerepurchasedforcancellationunderthe2012‐2013NCIBand421,400additionalshareswerepurchased for cancellation under the 2013‐2014 NCIB. The NCIB expired in August 2014 and was not renewed.19,378,904commonshareswereissuedandoutstandingasatDecember31,2014andremainissuedandoutstandingasatthedatehereof.Holdersofcommonsharesareentitledtoreceivenoticeof,toattendandtovoteatallmeetingsofshareholdersonthebasisofonevotepershareheld.PreferenceShares:TheauthorizedcapitalofAutomodularalsoconsistsofanunlimitednumberofpreferredsharesissuableinseries.Thedirectorsmayfix,fromtimetotime,beforetheissueofanyseriesofpreferredshares,therights,privileges,restrictionsandconditionsattachingtoeachsuchseries,including,withoutlimitation,theissuepricepershare,thedividendrate,anyredemptionorconversiontermsandanysinkingfundprovisions.Eachseriesofpreferredsharesshallrankastothepaymentofdividendsanddistributionofassetsondissolutionorwindingup,onparitywitheveryotherseriesofpreferredsharesandinpreferencetothecommonshares.Thepreferredsharesmaybemadeconvertibleintocommonshares.Eachseriesofpreferredsharesshallbenon‐voting,subjecttotheprovisionsoftheBusinessCorporationsAct(Ontario),unlessthedirectorsotherwisedetermine.Noseriesofpreferredshareshavebeencreatedandtherearenoissuedandoutstandingpreferenceshares.7. MARKETFORSECURITIESThecommonsharesofAutomodularare listedon theTorontoStockExchange (“TSX”)under thesymbol "AM".TheCorporationisnotawareofanyratingofitssecuritiesfromanyapprovedratingorganization.
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The following tableshows themonthlypricerangepershareand the tradingvolumesof theCommonSharesof theCorporationontheTSXfortheyearendedDecember31,2014.
COMMONSHARES
Month High
$
Low
$
Volume
January2014 2.50 2.34 1,087,700
February2014 2.45 2.32 817,800
March2014 2.47 2.25 676,500
April2014 2.35 2.13 1,048,900
May2014 2.34 2.14 546,900
June2014 2.28 2.15 347,400
July2014 2.30 2.18 495,500
August2014 2.33 2.22 686,000
September2014 2.25 2.17 266,100
October2014 2.20 2.07 402,200
November2014 2.16 2.01 718,300
December2014 2.21 1.95 509,200
8. SECURITIESSUBJECTTOCONTRACTUALRESTRICTIONONTRANSFER TotheknowledgeoftheCorporation,theonlysecuritiesoftheCorporationthataresubjecttoacontractualrestrictionontransferarethecommonsharesoftheCorporationheldbySteamboatandGobiwhichparties,togetherwithParsaKiai and Bo Shan, (collectively, the “Shareholder Parties”) entered into a standstill agreement with AutomodulardatedasofNovember22,2013(the“StandstillAgreement”)(see“2013Developments”). PursuanttotheStandstillAgreement, the Shareholder Parties agreed not to sell, transfer or otherwise dispose of any securities of theCorporationtoanypersonwho,togetherwithanyotherpersonwithwhomitisactingjointlyorinconcert,isorwill,uponconsummationofsuchsale,transferorotherdisposition,(a)becomeabeneficialownerof,directlyorindirectly,and/or(b)exercisecontrolordirectionover,directlyorindirectly,10%ormoreoftheoutstandingvotingsecuritiesoftheCorporation.
DesignationofClass NumberofSecuritiesthatareSubjecttoContractualRestriction
onTransfer
PercentageofClass
CommonShares 1.3million 6.9%ThecontractualrestrictionssetforthintheStandstillAgreementsurviveuntiltheagreementexpiresatthecloseoftheCorporation’s 2015 annualmeeting unless earlier terminated, including in the event thatMr. Kiai resigns from theBoard. 9. DIRECTORSANDOFFICERS9.1 Name,OccupationandGroupSecurityHoldingsThefollowingtablessetout,foreachoftheCorporation’sdirectorsandofficers,theperson’sname,provinceorstateandcountryof residence,position(s)with theCorporation,principaloccupationduringthe fiveprecedingyearsand
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thedateonwhich thepersonbecameadirectororofficer.Alldirectorsholdofficeuntil thenextannualmeetingofshareholdersoftheCorporationoruntilthedirectorresigns,dies,isremovedbyshareholdersorbecomesdisqualifiedtoserveasadirectorinaccordancewithprovisionsoftheBusinessCorporationsAct(Ontario).Asagroup, thedirectorsandofficersof theCorporationbeneficiallyown,orcontrolordirect,directlyor indirectly,1,625,321commonsharesoftheCorporationrepresenting8.4%oftheissuedandoutstandingcommonshares.DirectorsNameandprovinceorstateandcountryofresidence
Directorsince
PrincipalofficewiththeCorporation,itssignificantaffiliatesand/orprincipaloccupationduringthe5precedingyears
LeonardCrispino,ICD.D,Ontario,Canada
2012
FounderandPresident,TheForeignAffairWinery.PresidentandChiefExecutiveOfficer,TheOntarioChamberofCommercefrom2002untilhisretirementin2012.
RodneyG.Hill,CPA,CAOntario,Canada
2013
ExecutiveVice‐PresidentandChiefAuditor,OntarioMunicipalEmployeesRetirementSystem(“OMERS”).From2001to2011,Mr.HillwasaPartnerwithPricewaterhouseCoopers,LLP.
ParsaKiaiNewYork,NewYork
2013
ManagingPartnerandPortfolioManager,SteamboatCapitalPartners,LLC(investmentmanager),foundedbyMr.Kiaiin2012.PartneratSonterraCapital,LLC(investmentadvisortoSonterraCapitalMasterFund)until2012.
R.PeterMcLaughlin,Ontario,Canada
2000
Chairman,GreenbriarHoldingsLimited(investmentcompany).President,GreenbriarHoldingsLimiteduntilJanuary2014.
RalphT.Neville,FCPA,FCAOntario,Canada
2011
IndependentTaxAdvisorandConsultant.
ChristopherS.Nutt,CPA,CA,C.DirOntario,Canada
2012
PresidentandChiefExecutiveOfficer.Vice‐President,FinanceandChiefFinancialOfficeroftheCorporationuntilAugust,2011.
RaeE.Wallin,Ontario,Canada
1998
Retired.PresidentofN‐ViroSystemsCanadaInc.(bio‐solidsmanagementcompany)untilhisretirementonNovember6,2009.
TheCorporationhasanAuditCommitteewhosecurrentmembersareR.PeterMcLaughlin(Chairman),RalphT.NevilleandRaeE.Wallin.TheCorporationnolongerhasaDiversificationCommittee.During2014,allBoardmembersaswellastheexecutivemanagement team attended allmeetings of the Diversification Committee; it was determined that consideration ofdiversificationopportunitiesshouldbetheresponsibilityofthefullBoardandnotrelegatedtoacommittee.The Corporation does not have a Corporate Governance andNominating Committee. The Board is of the view thatCorporateGovernance,boardnominationsandsuccessionplanningshouldbetheresponsibilityofthefullBoardandnotrelegatedtoacommittee.TheCorporationdoesnothaveanExecutiveCommitteeoraCompensationCommittee.AllsignificantoperationsandexecutivecompensationmattersarepresenteddirectlytothefullBoardforapproval.
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OfficersNameandprovinceorstateandcountryofresidence
Appointed
PrincipalofficewiththeCorporationand/orprincipaloccupationduringthe5precedingyears
ChristopherDell,C.Dir(1)Ontario,Canada
2006
Vice‐President,BusinessDevelopment
MelindaDiebel,CPA,CA,C.DirOntario,Canada
2011
Vice‐President,FinanceandChiefFinancialOfficerCorporateControllerJuly2008toAugust2011.
TravisDoyle,C.Dir(1)Ontario,Canada
2006
Vice‐President,ProgramLaunches
DianeErlingher,Ontario,Canada
1998
CorporateSecretary
JamesGazo,C.Dir(1)OntarioCanada
2005
Vice‐President,Operations
ChristopherS.Nutt,CPA,CA,C.DirOntario,Canada
2003
PresidentandChiefExecutiveOfficerVice‐President,FinanceandChiefFinancialOfficerfrom2003toAugust2011.
RaeE.WallinOntario,Canada
2004
ChairmanoftheBoard
(1) Messrs.Dell,DoyleandGazohavebeencontinuouslyemployedbytheCorporationoritspredecessorcorporation,AutomodularAssembliesInc.,invariouscapacitiessince1994,1996and1989respectively.
9.2 CorporateCeaseTradeOrders,Bankruptcies,PenaltiesorSanctionsTotheknowledgeoftheCorporation,nodirectororexecutiveofficeroftheCorporationis,orhasbeenwithinthetenyearspriortothedatehereof,adirectororchiefexecutiveofficerorchieffinancialofficerofanycompanythat,(a)wasthesubjectofanorder thatwas issuedwhile thedirectororexecutiveofficerwasacting in thecapacityasdirector,chief executive officer or chief financial officer, or (b)was subject to an order thatwas issued after the director orexecutiveofficer ceased tobeadirector, chief executiveofficeror chief financialofficerandwhichresulted fromanevent thatoccurredwhile thatpersonwasacting in thecapacityasdirector,chiefexecutiveofficerorchief financialofficer.Forthepurposeshereof,an“order”means(a)aceasetradeorder;(b)anordersimilartoaceasetradeorder;or(c)anorderthatdeniedtherelevantcompanyaccesstoanyexemptionundersecurities legislation,that, ineachsuchcase,wasineffectforaperiodofmorethanthirtyconsecutivedays.TotheknowledgeoftheCorporation,nodirectororexecutiveofficeroftheCorporationis,andnoshareholderholdinga sufficientnumberof securitiesof theCorporation toaffectmaterially thecontrolof theCorporation, , orhasbeenwithin ten years before the date hereof, a director or executive officer of any company that,while that personwasactinginthatcapacity,orwithinayearofthatpersonceasingtoactinthatcapacity,becamebankrupt,madeaproposalunderanylegislationrelatingtobankruptcyorinsolvencyorwassubjecttoorinstitutedanyproceedings,arrangementor compromisewith creditorsorhada receiver, receivermanageror trusteeappointed tohold its assets, exceptasdisclosedbelow:R. Peter McLaughlin, a director of the Corporation, is and has been a director of Alliance Surface Finishing Inc.(“Alliance”)since2004andwasadirectorof its70%subsidiary,ASFOntarioProductionInc.(“ASF”), from2004to2007.OnDecember12,2006,bothAllianceandASFfiledaNoticeofIntentiontomakeaProposaltoCreditorsundertheprovisionsoftheBankruptcyAct,Canada.BothcompaniesfiledtheirrespectiveProposalstoCreditorsonJune11,
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2007,hadtheProposalsapprovedbythecreditorsonJune28,2007andreceivedCourtapprovalforsameonJuly30,2007.ASFputitselfintoreceivershiponDecember4,2007andhadaTrusteeinBankruptcyappointedonDecember7,2007.To the knowledge of the Corporation, no director, executive officer or shareholder holding a sufficient number ofsecuritiestomateriallyaffectthecontroloftheCorporationandnopersonalholdingcompanyofanyoftheforegoing,has, within ten years before the date hereof, become bankrupt, made a proposal under any legislation relating tobankruptcyorinsolvencyorwassubjecttoorinstitutedanyproceedings,arrangementorcompromisewithcreditors,or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer,shareholderorholdingcompany.To the knowledge of the Corporation, no director, executive officer or shareholder of the Corporation holding asufficientnumberofsecuritiestomateriallyaffectthecontroloftheCorporation,andnopersonalholdingcompanyofany of the foregoing, (a) has been subject to any penalties or sanctions imposed by a court relating to securitieslegislation, or by a securities regulatory authority; or (b) since December 31, 2000, has entered into a settlementagreementwithasecuritiesregulatoryauthorityor,beforeJanuary1,2001,enteredintoasettlementagreementwithasecurities regulatory authority which would likely be important to a reasonable securityholder in making aninvestmentdecision;or(c)beensubjecttoanyotherpenaltiesorsanctionsimposedbyacourtorregulatorybodythatwouldlikelybeconsideredimportanttoareasonablesecurityholderinmakinganinvestmentdecision.9.3 ConflictsofInterestTotheknowledgeoftheCorporation,therearenoexistingorpotentialconflictsofinterestbetweenAutomodularorany of its subsidiaries and any director or officer of Automodular or any of its subsidiaries except as described insection11“InterestofManagementandOthersinMaterialTransactions”.10. LEGALPROCEEDINGSANDREGULATORYACTIONSAutomodularhas commenced a claim in the Ontario Superior Court of Justice (the "Claim") against GM and IntevaProducts,LLCandIntevaProductsCanadaULC(collectively,"Inteva").TheClaimrelatestoacontract(the"Contract")between GM and Automodular for the sequencing andsub‐assemblyof components andmodules for the ChevroletCamaro.ByletterdatedApril13,2010,GMterminatedtheContracteffectiveSeptember20,2010.GMthenenteredintoacontractwithIntevaforthesameworkthatAutomodularwasperformingundertheContract.Automodularallegesthat GM's termination of the Contract was wrongful and in breach of the Contract. Automodular is claiming $20.0millionagainst GM for breach ofcontractand againstInteva for inducing breach of contract.Automodularis alsoseekingpunitivedamagesintheamountof$5.0million.ThestatementofclaimwasissuedonMay13,2011andserveduponGMand Inteva;thedefendants subsequentlydelivered statementsofdefencecontesting theClaim.Thepartieshave exchangeddocumentaryproductions andhave conducted initial oral examinations fordiscovery.Automodularhasprovidedresponsestoundertakingsgivenduringitsexaminationfordiscoverybythedefendantsandisawaitingresponsestoundertakingsandfurtherdocumentaryproductionsfromthedefendants. Appearancesbeforethecourtoccurred in December 2014 and January 2015 to deal with issues arising from Automodular’s examinations fordiscoveryofthedefendants. Asaresultofthoseappearances,additionalinformationwillbeexchangedbetweentheparties.Thecurrentscheduleagreedtobythepartiescallsforthediscoveryprocesstobecompleted,expertreportstobeexchanged,amandatorymediationtobescheduledandthemattertobesetdownfortrialbyOctober31,2015atwhichpoint theCourtwill schedulea trialdate. Therecanbenoassurancethat theclaimwillbesuccessfulor thatAutomodularwillrecoveranyamountsfromGMorInteva.During the financial year, therehavebeenno: (i)penaltiesor sanctions imposedagainst theCorporationbya courtrelatingtosecuritieslegislationorbyasecuritiesregulatoryauthority;(ii)otherpenaltiesorsanctionsimposedbyacourtorregulatorybodyagainsttheCorporationthatwouldlikelybeconsideredimportanttoareasonableinvestorinmakinganinvestmentdecision;or(ii)settlementagreementsenteredintobytheCorporationbeforeacourtrelatingtosecuritieslegislationorwithasecuritiesregulatoryauthority.
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11. INTERESTOFMANAGEMENTANDOTHERSINMATERIALTRANSACTIONSDuringthethreemostrecentlycompletedfinancialyearsorduringthecurrentfinancialyearoftheCorporation,totheknowledge of the Corporation, no director or executive officer of the Corporation, no shareholder that beneficiallyowns,orcontrolsordirects,directlyorindirectly,morethan10%ofthesecuritiesoftheCorporation,andnoassociateoraffiliateofanyof them,hasorhadanymaterial interest,director indirect, inany transaction thathasmateriallyaffectedorisreasonablyexpectedtomateriallyaffecttheCompanyexceptasfollows:In November 2013, in connection with Mr. Parsa Kiai’s appointment to the Board of Directors of Automodular,Automodularentered intoastandstillagreementwithMr.Kiai,SteamboatCapitalPartners,LLC,ofwhichMr.Kiai isManagingPartnerandPortfolioManager,Mr.BoShanandGobiCapital,LLC,ofwhichMr.ShanisFounderandPortfolioManager.Seealso“2013Developments”.In January 2012, the Corporation entered into a consulting contract for strategic advisory serviceswith a companycontrolled by a formermember of the Board of Directors. The contractwas for a fixed rate of $15,000 permonthterminablebyeitherpartywiththirtydays’advancedwrittennotice.OnJuly30,2012,thepartyadvisedAutomodularofitsdecisiontoterminatetheagreementbyunilaterallyenactingthecontract’sthirty‐dayterminationclause.12. TRANSFERAGENTSANDREGISTRARTheTransferAgentandRegistraroftheCorporationisComputershareInvestorServicesInc.,100UniversityAvenue,8thFloor,Toronto,OntarioM5J2Y1.13. MATERIALCONTRACTSExceptassetoutbelow,theCompany(i)didnotenterintoanymaterialcontractsin2014outsidetheordinarycourseof business, orwithin the ordinary course of businesswhich fallswithin a category of contract required to be filedundersection12.2ofNationalInstrument51‐102;and(ii)exceptaspreviouslyfiledonSEDAR,hasnotenteredintoanymaterialcontractsoutsidetheordinarycourseofbusiness,orwithintheordinarycourseofbusinesswhichfallswithinacategoryofcontractrequiredtobefiledundersection12.2ofNationalInstrument51‐102,whicharestillineffect:
1. StandstillagreementmadebetweentheCorporation,Mr.ParsaKiai,SteamboatCapitalPartners,LLC,
Mr.BoShanandGobiCapital,LLC,asfurtherdescribedelsewhereinthisAIF.
Theabove‐listedagreementisavailableonSEDARundertheCorporation’sprofileatwww.sedar.com.14. INTERESTSOFEXPERTSPricewaterhouseCoopers LLP (“PwC”), the external auditors of the Corporation, reported on the 2014 financialstatementsoftheCorporation.PwChasnoregisteredorbeneficialinterest,directorindirect,inanysecuritiesorotherpropertyoftheCompany.PwCisindependentoftheCorporationinaccordancewiththeRulesofProfessionalConductoftheCharteredProfessionalAccountantsOntario.15. AUDITCOMMITTEEDISCLOSURETheAuditCommitteeCharterisattachedasScheduleAtothisAnnualInformationForm.15.1 CompositionoftheAuditCommitteeThemembersoftheAuditCommitteeareR.PeterMcLaughlin(Chairman),RalphT.NevilleandRaeE.Wallin.
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15.2 IndependenceandRelianceonExemptionAll members of the Audit Committee are independent within the meaning of National Instrument 52‐110 “AuditCommittees”.NomemberhasamaterialdirectorindirectrelationshipwithAutomodular.15.3 RelevantEducationandExperienceAllmembersoftheAuditCommitteearefinanciallyliterateinthattheyunderstandthebusinessoftheCorporationandtherequirementsoffinancialreporting,internalcontrolsandprocedures.TheyareabletounderstandtheaccountingprinciplesusedbytheCorporationtoprepareitsfinancialstatementsandcanassesstheapplicationofthoseprinciplesinconnectionwiththeaccountingforestimates,accrualsandreserves.R. Peter McLaughlin, Chairman of the Audit Committee, has a B.A. and a Law degree. While in law practice, Mr.McLaughlinwasinvolvedprimarilyinthefieldsofcorporate,commercialandsecuritieslawandwasinvolvedinmanymergerandacquisitiontransactions fromtheperspectiveofboththepurchaserandvendor.Hewasalsoinvolvedinnumerous securities‐related transactions. He is Chairman of Greenbriar Holdings Limited, a private family holdingcompanythatinvestsinnewbusinessesinOntario.Assuch,heisresponsibleforboththereviewandinvestigationofbusinessplansandproposals,aswellasthereviewofthefinancialstatementsbothpriortoandfollowinginvestment.RalphT.NevilleisaFellowoftheCharteredProfessionalAccountantsCanadaanduntilhisretirementwasaPartnerwithBDODunwoodyLLP.Mr.Nevillehasover twenty‐fiveyears’experience in incometaxpracticeand isanexpertwitnessontaxationmattersintheTaxCourtofCanada,incriminalcourt,familylawandcivillitigationmatters.HeisalsoamemberoftheBoardofDirectorsandtheExecutiveCommitteeoftheCanadianAssociationofInsolvencyandRestructuringProfessionalsandaLifeMemberoftheCharteredProfessionalAccountantsCanada.RaeE.WallinwasPresidentofN‐ViroSystemsCanadaInc.,abio‐solidsmanagementcompany,untilhisretirementonNovember6,2009.Mr.WallincompletedhisCMAdesignationin1970andspent25yearsinfinancialmanagementatGeneralElectricCanadaInc.HewasalsoVice‐PresidentFinanceandPresidentofBlack&DeckerCanada.Mr.Wallinhasservedonboardsandauditcommitteesformorethanthirtyyears.15.4 ExternalAuditorServiceFees(byCategory)PwCaretheexternalauditorsforAutomodular.Auditandaudit‐relatedfeesforAutomodularanditssubsidiariesareshownonthefollowingtable:ExternalAuditorServices Fiscal2014Fees Fiscal2013Fees
$Auditfees 139,314 133,003Auditandaccountingrelatedfees 2,684 7,797Taxfees 86,226 26,880Total 228,224 167,680Thetaxfeesinbothyearswereincurredforservicesconsistingoftaxcompliance,includingthepreparationandreviewof Canadian andUS tax returns, assistance regarding income, capital and sales tax audits and tax advisory servicesrelatingtodomesticandinternationaltaxation.15.5 Pre‐ApprovalPoliciesandProceduresThe Audit Committee of the Corporation has adopted a policy regarding the provision of services by its externalauditor.Thispolicyrequiresauditcommitteepre‐approvalofallpermittedaudit,audit‐relatedandnon‐auditservices.Subjecttotheabovementionedpolicy,theAuditCommitteemayestablishfeethresholdsforagroupofpre‐approvedservices,providedthatsuchfeeswill,whencombinedwithallsuchfeesthathavenotbeenspecificallyapprovedbytheAudit Committee, aggregate less than $25,000 for audit‐related services and $25,000 for general tax consultingservices.Insuchcases,thedescriptionofservicesmustbesufficientlydetailedastothetypeofservicestobeprovided
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toensurethat(i)theAuditCommitteeknowspreciselywhattypesofservicesitisbeingaskedtopre‐approveand(ii)theAuditCommittee’sresponsibilitiesarenotdelegatedtomanagement.Allsuchserviceswillberatifiedatthenextscheduledmeetingof theAuditCommittee,anduponsuchratificationwillno longerbe included indetermining theaggregatefeescoveredbythislimitedapproval.None of the fees reported in this Annual Information Form under the heading “External Auditor Service Fees (byCategory)”weresubjecttothedeminimisexceptionfromAuditCommitteepre‐approvalfornon‐auditservicesassetoutintheAuditCommitteeCharter.16. ADDITIONALINFORMATIONAdditional information relating to Automodular can be found under Automodular’s profile on SEDAR atwww.sedar.com or on Automodular’s website at www.automodular.com. Financial information is provided in theCorporation’s audited comparative financial statements and its MD&A for the 2014 financial year. Additionalinformation, includingdirectors’ andofficers’ remunerationand indebtedness,principalholdersof theCorporation’ssecurities and securities authorized for issuance under equity compensation plans is contained in Automodular’sManagement InformationCircularprepared for itsmostrecentannualmeetingofshareholdersheldonMay8,2014and the Management Information Circular to be prepared for its next annual meeting of shareholders, currentlyscheduled for May 7, 2015. Securityholders may obtain copies of this Annual Information Form, the ManagementInformation Circular for 2014 and,when available, theManagement Information Circular for 2015, and the AnnualReport containing the MD&A and the audited comparative financial statements for the most recently completedfinancial year from the Corporation’s office at 235 Salem Road, Unit 6, Ajax, Ontario, Canada L1Z 0B1: telephone905.619.4200extension2100orbye‐[email protected].
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ScheduleAAUTOMODULARCORPORATIONCharteroftheAuditCommittee
PurposeoftheCommitteeTheAuditCommittee’spurposeistoprovideassistancetotheBoardofDirectors(the“Board”)infulfillingitslegalandfiduciaryobligationswithrespecttomattersinvolvingtheaccounting,auditing,financialreporting,internalcontrolandlegal compliance functions of Automodular Corporation (the “Corporation”). Specifically, to foster communicationbetween directors and external auditors, enhance the independence of the external auditors, and to represent theinterestsofshareholdersthroughoversightoftheexternalauditorsonbehalfoftheshareholders.ItistheobjectiveoftheAuditCommitteetomaintainfreeandopencommunicationsamongmembersoftheBoard,thecommitteesoftheBoard,theexternalauditorsandthefinancialmanagementoftheCorporation.TheAuditCommitteeshallhaveawrittenchartersettingoutitspurposeandresponsibilities.AuthorityandMembershipTheAudit Committee (the “Committee”) of theBoard ofDirectors is established pursuant toBy‐lawNo. 1 and theBusiness Corporations Act, (Ontario) sec. 158 (the “Act”). The Committee shall be comprised of three (3) or moredirectors as determined from time to time by resolution of the Board. Every member must be independent andfinanciallyliterate.Themeaningof“independent”and“financiallyliterate”shallbedeterminedbyreferencetoNationalInstrument 52‐110 Audit Committees (“NI 52‐110”), articles 1.4 to 1.6, inclusive, articles 3.1(3) and (4), and 3.9. Apersonwho isnot financially literatemaybeappointedtotheCommittee,providedthememberbecomesfinanciallyliteratewithinareasonableperiodoftimefollowingtheirappointment.MembersoftheCommitteeshallbeelectedbytheBoardattheannualmeetingoftheBoardoratsuchothertimeasmaybedeterminedbytheBoard.TheChairmanoftheCommittee(the“Chairman”)shallbedesignatedbytheBoard,providedthatiftheBoarddoesnotsodesignateaChairman,themembersoftheCommittee,bymajorityvote,maydesignateaChairman.AuditCommitteeResponsibilities1. TheCommitteeisresponsibleforhavingawrittenchartersettingoutitsmandateandresponsibilities.2. TheCommitteeisresponsibleforrecommendingtotheBoard:
(i) The external auditors to be nominated for the purpose of preparing or issuing an audit report orperformingotheraudit,revieworattestservicesfortheCorporation;and
(ii) Thecompensationoftheexternalauditors.
3. The Committee is directly responsible for overseeing the work of the external auditors engaged for thepurposeofpreparingor issuing an audit report orperformingother audit, revieworattest services for theCorporation, including the resolution of disagreements between management and the external auditorsregardingfinancialreporting.
4. The Committee must pre‐approve all non‐audit services to be provided to the Corporation or any of its
subsidiaryentitiesbyitsexternalauditors.5. TheCommitteemustreviewthefinancialstatements,management’sdiscussionandanalysisandannualand
interimearningspressreleasesbeforetheCorporationpubliclydisclosestheinformation.6. The Committeemust be satisfied that adequate procedures are in place for the reviewof any disclosure of
financial information extracted or derived from the financial statements, other than as covered by item 5above,andmustperiodicallyassesstheadequacyofthoseprocedures.
7. TheCommitteeisresponsibleforestablishingproceduresfor:
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(i) The receipt, retention and treatment of complaints received by the Corporation regarding accounting,internalaccountingcontrols,orauditingmatters;and
(ii) The confidential, anonymous submission by employees of the Corporation of concerns regardingquestionableaccountingorauditingmatters.
8. The Committee is responsible for reviewing and approving the Corporation’s hiring policies regarding
partners,employeesandformerpartnersandemployeesofthepresentandformerexternalauditors.Pre‐ApprovalofDeMinimisNon‐AuditServicesAnauditcommitteesatisfiesthepre‐approvalrequirementregardingnon‐auditservicesoftheexternalauditorif:a. the aggregate amount of all the non‐audit services that were not pre‐approved is reasonably expected to
constitutenomore than fivepercentof the totalamountof feespaidby theCorporationand itssubsidiaryentitiestotheissuer’sexternalauditorduringthefiscalyearinwhichtheservicesareprovided;
b. the issueror thesubsidiaryentitiesof the issuer,as thecasemaybe,didnotrecognize theservicesasnon‐
auditservicesatthetimeoftheengagement;andc. theservicesarepromptlybroughttotheattentionoftheCommitteeoftheissuerandapproved,priortothe
completionoftheaudit,bytheCommitteeorbyoneormoreofitsmemberstowhomauthoritytograntsuchapprovalshasbeendelegatedbytheCommittee.
DelegationofPre‐ApprovalFunction1. TheCommitteemaydelegate to oneormore independentmembers theauthority topre‐approvenon‐audit
servicesinsatisfactionoftherequirement.2. The pre‐approval of non‐audit services by anymember towhom authority has been delegated pursuant to
subsection(1)mustbepresentedtotheCommitteeatitsfirstscheduledmeetingfollowingsuchpre‐approval.Pre‐ApprovalPoliciesandProceduresThe Committee satisfies the pre‐approval requirement in sub‐section 2.3(4) of NI 52‐110 and in item 4 of “AuditCommitteeResponsibilities”inthisCharterifitadoptsspecificpoliciesandproceduresfortheengagementofthenon‐auditservices,if:a. thepre‐approvalpoliciesandproceduresaredetailedastotheparticularservice;b. theauditcommitteeisinformedofeachnon‐auditservice;andc. theproceduresdonotincludedelegationoftheauditcommittee’sresponsibilitiestomanagement.MeetingsoftheCommitteeTheCommitteeshallmeetwithsuchfrequencyandatsuchintervalsasitshalldetermineisnecessarytocarryoutitsdutiesandresponsibilities.Theproceedingsofallmeetingswillbeminuted.TheCommitteemayinvitesuchotherpersonstoitsmeetingsasitdeemsnecessary.TheauditoroftheCorporationoramemberoftheCommitteemaycallameetingoftheCommittee.TheauditormayattendCommitteemeetings,isentitledtoreceivenoticeofeverymeetingoftheCommittee,andattheexpense of the Corporation, to attend and be heard thereat, and, if requested by amember of the Committee, shallattendeverymeetingof theCommitteeheldduring the termofofficeof theauditor.Theauditorof theCorporationshall be entitled to attendat the expenseof theCorporation andbeheardatmeetingsof theBoardofDirectorsonmattersrelatingtotheauditor’sduties.
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The presence in person or by telephone or other similar means of a majority of the Committee’s members shallconstituteaquorumforanyCommitteemeetings.AlldecisionsoftheCommitteewillrequirethevoteofamajorityofitsmemberspresentatameetingatwhichaquorumispresent.RolesandResponsibilities1. FinancialReporting TheCommitteeshall:
(i) Gainanunderstandingofthecurrentareasofgreatestfinancialriskandhowmanagementismanagingtheseeffectively;
(ii) Considerwiththeexternalauditorsanyfraud,illegalacts,deficienciesininternalcontrolorothersimilar
issues;
(iii) Review significant accounting and reporting issues, including recent professional and regulatorypronouncementsandunderstandtheirimpactonthefinancialstatements;
(iv) Ask management and the external auditors about significant risks and exposures and the plans to
minimizesuchrisks;
(v) Establish procedures for the receipt, retention and treatment of complaints receivedbytheCorporationregardingaccounting,internalaccountingcontrolsorauditingmatters;
(vi) Establish procedures for the confidential, anonymous submission by employees of theCorporationof
concernsregardingquestionableaccountingorauditingmatters;
(vii) Reviewanylegalmatters,whichcouldsignificantlyimpactthefinancialstatements;and
(viii)ReviewandrecommendapprovaltotheBoardof:Prospectus‐typedocumentsRelatednewsreleasesInformationandearningsguidanceprovidedtoanalystsandratingagencies.
2. AnnualFinancialStatements
The Committee shall review the financial statements of the Corporation and shall report to the Board ofDirectorsbeforesuchfinancialstatementsareapprovedbytheBoardundersection159oftheAct(respectingapprovaloffinancialstatementsbydirectors).
(i) Meetwithmanagementandtheexternalauditorstoreviewthefinancialstatementsandtheresultsof
theaudit;
(ii) Review theannualaudited financial statementsprior topresentation to theBoardanddistribution toshareholdersanddeterminewhethertheyarecompleteandconsistentwiththeinformationknowntocommitteemembers;assesswhetherthefinancialstatementsreflectappropriateaccountingprinciples;
(iii) Recommendthattheannualfinancialstatementsandallrelateddocumentsbereceivedandapprovedby
theBoard;
(iv) ReviewthefinancialreportsandstatementsoftheCorporationthatrequiretheapprovaloftheBoardpriortobeingsubmittedtoaregulatorybody;
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(v) Be satisfied that adequate procedures are in place for the review of any disclosure of financialinformationextractedorderivedfromthesefinancialstatementsandperiodicallyassesstheadequacyofthoseprocedures;
(vi) Review complex and/or unusual transactions and judgmental areas such as significant claims and
contingenciesthatcouldmateriallyimpacttheCorporation’sfinancialposition;
(vii) ReviewManagement’s Discussion and Analysis of financial information in the annual report and theAnnualInformationCircular;and
(viii) ReviewallRelatedPartytransactions.
3. InterimFinancialStatements
Assess the fairnessof thepreliminaryand interimstatementsanddisclosuresandobtainexplanations frommanagementandinternalandexternalauditorsonwhether:
(i) Actualfinancialresultsfortheinterimperiodvariedsignificantlyfrombudgetedorforecastedresults;
(ii) Changesinfinancialratiosandtherelationshipsintheinterimfinancialstatementsareconsistentwith
changesintheCorporation’soperationsandfinancingpractices;
(iii) Generallyacceptedaccountingprincipleshavebeenconsistentlyapplied;
(iv) Thereareanyactualorproposedchangesinaccountingorfinancialreportingpractices;
(v) Thereareanysignificantorunusualeventsortransactions;and
(vi) The preliminary announcements and interim financial statements contain adequate and appropriatedisclosures.
4. RiskandUncertainty
TheBoardofDirectors,inconsultationwithmanagement,identifiestheprincipalbusinessrisks,decidesonanacceptablelevel,approvesrelatedriskmanagementpoliciesandassignsoversightresponsibilitiestotheAuditCommitteeortheBoardasawhole.
The Audit Committee requests the external auditor’s opinion of management’s assessment of significantfinancialrisksfacingthecompanyandhoweffectivelytheyarebeingmanagedorcontrolled.
5. InternalControl
The Audit Committee reviews the plans of the internal and external auditors to ensure the combinedevaluationand testingofcontrol iscomprehensive,well‐coordinated,costeffectiveandappropriate torisks,businessactivities,changingcircumstances,etc.
(i) Reviewappointmentsofkeypeopleinvolvedinfinancialreporting;
(ii) Reviewfraudpreventionprogramsandmonitorstheirimplementation;
(iii) Reviewannualbudgetandmanagementcontrolprocedures;
(iv) Evaluate whether management is settling the appropriate “control culture” by
communicating the importance of internal control and themanagement of risk and ensuring that allemployeeshaveanunderstandingoftheirrolesandresponsibilities;
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(v) Considerhowmanagementisheldtoaccountforthesecurityofcomputersystemsandapplications,andthecontingencyplansforprocessingfinancialinformationintheeventofasystemsbreakdown;
(vi) Gain an understanding of whether internal control recommendations made by the external auditors
havebeenimplementedbymanagement;and
(vii) ReviewtheprocessandproceduresforOfficercertificationoffinancialinformation.
TheCommitteehasauthoritytocommunicatedirectlywiththeCorporation’sinternalauditors.6. ExternalAudit
TheCommittee isdirectlyresponsible forengagingandoverseeingtheworkof theexternalauditors forthepurposeofpreparingor issuing an audit report orperformingother audit, revieworattest services for theCorporation. The external auditors shall report all material issues or potentially material issues to theCommittee.TheexternalauditorshallreportdirectlytotheCommittee,andtheCommitteehastheauthoritytocommunicatedirectlywiththeexternalauditorsoftheCorporation.
TheCommitteeshall:
(i) Reviewtheexternalauditor’sproposedauditscopeandapproachandensurenounjustifiedrestrictions
orlimitationshavebeenplacedonthescope;
(ii) Reviewtheperformanceoftheexternalauditors;
(iii) Considertheindependenceoftheexternalauditor,includingreviewingtherangeofservicesprovidedinthecontextofallconsultingservicesboughtbytheCorporation;
(iv) Reviewtheannualauditplanandfeesproposedbytheexternalauditors;
(v) ReviewthenatureandextentoftheliaisonbetweentheCorporation’sstaffandtheexternalauditors;
(vi) Ensure thatsignificant findingsandrecommendationsmadebytheexternalauditorsarereceivedand
discussedonatimelybasis;
(vii) ReporttotheBoardanyconflictbetweentheexternalauditorsandmanagementthattheCommitteehasbeenunabletoresolvewithinareasonableperiodoftime;
(viii) Reviewthedraftauditopiniononannualfinancialstatements;
(ix) Reviewthemanagementrepresentationletterprovidedtotheexternalauditors;
(x) MeetseparatelywiththeexternalauditorstodiscussanymattersthattheCommitteeorauditorsbelieve
shouldbediscussedprivately;
(xi) MakerecommendationstotheBoardregardingtheexternalauditorstobenominatedforthepurposeofpreparing or issuing an audit report or performing other audit, review or attest services for theCorporationandtheircompensation;and
(xii) TheAuditCommitteeexpectsthat,indischargingtheirresponsibilitiestotheshareholders,theexternal
auditors shall be accountable to the Board through the Audit Committee. The external auditors shallreportallmaterialissuesorpotentiallymaterialissuestotheCommittee.
7. CompliancewithLawsandRegulations
TheCommitteeshall:
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(i) Review the effectiveness of the system formonitoring compliancewith laws and regulations and the
resultsofmanagement’sinvestigationandfollow‐upofanyfraudulentactsornon‐compliance;
(ii) Obtainregularupdatesfrommanagementandothers(e.g.internalandexternalauditors,legalcounsel)concerningthecompany’scompliancewithfinancialrelatedlawsandregulationssuchas:‐ Taxandfinancialreportinglawsandregulations.‐ Legal,taxandwithholdingremittances.‐ Environmentalprotectionlaws.‐ Occupationalhealthandsafetylaws.‐ PersonalInformationandProtectionofPrivacylaws
(iii) ReviewinsiderstocktradesforcompliancewithAutomodularCorporateDisclosurePolicy;
(iv) Be satisfied that all regulatory compliance matters have been considered in the preparation of the
financialstatements;and
(v) Reviewthefindingsofanyexaminationbyregulatoryagencies.8. OtherMattersa. ConflictsofInterest
TheCommitteeshall:
(i) Review the Corporation’s policies relating to the avoidance of conflicts of interest between theCorporation and members of management as well as procedures with respect to officers’ expenseaccountsandperquisites,includingtheuseofcorporateassets;and
(ii) Annually,reviewandapprovetheCEO’sexpenseaccountsfortheyearthenended.
b. Committee’sRighttoSeekIndependentAdvice
TheCommitteehas the authority to seek independentexpert advice, including the retainingof independentcounsel,accountantsorothers,as itdeterminesnecessary,toassisttheCommitteeinfulfillingitsdutiesandresponsibilitiesandhastheauthoritytosetandpaythecompensationforanyadvisorsemployed.
c. Committee’sCaveat
While the Committee has the duties and responsibilities as set out in the Charter, the Committee is notresponsible for planning or conducting the audit or for determining whether the Corporation’s financialstatementsarecompleteandaccurateandareinaccordancewithgenerallyacceptedaccountingprinciples.